Credit Opinion: Rabobank Nederland

Transcription

1 Credit Opinion: Rabobank Nederland Global Credit Research - 22 Jun 2012 Utrecht, Netherlands Ratings Category Moody's Rating Outlook Stable Bank Deposits Aa2/P-1 Bank Financial Strength B- Baseline Credit Assessment (a1) Adjusted Baseline Credit Assessment (a1) Issuer Rating Aa2 Senior Unsecured Aa2 Subordinate -Dom Curr A2 Jr Subordinate Baa1 (hyb) Pref. Stock Baa1 (hyb) Pref. Stock Non-cumulative Baa1 (hyb) Commercial Paper P-1 Other Short Term (P)P-1 Bank Gospodarki Zywnosciowej S.A. Outlook Stable Bank Deposits Baa2/P-2 Bank Financial Strength D Baseline Credit Assessment (ba2) Adjusted Baseline Credit Assessment (baa2) Rabobank Curacao N.V. Outlook Stable Bkd Sr Unsec MTN (P)Aa2 Bkd Other Short Term (P)P-1 Contacts Analyst Phone Yasuko Nakamura/Paris Stephane Herndl/Paris Carola Schuler/Frankfurt am Main Guillaume Leglise/Paris Key Indicators Rabobank Nederland (Consolidated Financials)[1] [2]12-11 [2]12-10 [2]12-09 [2]12-08 [3]12-07 Avg. Total Assets (EUR million) 730, , , , ,007.0 [4]6.3 Total Assets (USD million) 948, , , , ,304.2 [4]3.2 Tangible Common Equity (EUR million) 38, , , , ,308.3 [4]11.1 Tangible Common Equity (USD million) 50, , , , ,002.1 [4]7.9 Net Interest Margin (%) [5]1.3 PPI / Avg RWA (%) [6]1.3

2 Net Income / Avg RWA (%) [6]0.8 (Market Funds - Liquid Assets) / Total Assets (%) [5]19.7 Core Deposits / Average Gross Loans (%) [5]70.9 Tier 1 Ratio (%) [6]14.0 Tangible Common Equity / RWA (%) [6]13.5 Cost / Income Ratio (%) [5]74.3 Problem Loans / Gross Loans (%) [5]1.7 Problem Loans / (Equity + Loan Loss Reserves) (%) [5]21.6 Source: Moody's [1] All ratios are adjusted using Moody's standard adjustments [2] Basel II; IFRS [3] Basel I; IFRS [4] Compound Annual Growth Rate based on IFRS reporting periods [5] IFRS reporting periods have been used for average calculation [6] Basel II & IFRS reporting periods have been used for average calculation Opinion SUMMARY RATING RATIONALE Rabobank's BFSR of B-, with a stable outlook and which maps to a standalone credit assessment of a1, reflects the bank's conservative business profile and strong financial fundamentals. The bank has preserved its leading position in the Netherlands and its strong franchise in the agribusiness sector worldwide. It has consistently generated stable core earnings underpinned by its strong focus on domestic retail business and conservative management under the effective governance of its cooperative basis. It continues to disclose high capital levels, providing comfortable lossabsorption capacity and overall asset quality remains good. At the same time, the bank's BFSR is constrained by its structural reliance on wholesale funding, which we view as a weakness in the current funding environment. We nevertheless recognize that this is mitigated by the significant lengthening of the duration of debt issued. We also believe that Rabobank's liquidity is robust and has benefited over the past few years from its position as a safe haven. Rabobank's long-term global local-currency (GLC) deposit rating of Aa2 with a stable outlook reflects a very high probability of systemic support, which is based on its key position in the Dutch banking system. We note that Rabobank did not need any form of support from the Dutch government at any point during the crisis. Rating Drivers Strengths - Rabobank's banking franchise is generally low-risk, leading to predictable (albeit modest) earnings with low volatility - Domestic market shares are currently strong and defensible - Wholesale funding access is good and liquidity management conservative - Rabobank's underwriting culture is conservative, with limited market-risk appetite - Capitalisation levels are currently sound - The group's cross-support mechanism ensures that resources of the whole Rabobank group would be available, if Rabobank Nederland, the rated entity, were to encounter difficulties Weaknesses - Rabobank's strategic flexibility is somewhat constrained by a "closed" capital structure - Whilst in line with those of its Dutch peers, Rabobank's operating efficiency is relatively weak for a bank in the B- BFSR category - Rabobank is reliant on wholesale funding

3 Rating Outlook The outlooks are stable on the B- BFSR, the Aa2 senior unsecured debt and deposit ratings and the A2 subordinated debt ratings. What Could Change the Rating - Up The current standalone BFSR and long-term ratings are positioned at a very high level and we see little prospect of a potential upgrade. What Could Change the Rating - Down Downwards pressure could develop on the BFSR if the group's asset quality deteriorates, possibly due to a weakening macro-economic environment and/or a significant decline in the Dutch housing market. A deterioration of the group's financial structure through an increase in liquidity gaps could also negatively affect Rabobank's standalone credit assessment. Additionally, a deterioration of Rabobank's franchise in its core market, any increase in market risks, or evidence of a significant decrease in underlying profitability would also exert pressure on its BFSR.The bank's risk profile and earnings quality would likely weaken if Rabobank were to change its strategic direction and become more reliant on volatile earnings streams from non-banking activities; however, we believe that this is unlikely at present and we understand that the bank is decreasing its exposure to those activities. A downgrade of the Aa2 long-term deposit and debt ratings may be triggered by (i) a downgrade of the BFSR; and/or, (ii) our perception of a lower probability of systemic support in the event of stress, due to changes in European bank resolution regimes. Recent Results and Developments Rabobank reported EUR2.6 billion of net profit in 2011 (2010: EUR2.8 billion) and the bank's gross profit rose 3% to EUR4.7 billion in The effect of the 5% increase in total income was partly offset by a 6% increase in operating expenses. Interest income and commission income increased by 7% and 5% to EUR9.2 billion and EUR3 billion, respectively, whilst other income decreased 8% to EUR1.2 billion. The rise in interest income is due to both the increase in volumes and higher margins in certain business areas. Credit costs increased 30% to EUR1.6 billion and Rabobank's Core Tier 1 ratio and Tier 1 ratio were 12.7% and 17%, respectively, at the end of Recent developments include: - On 11 April 2012, Rabobank announced a tender offer on all outstanding shares of its Polish subsidiary Bank BGZ. - On 1 April 2012, Rabobank announced the acquisition of 100% of Friesland Bank. - On 26 March 2012, Rabobank announced its intention to acquire the remaining 30% shares in Obvion N.V., resulting in its full ownership of the entity. The transaction is expected to be finalised by mid In November 2011, Rabobank announced the sale of its 46% stake in Bank Sarasin, its Swiss private bank subsidiary to Safra Group. The transaction is expected to close in DETAILED RATING CONSIDERATIONS Detailed rating considerations are based on 2009, 2010 and 2011 Rabobank Group consolidated financial reports. Bank Financial Strength Rating Franchise Value Rabobank's franchise is anchored on its leading position in the Netherlands where it generates more than 60% of its income, complemented by international activities strongly focused on the food and agri-business. We continue to believe that this franchise is one of the most robust amongst Dutch peers, based on the bank's strong integration in the local community and extensive experience in specialty areas; this, in turn, results in strong pricing power and steady earnings generation capacity. Whilst we positively view the bank's focus on the low-risk Dutch market, we nevertheless consider that the benefit afforded by geographic diversification is relatively low. A significant portion of the 26% private-sector loans originated outside the Netherlands is concentrated on the food and agri-business

4 sector. In terms of earnings stability, Rabobank's business lines generally have a good degree of predictability and the bank's performance over the past few years supports this view. We nevertheless consider that the pressure on savings-deposits margins in the Netherlands - as well as the currently high wholesale funding costs - could affect Rabobank's earnings at some point in time. In the Netherlands, Rabobank's operations are carried out by a large network of local Rabobanks and supported by the wholesale banking capacities of Rabobank Nederland. The group's market shares range from 30%-40%, both in the retail and corporate areas, whilst it exceeds 80% in the domestic food and agribusiness banking segments. The group's domestic banking business mix translates into a generally low-risk profile and contributes to the stability of its earnings, which has been a key characteristic of the group. International operations are also an area of strategic importance to Rabobank, both as a way to serve Dutch clients operating internationally via the foreign branch network, and to capitalise on its knowledge in the food and agribusiness with clients outside the Netherlands. This is being pursued through its "international retail" strategy in a selected number of countries. These include, the United States, Brazil and Chile, accounting together for around 12% of Rabobank's loan book; Poland (through BGZ Bank) and Ireland (through ACCBank), representing together 9% of the bank's total loans; and Australia and New Zealand, representing together 4% of the bank's total loans. However, Rabobank's non-banking operations introduce a higher level of earnings volatility relative to its traditional retail banking activities. Non-banking operations include insurance (a 29% stake in Achmea), asset management (Robeco), property (Bouwfonds, a Dutch property company active in real-estate development business) and leasing (de Lage Landen, including Athlon). While these activities provide Rabobank with a comprehensive range of financial services and provide synergies with other divisions of the group, some of them are not deemed core by Rabobank and could be sold, if opportunities arise. Also, Rabobank reduced its share in Achmea to 31% from 39% at year-end 2010 and further to 29% during H Risk Positioning Rabobank's corporate governance is dominated by the relationship between the 139 local Rabobanks, representing the cooperative network, and Rabobank Nederland, the group's central body. In addition to its original function as a provider of support to the Local Rabobanks and the holding company for several specialist subsidiaries, Rabobank Nederland has supervisory responsibilities over the local Rabobanks on behalf of the regulator. The local Rabobanks' scope of operations - restricted to lending and savings accounts - is subject to strict internal rules, which notably does not allow them to access capital markets. Risk policies are centralised and market risks other than credit risk must be hedged with Rabobank Nederland's treasury. However, the local Rabobanks and representatives of the local communities have important powers under the Articles of Association over the group's strategic decisions. Through their representation in the Central Delegates Assembly (which meets four times a year) and the General Meeting, they have consistently acted as an effective counter-balancing force against the bank's management in decisions involving major investments outside the Netherlands as well as domestic activities, scrutinising the benefit of these decisions for the cooperative interests. We believe this governance model has historically played an important role in containing the risks taken by the bank. Rabobank outperforms its peers with regards to credit-risk concentration. Exposures to financial institutions, which are generally at the source of the banks' largest single-name concentrations, have been significantly reduced. We also note that Rabobank's private-sector exposures generally benefit from high levels of collateralisation. The net aggregate exposure to the 20 largest borrowers should therefore be materially smaller than that suggested by the borrower concentration score in the scorecard, which is based on gross exposures. Excluding the food & agri sector, which is itself diversified into smaller subsectors, Rabobank's largest industry exposure is to real-estate lessors, accounting for 82% of its Tier 1 capital at the end of Market-risk appetite continues to be low. At year-end 2011, Rabobank reports an equity-at-risk of 5% for an instant parallel rise in interest rates of 200 bps, which suggests moderate interest-rate gaps in the banking book. The highest 1-day trading VaR of EUR24 million observed in 2011 as well as the limit of EUR40 million confirm the limited extent of Rabobank's trading activity positions. Profitability

5 As a co-operative group, Rabobank is not operating with the same high profitability constraints as peer joint-stock companies, but must generate consistent and sustainable profits. Consequently, the group has maintained a more conservative policy than its competitors, resulting in relatively low (but stable) profitability through the crisis, despite non-negligible losses (in excess of EUR 1.4 billion before tax) incurred in 2008 on exposures to structured credit and monolines and higher credit costs incurred on loans in 2009 and We view positively the bank's low earnings volatility over a multi-year (ten-year) time frame and believe this feature offsets the lower profitability levels. Rabobank's income typically consists of two thirds of interest income, 20% to 25% of fee income and around 10% of other income (including trading income, gains and losses on the investment portfolio as well as rental income). The cost-to-income ratio typically ranges from 65% to 70%. Credit costs absorb a non-negligible portion of the preprovision income, ranging from 30% to more than 40% per year, based on the financials reported by the bank. The relatively large credit costs should also be considered in light of Rabobank's conservative loan-loss provisioning policy, evidenced by the high reversal of impairments it has consistently experienced over the past three years (ranging from EUR1 billion to EUR1.4 billion). In 2011, the bank's income was boosted by a substantial increase in both interest and commission income. However, this positive effect was more than offset by higher operating expenses and higher credit costs, resulting in a 5% decrease in the reported net income. The 7% increase in net interest income in 2011 was, in our view, partly fuelled by the substantial cash inflow from investors seeking a safe haven. A large portion of the proceeds have been kept in the form of very liquid low-risk assets (including cash and deposits with central banks), and the interest margin has presumably decreased, but the marginal income will have positively affected the bank's profitability measured in terms of pre-provision income divided by the risk-weighted assets. The sustainability of this level of interest income will depend on the stickiness of the extra-funds collected in Provided the trend continues, Rabobank is likely to be less sensitive to the pressure on savings deposit margins in the Netherlands, relative to its peers. Our understanding is that despite these pressures, Rabobank also benefited from a positive margin effect on deposits in 2011, which has largely contributed to the increase in net interest income. Credit costs increased 30% in 2011 to EUR1.6 billion or 37 bps of loans (2010: 29 bps). Due to the likelihood of a prolonged adverse macro-economic environment, the bank may be continue to experience further deterioration in its loan portfolio. Liquidity Despite its high structural reliance on wholesale funding, Rabobank's liquidity is robust, due to high cash inflows but also due to its conservative asset and liability management. The group's loan-to-deposit ratio is 141% at the end of 2011, compared with 151% at the end of This improvement reflects the higher increase in deposits than in loans during The excess of loans over deposits remains sizeable at EUR138 billion (2010: EUR157 billion) and continues to create a structural reliance on wholesale funding. In addition, around 25% of the deposits comes from institutional investors or large corporates, which may prove less sticky than retail deposits. The large, net deposit inflows of 2011 were partly fuelled by such investors looking for a safe haven. We nevertheless believe that Rabobank's reliance on wholesale funding, which is a feature of the Dutch banking system, is largely mitigated by its conservative asset and liability management, based on an adequate duration of the funding portfolio and a substantial liquidity portfolio. Of the EUR268 billion gross wholesale funding outstanding at the end of 2011, EUR130 billion represents long-term debt (excluding the portion of long-term debt of which residual maturity is less than one year). Out of these, EUR50 billion have residual maturities of more than five years. On-balance-sheet liquid assets exceed EUR150 billion, representing around 115% of the bank's interbank borrowings and short-term debt securities as at the end of 2011 (including the portion of long-term debt of which residual maturity is less than one year), resulting in a very robust liquidity position. Capital Adequacy At year-end 2011, total assets stood at EUR731.7 billion, up by 12% from EU billion at year-end At the same time, risk-weighted assets increased to EUR223.6 billion from EUR219.6 billion, whilst available qualifying Tier 1 capital increased to EUR37.9 billion at the end of 2011 from EUR34.5 billion at the end of 2010, resulting from both the issuance of USD4 billion and the group's retained earnings. The Tier 1 ratio was thus 17% un-floored at end (as disclosed by the bank), up by 1.3 percentage points. We understand that the bank aims to maintain its unfloored Tier 1 ratio in excess of 12.5%. The equity capital ratio (composed of retained earnings and Rabobank member Certificates to risk-weighted assets) was 14.7% at the end of 2011 (end-2010: 14.2%).

6 Asset Quality We continue to view Rabobank's asset quality as sound because of (i) the high proportion of domestic loans, 74% of the group's private sector lending is in the Netherlands, two-thirds of which are residential mortgages; (ii) its conservative underwriting and investment policy; (iii) its limited exposure to peripheral countries; and (iv) the stable performance of the structured credit portfolio. The overall levels of loan losses nevertheless remain higher than before Rabobank could experience further rises in the cost of risk as a result of a faltering recovery and subdued macro-economic environment, although we believe that the bank continues to have sufficient buffers to absorb a potential increase in losses. Rabobank's cost of risk increased to 37 bps of average lending in 2011 from 29 bps in 2010 and all business segments were affected. Within the domestic retail banking segment, the difficulties on lending to greenhouse horticulture due to the EHEC crisis contributed to a slight increase in credit costs in H1 2011, but the bulk of the 80% rise occurred in H due to the economic downturn. However, the residential mortgage portfolio, which represents a large part of the segment, continued to perform well with a bad-debt cost of 3 bps. Within the wholesale and international retail banking segment, the Irish subsidiary ACCBank continued to suffer from the weak local economy and property market, and similarly to previous years, contributed to a large part of the segment's losses. While the leasing portfolio's performance has improved with credit costs of 58 bps down from 90bps in 2010, the real-estate segment continued to deteriorate with value adjustments of 69bps, primarily due to a decline in the Dutch property market. We remain cautious on the developments of the Dutch residential mortgage market. Although it continues to perform well, we consider that its specific features - including very high LTVs and high proportion of bullet loans - make it particularly vulnerable in a scenario of a strong deterioration of the economy. We note that Rabobank's portfolio is performing better than the average Dutch market. Rabobank's unhedged exposure to structured credit further decreased to EUR4.6 billion at the end of 2011 from EUR 5.8 billion in 2010, most of which is of prime quality. The performance of this portfolio seems to have stabilised since The structured credit portfolio hedged by CDS with monolines has decreased to EUR6.4 billion in 2011 from EUR7.5 billion in 2010 and the counterparty risk on monolines remains unchanged at EUR0.2 billion, net of a EUR1.1 billion value adjustment at the end of Rabobank's exposures to government bonds of peripheral euro area countries are limited and represented EUR349 million at the end of 2011, including: EUR49 million exposure to Greece, EUR60 million to Ireland, EUR200 million to Italy, EUR19 million to Portugal and EUR21 million to Spain. Global Local Currency Deposit Rating (Joint Default Analysis) We assign a GLC deposit rating of Aa2 with a stable outlook to Rabobank. The GLC rating is supported by Rabobank's Bank's standalone credit assessment of a1. We assume a very high probability of systemic support in the event of a stress situation. The latter assumption reflects Rabobank's nationwide retail network with a dominant market share of deposits and loans, and its critical role in the national clearing system (the system would collapse if the bank were to default). Notching Considerations Rabobank's dated subordinated debt is rated A2, i.e., one notch below the a1 standalone credit assessment. The ratings for Rabobank's hybrid obligations are notched off the adjusted standalone credit assessment of a1 according to "Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated Debt", released on 17 November Foreign Currency Deposit Rating Rabobank's foreign-currency deposit ratings are Aa2/P-1, with a stable outlook. Foreign Currency Debt Rating Rabobank's foreign-currency debt ratings are Aa2/P-1, with a stable outlook. ABOUT MOODY'S BANK RATINGS

7 Bank Financial Strength Rating Moody's Bank Financial Strength Ratings (BFSRs) represent Moody's opinion of a bank's intrinsic safety and soundness and, as such, exclude certain external credit risks and credit support elements that are addressed by Moody's Bank Deposit Ratings. Bank Financial Strength Ratings do not take into account the probability that the bank will receive such external support, nor do they address risks arising from sovereign actions that may interfere with a bank's ability to honor its domestic or foreign currency obligations. Factors considered in the assignment of Bank Financial Strength Ratings include bank-specific elements such as financial fundamentals, franchise value, and business and asset diversification. Although Bank Financial Strength Ratings exclude the external factors specified above, they do take into account other risk factors in the bank's operating environment, including the strength and prospective performance of the economy, as well as the structure and relative fragility of the financial system, and the quality of banking regulation and supervision. Moody's uses the Baseline Credit Assessment (BCA) to map BFSRs onto the 21-point Aaa-C rating scale and like the BFSR, it reflects a bank stand- alone default risk. Each point on the Aaa-C scale represents a specific probability of default and therefore allows Moody's to use the BCA as an input to Moody's Joint Default Analysis (JDA), described below. The baseline credit assessment reflects what the local currency deposit rating of the bank with the given BFSR would be without any assumed external support from a government or third party Global Local Currency Deposit Rating A deposit rating, as an opinion of relative credit risk, incorporates the BFSRas well as Moody's opinion of any external support. Specifically, Moody's Bank Deposit Ratings are opinions of a bank's ability to repay punctually its deposit obligations. As such, Moody's Bank Deposit Ratings are intended to incorporate those aspects of credit risk relevant to the prospective payment performance of rated banks with respect to deposit obligations, and includes: intrinsic financial strength, sovereign transfer risk (in the case of foreign currency deposit ratings), and both implicit and explicit external support elements. Moody's Bank Deposit Ratings do not take into account the benefit of deposit insurance schemes which make payments to depositors, but they do recognize the potential support from schemes that may provide assistance to banks directly. According to Moody's joint default analysis (JDA) methodology, the global local currency deposit rating of a bank is determined by the incorporation of any external elements of support into the bank's Baseline Credit Assessment. In assigning the local currency deposit rating to a bank, the JDA methodology also factors in the rating of the various potential support providers (parent company, cooperative group, regional or national governments), as well as the degree of dependence that may exist between each one of them and the bank. Moody's assessment of the probability of systemic support (by a national government) is derived from the analysis of the capacity of a government and its central bank to provide support on a system-wide basis. The systemic support indicator is determined for a particular country and serves as an input for all bank ratings in that country. The support indicator can be set at, above or, in rare cases, below the government's local currency bond rating for that country. National Scale Rating National scale ratings are intended primarily for use by domestic investors and are not comparable to Moody's globally applicable ratings; rather they address relative credit risk within a given country. A Aaa rating on Moody's National Scale indicates an issuer or issue with the strongest creditworthiness and the lowest likelihood of credit loss relative to other domestic issuers. National Scale Ratings, therefore, rank domestic issuers relative to each other and not relative to absolute default risks. National ratings isolate systemic risks; they do not address loss expectation associated with systemic events that could affect all issuers, even those that receive the highest ratings on the National Scale. Foreign Currency Deposit Rating Moody's ratings on foreign currency bank obligations derive from the bank's local currency rating for the same class of obligation. The implementation of JDA for banks can lead to high local currency ratings for certain banks, which could also produce high foreign currency ratings. Nevertheless, it should be noted that foreign currency deposit ratings are in all cases constrained by the country ceiling for foreign currency bank deposits. This may result in the assignment of a different, and typically lower, rating for the foreign currency deposits relative to the bank's rating for local currency obligations. Foreign Currency Debt Rating

8 Foreign currency debt ratings are derived from the bank's local currency debt rating. In a similar way to foreign currency deposit ratings, foreign currency debt ratings may also be constrained by the country ceiling for foreign currency bonds and notes; however, in some cases the ratings on foreign currency debt obligations may be allowed to pierce the foreign currency ceiling. A particular mix of rating factors are taken into consideration in order to assess whether a foreign currency bond rating pierces the country ceiling. They include the issuer's global local currency rating, the foreign currency government bond rating, the country ceiling for bonds and the debt's eligibility to pierce that ceiling. About Moody's bank financial strength scorecard Moody's bank financial strength model (see scorecard below) is a strategic input in the assessment of the financial strength of a bank, used as a key tool by Moody's analysts to ensure consistency of approach across banks and regions. The model output and the individual scores are discussed in rating committees and may be adjusted up or down to reflect conditions specific to each rated entity. Rating Factors Rabobank Nederland Rating Factors [1] A B C D E Total Score Trend Qualitative Factors (50%) C+ Factor: Franchise Value C+ Neutral Market Share and Sustainability x Geographical Diversification x Earnings Stability x Earnings Diversification [2] Factor: Risk Positioning C Neutral Corporate Governance [2] - Ownership and Organizational Complexity - Key Man Risk - Insider and Related-Party Risks Controls and Risk Management x - Risk Management x - Controls x Financial Reporting Transparency x - Global Comparability x - Frequency and Timeliness x - Quality of Financial Information x Credit Risk Concentration x - Borrower Concentration x - Industry Concentration x Liquidity Management x Market Risk Appetite x Factor: Operating Environment B+ Weakening Economic Stability x Integrity and Corruption x Legal System x Financial Factors (50%) C- Factor: Profitability D Weakening PPI / Average RWA - Basel II 1.20% Net Income / Average RWA - Basel II 0.71% Factor: Liquidity C- Neutral

9 (Mkt funds-liquid Assets) / Total Assets 17.00% Liquidity Management x Factor: Capital Adequacy A Neutral Tier 1 Ratio - Basel II Tangible Common Equity / RWA - Basel II 12.47% Factor: Efficiency D Weakening Cost / Income Ratio 71.85% Factor: Asset Quality C Weakening Problem Loans / Gross Loans 2.04% Problem Loans / (Equity + LLR) 25.71% Lowest Combined Score (15%) D Economic Insolvency Override -- Aggregate Score C Assigned BFSR B- [1] - Where dashes are shown for a particular factor (or sub-factor), the score is based on non public information [2] - A blank score under Earnings diversification or Corporate Governance indicates the risk is neutral 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved. CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. ("MIS") AND ITS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND CREDIT RATINGS AND RESEARCH PUBLICATIONS PUBLISHED BY MOODY'S ("MOODY'S PUBLICATIONS") MAY INCLUDE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY'S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY'S OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND MOODY'S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY'S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY'S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY'S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT.

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11 This credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. It would be dangerous for retail investors to make any investment decision based on this credit rating. If in doubt you should contact your financial or other professional adviser.