Credit Opinion: DNB Bank ASA

Transcription

1 Credit Opinion: DNB Bank ASA Global Credit Research - 26 Mar 2015 Oslo, Norway Ratings Category Moody's Rating Outlook Rating(s) Under Review Bank Deposits *A1/P-1 Baseline Credit Assessment **baa1 Adjusted Baseline Credit **baa1 Assessment Senior Unsecured -Fgn Curr *(P)A1 Senior Unsecured -Dom Curr **A1 Subordinate Pref. Stock Non-cumulative **Baa2 (hyb) **Ba1 (hyb) Commercial Paper Other Short Term P-1 (P)P-1 DNB Bank ASA, New York Branch Outlook Rating(s) Under Review Bank Deposits *A1/P-1 Den norske Creditbank Bkd Jr Subordinate **Baa3 (hyb) Den norske Bank ASA Outlook Rating(s) Under Review Senior Unsecured MTN **(P)A1 Subordinate MTN Other Short Term **(P)Baa2 (P)P-1 * Rating(s) within this class was/were placed on review on March 17, 2015 ** Placed under review for possible upgrade on March 17, 2015 Contacts Analyst Phone Oscar Heemskerk/London Kim Bergoe/London Sean Marion/London Key Indicators DNB Bank ASA (Consolidated Financials)[1] [2]12-14 [3]12-13 [3]12-12 [3]12-11 [3]12-10 Avg. Total Assets (NOK billion) 2, , , , ,637.6 [4]8.6 Total Assets (EUR million) 251, , , , ,012.1 [4]4.6 Total Assets (USD million) 304, , , , ,740.4 [4]1.9 Tangible Common Equity (NOK billion) [4]14.4 Tangible Common Equity (EUR million) 15, , , , ,688.7 [4]10.1 Tangible Common Equity (USD million) 19, , , , ,339.3 [4]7.3

2 Tangible Common Equity (USD million) [4]7.3 Problem Loans / Gross Loans (%) [5]2.2 Tangible Common Equity / Risk Weighted Assets (%) [6]13.7 Problem Loans / (Tangible Common Equity + Loan Loss Reserve) (%) [5]24.1 Net Interest Margin (%) [5]1.4 PPI / Average RWA (%) [6]2.6 Net Income / Tangible Assets (%) [5]0.7 Cost / Income Ratio (%) [5]45.5 Market Funds / Tangible Banking Assets (%) [5]41.6 Liquid Banking Assets / Tangible Banking Assets (%) [5]26.3 Gross Loans / Total Deposits (%) [5]164.2 Source: Moody's [1] All figures and ratios are adjusted using Moody's standard adjustments [2] Basel III - fully-loaded or transitional phase-in; IFRS [3] Basel II; IFRS [4] Compound Annual Growth Rate based on IFRS reporting periods [5] IFRS reporting periods have been used for average calculation [6] Basel III - fully-loaded or transitional phase-in & IFRS reporting periods have been used for average calculation Opinion SUMMARY RATING RATIONALE On 17 March, we placed on review for upgrade DNB Bank ASA's baa1 baseline credit assessment (BCA) and A1 long-term deposit and senior unsecured debt ratings. DNB's short-term debt and deposit ratings are unchanged at Prime-1. Furthermore, we placed the bank's junior instrument ratings on review for upgrade as a result of the review for upgrade on DNB's BCA. The review for upgrade on DNB's BCA reflects the bank's strong and improved performance relative to peers, as reflected by our new bank rating methodology. Our review will focus on this improvement in the bank's asset quality and profitability, against the background of exposures to the oil and oil services sector and the commercial real estate sector, and the likely weakening growth environment in Norway. Our advanced Loss Given Failure (LGF) Analysis indicates a very low loss-given-failure for deposits and senior unsecured debt. We find that both the subordination below these assets classes and their respective volumes are sufficiently strong to make us reasonably certain that both of these asset classes would receive two notches under Loss Given Failure. We expect that Norway as an EEA member will look to introduce similar legislation to the EU Banking Recovery and Resolution Directive (BRRD). However, we think that Norway's non-eu status provides the country more discretion in dealing with bank resolutions compared to EU states. Hence, our initial analysis on government support suggests a high level of support from the Norwegian government, which is consistent with two notches of public support uplift. We expect this level of support to be attributed to DNB's deposits and senior unsecured debt. DNB'S BCA IS SUPPORTED BY ITS VERY STRONG- MACRO PROFILE DNB's operating environment is primarily influenced by developments in its home market Norway, the EU and through its shipping exposures the rest of the world. Norway, which accounted for 65% of lending at end-2014, carries a Very Strong- macro profile, reflecting its solid economic, institutional and government fundamentals, but restrained by Norwegian households' high indebtedness, which renders them sensitive to changes in interest rates. The Norwegian banking market is also highly dependent on market funding and particularly foreign-currency based funding. In terms of industry structure, we view Norway as a favorable banking market with DNB as dominant bank, yielding the bank a certain amount of pricing power. DNB's exposures to Sweden (4% of lending) and the UK (7%) are also supported by Very Strong- Macro Profiles. Exposures to the EU (9% of lending) and the rest of the world (a combination of countries to which DNB is exposed through its global shipping operations: 15% of lending) currently carry a Strong+ and Strong Macro Profile, respectively. Based on a breakdown of total loans and commitments, the weighted average Macro Profile for DNB is currently Very Strong-, but during the review period we will assess the weight given to DNB's substantial exposures outside of Norway which may result in a Strong+ Macro Profile.

3 Rating Drivers - As the leading bank in Norway, DNB has a solid banking franchise and status as the nation's flagship bank - DNB reports solid core earnings, and benefits from the relatively strong performance of the Norwegian economy - High dependence on market funding, but DNB benefits from a solid deposit base and good access to local and international capital markets - Credit risks arise from DNB's commercial real estate and shipping exposures, as well as high borrower concentration, but asset-quality performance metrics have been stable - DNB's large volume of deposits and moderate level of senior unsecured debt indicates deposits ratings are likely to benefit from a very low loss-given - failure rate; senior unsecured debt ratings are likely to benefit from a low loss-given-failure rate on the count of a moderate volume of senior unsecured debt and subordination. - We expect to reflect a high probability of government support Rating Outlook We have placed DNB's senior unsecured debt and deposit ratings on review for upgrade. This reflects our review for upgrade on DNB's BCA, our application of advanced Loss Given Failure (LGF) analysis and our expectation of a high probability of government support. We expect deposit and senior unsecured debt ratings to be upgraded by up to two notches at the end of the review period. The outcome of the review for upgrade on DNB's deposit ratings will be primarily driven by the outcome of the review for upgrade on DNB's BCA. We expect that the volume of and subordination to deposits will lead to a very low loss-given-failure for deposits which is consistent with two notches of uplift from the application of advanced LGF analysis. The outcome of the review for upgrade on DNB's unsecured debt ratings will be driven by the outcome of the review for upgrade on DNB's BCA and our review of the DNB's liability structure. The initial indication from our advanced LGF analysis is that senior unsecured ratings are likely to benefit from a low loss-given-failure, which is consistent with one notch of uplift from the application of advanced LGF. However, we found during our analysis that there is scope for an additional notch of uplift under advanced LGF analysis. During the review period, we will be closely monitoring the role of senior unsecured debt in DNB's funding. The review for upgrade on DNB's junior instruments reflects the review for upgrade on DNB's BCA. We find that the current notching of these instruments is in line with their high loss-given-failure. We continue to believe the probability of government support for DNB's junior instruments to be low and thus assign no uplift from their unsupported levels. What Could Change the Rating - Up DNB's BCA, long-term deposits and senior unsecured ratings are on review for upgrade, as indicated under "Rating Outlook". What Could Change the Rating - Down Given the review for upgrade on DNB's BCA, long-term deposits, senior unsecured ratings, we believe there is a very low likelihood for a downward change in ratings. DETAILED RATING CONSIDERATIONS The financial data in the following sections are sourced from DNB's financial statements unless otherwise stated. AS THE LEADING BANK IN NORWAY, DNB HAS A SOLID BANKING FRANCHISE AND STATUS AS THE NATION'S FLAGSHIP BANK DNB's sizeable domestic franchise is a key positive rating driver, supporting the bank's profitability and asset quality. DNB is Norway's largest financial institution, with a dominant and sustainable market share of more than 30% in retail and corporate banking as of June 2014, according to the central bank (Norges Bank). We believe that DNB achieves stable earnings generation capacity aided by the supportive operating environment, the bank's solid customer base and pricing power, and high brand recognition in Norway.

4 DNB's is Norway's most international bank. Its loan portfolio outside Norway accounted for around 20% of total loans at year-end 2014, thus adding diversification to the bank's earnings and risk. In contrast with European banks that were nationalised during the recent financial crisis, the Norwegian government - DNB's largest shareholder, with a 34% stake in the bank - has not indicated that it intends to reduce this stake, and we continue to view DNB as the government's flagship financial institution. DNB REPORTS SOLID CORE EARNINGS AND BENEFITS FROM THE RELATIVELY STRONG PERFORMANCE OF THE NORWEGIAN ECONOMY Given improvements in asset quality, we view DNB's core earnings as resilient, having been enhanced through loan re-pricing in 2013, supported by DNB's dominant position in the Norwegian market. With around 80% of its loans driven by Norwegian exposures, DNB benefits from the relatively strong performance of the Norwegian economy. We forecast real GDP growth for the total economy (mainland and offshore) to be 1.2% in 2015, which includes our forecast of 1.5% real GDP growth for the mainland economy. This is a marked slowdown from the real GDP growth in 2014 of 2.2% and 2.3% for the total economy and mainland economy, respectively. Net interest income is the main driver of DNB's earnings, contributing almost 70% on a three-year average basis. In 2014, net interest income was 7% higher than in 2013, as wider lending spreads had a positive effect. We view DNB's pricing power in the Norwegian banking market as a positive rating factor underpinning its ability to increase its revenue. The bank's net income to tangible assets has been steadily increasing over the last 3 years from 0.64% in 2012 to 0.78% the following year and reaching 0.82% in 2014 While loan-loss provisions remain elevated compared to pre-crisis years, they are low compared with many rated European peers. During 2014, DNB's loan loss provisions fell by more than 25% compared to 2013, mainly driven by lower provisions within shipping, the Baltics and Poland. We expect overall loan loss provisions to remain low versus European peers, reflecting the relatively strong, albeit weakening, Norwegian macroeconomic environment, with the persistent challenges in the shipping sector reflecting its challenging conditions. DNB's cost-to-income ratio remains among the strongest in its European peer group with a three-year average of 46%, reflecting good cost control. HIGH DEPENDENCE ON MARKET FUNDING, BUT DNB BENEFITS FROM A SOLID DEPOSIT BASE AND GOOD ACCESS TO LOCAL AND INTERNATIONAL CAPITAL MARKETS DNB's funding is underpinned by a solid deposit base, which comprises almost 50% of total funding and covers just over 65% of the loan portfolio; the remainder consists of market funding. Interbank funding accounted for 20% of total market funding at year-end Covered bonds have represented a rapidly growing source of funding, and contributed around 42% of market funding at year-end We note that extensive use of covered bond funding structurally subordinates senior creditors, including depositors. As reflected in our methodology, we globally reflect the relative stability of covered bonds compared to unsecured market funding through a standard adjustment in our scorecard. For DNB, we also make a positive adjustment in our scorecard for the relatively long term structure of market funding. DNB has good access to the capital markets, including extensive use of international funding which contributed 76% of covered bond funding at end-2014, and has improved the average maturity of its long-term funding in recent years. However, we regard the bank's dependence on market funding - albeit common for Nordic banks - as a risk because, in times of market stress, market funds can become less cost-effective, exerting pressure on banks' net profitability. A relatively large liquidity buffer of NOK643 billion - nearly 30% of total assets at year-end supports the bank's liquidity profile. The reserve consists of cash and deposits with financial institutions and central banks (64%), Norwegian bonds and fixed-income securities (10%), shareholdings (2%) and the international bond portfolio of the investment bank division (DNB Markets) (24%), which includes highly rated non-us residential mortgage-backed securities (RMBS) transactions (24% of the international bond portfolio exluding held to maturity portion), highly rated sovereign bonds (35%) and European covered bonds (41%): all these securities can be repo-ed with central banks. CREDIT RISKS ARISE FROM DNB'S COMMERCIAL REAL ESTATE AND SHIPPING EXPOSURES, AS

5 WELL AS HIGH BORROWER CONCENTRATION, BUT ASSET-QUALITY METRICS HAVE BEEN STABLE We view DNB's loan portfolio as well diversified, with 50% comprising retail lending (mainly secured by first-lien mortgages) and the remainder spread across industries. However, shipping and CRE together account for around 18% of the bank's exposures - on an individual basis: shipping (8.4%) and CRE (13.4%) - and we typically view these sectors as more volatile. The bank's retail loan book has shown good resilience. While we believe that the high leverage of Norwegian households and elevated house prices create credit risks, the high levels of employment and supportive welfare system partly mitigate these risks. In addition, in our opinion the strong Norwegian operating environment will remain supportive for bank credit quality for the month horizon. We view DNB's risk management and systems as robust, but our assessment of the bank's risk practices is constrained by its high borrower concentration. We understand this concentration is partly explained by the fact that DNB is the leading corporate bank in Norway, and in addition that such concentration is a typical feature at many Nordic banks. However, we believe such concentration poses a material risk to DNB's asset quality as it potentially heightens the pace and the extent of any deterioration in asset quality. DNB's problem loans accounted for 1.8% of gross loans at end-2014, which is low compared to most of its European peers and in line with other rated Norwegian banks. In recent years, most of DNB's asset quality risks have been related to its exposures outside of Norway, and we expect the impact of exposures outside of Norway to diminish following the sale of the Polish network and the return of a more stable operating environment in the Baltic States. In addition, the shipping portfolio has required elevated provisioning in the past few years, but in 2014 shipping impairments fell to NOK281 million, a 50% decline compared to In 2013, DNB announced that it will reduce the share of lending to traditional shipping to 6% of total loans in 2015, from 9.7% in 2008, which we view positively given the sector's inherent cyclical and higher-risk behaviour. Problem loan coverage increased to 44% at year-end 2014, compared with 40% in DNB is exposed to Eksportfinans (Ba3/Not Prime; stable) via a 40% shareholding and a guarantee provided for the institution's liquidity portfolio. Following heavy unrealised losses in Eksportfinans's liquidity portfolio, which was caused by market turmoil in 2008, DNB Bank and other bank owners of Eksportfinans have, among other things, guaranteed Eksportfinans's liquidity portfolio via a portfolio hedge agreement. The agreement protects Eksportfinans against further decreases in portfolio values of up to NOK5 billion. Any recovery in values will be allocated to participants in the portfolio hedge agreement as payment for their commitment. DNB Bank's share of this agreement is 40%. At end-2014, DNB's Common Equity Tier 1 (CET1) and Total capital ratios according to Basel III were 13.7% and 16.7%, respectively at end Including the Basel 1 capital floor in place in Norway, the corresponding figures were 12.5% and 15.2%, respectively. In order to build its capital buffers organically in recognition of increased Basel III and domestic requirements, the group has announced a temporary reduction in its dividend policy to a 25%-50% payout range from its long-term target of 50%. DNB's reported capital ratios include an average riskweight of 16.6% on mortgage loans. As a result of differing mortgage risk weighting among the Nordic banks, it can be difficult to compare reported capital ratios. In Norway, reported capital ratios must include a loss given default floor on mortgages which results in a risk-weighting of around 20% on mortgages. In comparison in Sweden, the large Swedish banks apply a mortgage risk-weighting of around 5 to 8% on mortgages in their reported capital ratios but these banks must meet high nominal capital requirements which include a 25% risk-weight on mortgages. DNB does not report a leverage ratio, however a rough indicator of leverage in the form of Tangible Common Equity to total assets (6.4% at end- 2014), suggests that DNB has a leverage ratio which compares well against large Nordic and international peers, albeit less so against smaller Norwegian peers. Notching Considerations AFFILIATE SUPPORT DNB Bank ASA does not receive affiliate support uplift. LOSS GIVEN FAILURE AND ADDITIONAL NOTCHING DNB is subject to an Other Operational Resolution Regime. Norway is not part of the EU and hence not required to adopt the the EU Bank Resolution and Recovery Directive (BRRD), however we expect Norway to adopt a similar resolution regime to the BRRD. For this reason we apply advanced LGF analysis. We assume residual

6 tangible common equity of 3% and losses post-failure of 8% of tangible banking assets, a 25% run-off in "junior" wholesale deposits, a 5% run-off in preferred deposits, and assign a 25% probability to deposits being preferred to senior unsecured debt. We apply a standard assumption for the large European banks that 26% of deposits are junior. We believe that DNB's deposits are likely to face very low loss-given-failure, due to the loss absorption provided by subordinated debt and, potentially, by senior unsecured debt should deposits be treated preferentially in a resolution, as well as the substantial volume of deposits themselves. This is supported by the combination of the substantial deposit volume (we estimate junior deposits to make up 8% of the bank's tangible banking assets in failure), and the subordination of just over 4% of tangible banking assets (and just under 12% in the event of deposits being preferred to senior debt). This indicates a Preliminary Rating Assessment (PRA) two notches above from the BCA. Our initial indication is that DNB's senior unsecured debt is likely to face low loss-given-failure, because of the loss absorption provided by the moderate volume of senior unsecured debt (7% of tangible banking assets in failure based on end-2014 figures) and the volume of subordination (4%). This indicates a Preliminary Rating Assessment (PRA) one notch above from the BCA. However, we found during our analysis that there is scope for an additional notch of uplift under advanced LGF Analysis. During the review period, we will be closely monitoring the role of senior unsecured debt in DNB's funding. For junior securities issued by DNB, our initial LGF analysis confirms a high level loss-given-failure, given the small volume of debt and limited protection from more subordinated instruments and residual equity. We also incorporate additional notching for junior subordinated and preference share instruments reflecting the coupon features. We do not expect the additional notching which is currently in place for these instruments to change during the review period. The junior instruments have been placed on review for upgrade as a result of the review for upgrade on DNB's BCA. GOVERNMENT SUPPORT The expected implementation of resolution regimes has caused us to reconsider the potential for government support to benefit certain creditors. Given DNB's leading market position and partial government ownership, we now expect a high probability of government support for DNB's long-term deposits and senior unsecured debt, likely resulting in a two-notch uplift to the PRA. For junior securities, we continue to believe that the probability of government support is low and these ratings do not include any related uplift. Junior securities also include additional downward notching from the BCA reflecting coupon suspension risk ahead of a potential failure. Foreign Currency Deposit Rating DNB Bank's A1 foreign-currency deposit rating is unconstrained, given that Norway has a country ceiling of Aaa. Foreign Currency Debt Rating DNB Bank's A1 senior unsecured foreign-currency debt rating is unconstrained, given that Norway has a country ceiling of Aaa. ABOUT MOODY'S BANK RATINGS Our Scorecard is designed to capture, express and explain in summary form our Rating Committee's judgment. When read in conjunction with our research, a fulsome presentation of our judgment is expressed. As a result, the output of our Scorecard may materially differ from that suggested by raw data alone (though it has been calibrated to avoid the frequent need for strong divergence). The Scorecard 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 DNB Bank ASA Macro Factors

7 Weighted Macro Profile Very Strong - Financial Profile Factor Solvency Asset Risk Problem Loans / Gross Loans Historic Ratio Macro Adjusted Score Credit Trend Assigned Score 2.1% a1 a1 Quality of assets Capital TCE / RWA 13.7% a1 a1 Risk-weighted capitalisation Profitability Net Income / Tangible Assets Combined Solvency Score Liquidity Funding Structure Market Funds / Tangible Banking Assets Liquid Resources Liquid Banking Assets / Tangible Banking Assets Combined Liquidity Score 0.7% baa2 baa2 Return on assets a2 a2 40.1% b1 ba1 Term structure 28.3% a2 a2 Stock of liquid assets ba1 baa2 Financial Profile a3 Qualitative Adjustments Adjustment Business 0 Diversification Opacity and Complexity 0 Corporate Behavior 0 Total Qualitative Adjustments 0 Key driver #1 Key driver #2 Sovereign or Affiliate constraint Scorecard Calculated BCA range Aaa a2 - baa1 Assigned BCA baa1 Affiliate Support notching -- Adjusted BCA baa1

8 Instrument Class Loss Given Failure notching Additional notching Preliminary Rating Assessment Government Support notching Local Currency rating Deposits A1 RUR Senior unsecured bank debt Dated subordinated bank debt Non-cumulative bank preference shares A1 RUR Baa2(hyb) RUR Foreign Currency rating A1 RUR (P)A1 RUR Baa2(hyb) RUR Ba1(hyb) RUR This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on for the most updated credit rating action information and rating history Moody s Corporation, Moody s Investors Service, Inc., Moody s Analytics, Inc. and/or their licensors and affiliates (collectively, MOODY S ). All rights reserved. CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES ( MIS ) 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. MOODY S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY S ANALYTICS, INC. 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, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE. MOODY S CREDIT RATINGS AND MOODY S PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS FOR RETAIL INVESTORS TO CONSIDER MOODY S CREDIT RATINGS OR MOODY S PUBLICATIONS IN MAKING ANY INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER. 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

9 WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided AS IS without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing the Moody s Publications. To the extent permitted by law, MOODY S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY S. To the extent permitted by law, MOODY S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY S IN ANY FORM OR MANNER WHATSOEVER. Moody s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody s Corporation ( MCO ), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody s Investors Service, Inc. have, prior to assignment of any rating, agreed to pay to Moody s Investors Service, Inc. for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MIS s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at under the heading Investor Relations Corporate Governance Director and Shareholder Affiliation Policy. For Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY S affiliate, Moody s Investors Service Pty Limited ABN AFSL and/or Moody s Analytics Australia Pty Ltd ABN AFSL (as applicable). This document is intended to be provided only to wholesale clients within the meaning of section 761G of the Corporations Act By continuing to access this document from within Australia, you represent to MOODY S that you are, or are accessing the document as a representative of, a wholesale client and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to retail clients within the meaning of section 761G of the Corporations Act MOODY S 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 clients. It would be dangerous for retail clients to make any investment decision based on MOODY S credit rating. If in doubt you should contact your financial or other professional adviser. For Japan only: MOODY'S Japan K.K. ( MJKK ) is a wholly-owned credit rating agency subsidiary of MOODY'S Group Japan G.K., which is wholly-owned by Moody s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody s SF Japan K.K. ( MSFJ ) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization ( NRSRO ). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ

10 consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively. MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for appraisal and rating services rendered by it fees ranging from JPY200,000 to approximately JPY350,000,000. MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.