Bank Resolution and Bail-In Regimes: Where Does Asia Stand? - PowerPoint Presentation

Slide1

Bank Resolution and Bail-In Regimes: Where Does Asia Stand?

OCTOBER 2014

Michael Taylor

, Managing Director – CREDIT POLICYSlide2

Agenda

Overview of

Asia-Pacific Approaches to Resolution and Bail-in

Summary Findings for Selected JurisdictionsSlide3

Overview of Asia-Pacific Approaches to Resolution and Bail-in

1Slide4

The Global Agenda Advances

Upper Tier 2

Countercyclical

Capital Buffer (CET1)

D-SIB / G-SIFI

Capital Surcharges

(CET1)

Main action is in the US and Europe: regimes being implemented in response to the 2008-09 financial crisis

Rationale is to prevent “too big to fail” and, through implementation of bail-in provisions, to protect public funds and minimize moral hazard

The spirit of these regimes is embedded in the FSB’s

Key Attributes of Effective Resolution Regimes

, to which FSB members have committed to implement by end-2015

Legislation

Key features

G-SIBs

Asia-Pacific

EU

USA

Dodd-Frank Act2010

Recovery & Resolution DirectiveSingle Resolution Mechanism2014

Japan and Korea have regimes in place; HK and India have circulated proposals; others are considering

Living Wills, supported by Orderly Liquidation Authority and Fund

Cross-border recovery and resolution plans and statutory bail-in

FSB Key Attributes?

8

14

5Slide5

Asia-Pacific is a Latecomer to the Resolution/Bail-in Agenda

Innovative

Tier 1

Non-Innovative

Tier 1

Countercyclical

Capital Buffer (CET1)

D-SIB / G-SIFI

Capital Surcharges

(CET1)

The GFC was not “their crisis”

Regulators may question the feasibility/desirability of bail-in, especially after the successful reforms and recapitalization programs of the Asian Financial Crisis (1997-98)

Instead, emphasis has been on crisis prevention through sound supervision, macro prudential measures, and capital/liquidity requirements (Basel III)

However, given G20 peer pressure and the presence of global FI’s, a number of Asian governments and regulators have now begun to adopt the FSB’s

Key Attributes.

FSB Key Attributes of Effective Resolution Regimes

1. Scope

2. Resolution authority

3. Resolution powers

4. Set-off,

netting, collateralization, segregation of client assets

5. Safeguards

6. Funding of

firms in resolution

7. Legal framework conditions

for cross-border cooperation

8.

Crisis Management Groups (CMGs)

9. Institution-specific cross-border cooperation agreements

10. Resolvability

assessments

11. Recovery and resolution planning

12. Access

to information and information sharingSlide6

How Do Country Approaches Differ?

Upper Tier 2

Innovative

Tier 1

Non-Innovative

Tier 1

Countercyclical

Capital Buffer (CET1)

Local attitudes toward resolution and bail-in differ, but all countries are feeling peer pressure:

there is a spectrum, ranging from Japan/Korea (regimes already in place), to Australia (moving cautiously);

with respect to bail-in proposals, HK is most advanced (an outlier rather than a leader); India has just circulated an aggressive set of draft proposals (may not actually be implemented);

useful to distinguish between contractual vs. statutory bail-in: Asia is already far along in the former through adoption of Basel III standards, and new bank capital instruments must have PONV clauses;

will peer pressure lead to the introduction of statutory bail regimes soon?

ASIA-PACIFICSlide7

Country

Public DISCUSSION

Existing resolution powers

Factors influencing views on bail-in *

How Past resolution been handled

Australia

No

Transfer powers;

no statutory bail-in

Capital inflows to finance current account deficit; wholesale funding by banks

Early intervention; M&A

China

No

Transfer powers;

no statutory bail-in

Risk of contagion in debt market; role of government in banking sector

Capital injections; NPL disposals; forbearance

Hong Kong

Yes

Transfer powers;

statutory bail-in proposed

Role as an international financial centre and presence of G-SIBs

Liquidation; public

funds; M&A

India

Yes

Transfer powers;

statutory bail-in proposed

Catalyst for financial sector reforms;

emphasis on financial stability

Capital injections; M&A ; forbearance

Indonesia

No

Transfer powers;

no statutory bail-in

History of public sector bailouts

Liquidation, public funds

Japan

No

Transfer powers;

bail-in essentially limited to Basel III securities

Early use of public funds to prevent stress and avert need for bail-in

Recapitalization, nationalization, assisted M&A, closure

Korea

No

Transfer powers;

bail-in limited to Basel III securities

Preference for public funds to minimize impact of stress on broader economy

Capital injections; M&A; NPL disposalsNew ZealandNoTransfer powers; statutory bail-inEmphasis on low cost solutions; capital inflows to finance current account deficit Allow investors to absorb losses; judicious use of public fundsSingaporeNoTransfer powers; no statutory bail-inRole as an international financial centre; strength of system ; good coordination between regulator and local banks Crisis prevention tools: no record of bank failures in the past

Regulators in the Region Seem Cautious in Embracing the Global Resolution Agenda

*

Green text

indicates factors in favor of implementing a bail-in regime;

red text

indicates factors against.

Source: Moody’s Investor ServiceSlide8

Assessing the Implications for Creditors

Lower Tier 2

Upper Tier 2

Innovative

Tier 1

Non-Innovative

Tier 1

D-SIB / G-SIFI

Capital Surcharges

(CET1)

In Europe, Moody’s changed the outlook of 82 banks last July to negative reflecting, “the new resolution framework now in place and the explicit inclusion of burden-sharing with unsecured creditors as a means of reducing the public cost of bank resolutions.”

A critical question in evaluating implications for creditors of Asia/Pacific banks is whether bail-in regimes will be used in practice, or whether countries are only adopting them on paper without any intention of actually using them?

Reliance on wholesale funding

Fear of contagion

Promoting banks as regional / national champions

State ownership and involvement in banking sectors

Why is

Asia-Pacific

so cautious?Slide9

Summary Findings for Selected Jurisdictions

2Slide10

Assessing Resolution Regimes against the FSB’s Key Attributes

Non-Innovative

Tier 1

D-SIB / G-SIFI

Capital Surcharges

(CET1)

The FSB has outlined Key Attributes of Effective Resolution Regimes (October 2011)

FSB members have committed themselves to implement the Key Attributes by end-2015

The objective is, “to make feasible the resolution of financial institutions without severe systemic disruption and without exposing taxpayers to loss… [and] for shareholders and unsecured and uninsured creditors to absorb losses in a manner than respects the hierarchy of claims in liquidation.”

The Key Attributes (see slide 5 above)

List aspects of an effective resolution regime

List necessary resolution powers to resolve financial firms that are no longer viableRequire legislative changes to ensure necessary tools and powers of regulatory authorities Slide11

Australia

Lower Tier 2

Upper Tier 2

Innovative

Tier 1

Non-Innovative

Tier 1

D-SIB / G-SIFI

Capital Surcharges

(CET1)

Australia has adopted a cautious public stance on creditor bail-in.

Given Australian banks’ reliance on wholesale funding, and the role of external inflows to finance a structural current account deficit, risks of contagion from implementation of bail-in provisions may be especially high.

As a result, even if bail-in is ultimately introduced, there may still be a role for public sector capital injections in an environment of risk-averse behavior by the private sector.

Powers within Resolution Toolkit

Assume

Control

Replace management

Yes – Banking Act, Part 11CA and 13A

Appoint administrator

Yes – Banking Act, Part 13A

Tools

Transfer assets, liabilities to bridge bank or AMC

Yes – Financial Sector (Business Transfer and Group Restructure) Act 1999

Bail-in creditors

No

Impose merger, sale, or capital injections

Yes – Banking Act, Part 13E and Financial Sector (Business Transfer and Group Restructure) Act 1999

Support

Suspend payments to unsecured creditors

Unclear

Temporary stay on termination rights

Unclear

Oblige related groups to provide operational services

Unclear

Source: Australian Banking Act 1959; Australian Prudential Regulation Authority Act 1998, Financial Sector (Business Transfer and Group Restructure) Act 1999; APRA; and Moody’s Investors ServiceSlide12

Australia

Lower Tier 2

Upper Tier 2

Innovative

Tier 1

Non-Innovative

Tier 1

D-SIB / G-SIFI

Capital Surcharges

(CET1)

Noncommittal stance so far reflecting recognition of both positives and negatives to bail-in

Alignment of present regime with FSB Key Attributes

Scope:

Covers all financial institutions that could become systemically significant

No – APRA does not have powers to resolve securities companies and non-regulated entities

Resolution authorities:

Authorities are independent and have clear mandates

Yes – APRA meets the criteria

Toolkit:

Authorities have broad resolution powers

Partial – Transfer powers exist

Set-off, netting, collateralization, segregate client assets:

Ability to preserve but suspend arrangements – subject to adequate safeguards

Likely – Legislative reforms being developed to clarify rights

Legal safeguards:

Ability to depart from hierarchy of claims, subject to judicial review

Partial – Departure possible in the exercise of transfer powers, but creditors left behind are entitled to compensation if worse off than in a liquidation

Funding of firms in resolution:

Ability to minimize use of public funds

Partial – Equity investors and holders of Basel III securities provide a loss absorbing buffer. Transfer powers.

Cross-border cooperation:

Framework exists for active cooperation with foreign resolution authorities

Likely – Through role in BCBS, FSB

Crisis management groups:

Home and host authorities participate in common groups to monitor and resolve G-SIFIs

Likely – Through role in BCBS, FSB

Institution-specific cross-border cooperation agreements:

Information sharing between authorities in place with respect to G-SIFI

Likely – Through role in BCBS, FSB. Specific to New Zealand, under the Trans Tasman cooperation arrangements

Resolvability assessments:

Regular assessments for all G-SIFIs with authority to change management practices

N/A – No

Australian

G-SIFIs

Recovery and resolution planning:

Planning exists for recovery and resolution of systemically important firms

Partial – Recovery Plans required for larger banks, may be extended to larger insurers

Information sharing: Eliminate impediments to domestic and cross-border information exchange Yes – APRA is the primary regulator for all Australian financial institutionsSlide13

China

Lower Tier 2

Upper Tier 2

Innovative

Tier 1

Non-Innovative

Tier 1

D-SIB / G-SIFI

Capital Surcharges

(CET1)

Proposals have been issued on the drafting of a financial institutions bankruptcy law, and there are plans for the creation of a deposit insurance scheme.

The authorities are moving cautiously given rising financial fragilities, risk of contagion, and the pervasive role of the government (and implicit government support) in the financial system.

Nevertheless, China is feeling G20 peer pressure to adopt a resolution and bail-in regime in line with the

Key Attributes

.

Powers within Resolution Toolkit

Assume

Control

Replace management

Yes – Banking Supervision Law, Article 37

Appoint administrator

Yes – Banking Supervision Law, Article 38

Tools

Transfer assets, liabilities to bridge bank or AMC

No

Bail-in creditors

No

Impose merger, sale, or capital injections

Yes – Banking Supervision Law, Article 37, 38

Support

Suspend payments to unsecured creditors

Unclear

Temporary stay on termination rights

No

Oblige related groups to provide operational services

Unclear

Source: The Law of the People’s Republic of China on Regulation of and Supervision over the Banking Industry, China Banking Regulatory Commission People’s Bank of China, and Moody’s Investors ServiceSlide14

China (cont’d)

Lower Tier 2

Upper Tier 2

Innovative

Tier 1

Non-Innovative

Tier 1

D-SIB / G-SIFI

Capital Surcharges

(CET1)

China does not yet have a publicly articulated policy on its approach to bank resolution.

Alignment of present regime with FSB Key Attributes

Scope:

Covers all financial institutions that could become systemically significant

No

– CBRC has no authority over non-regulated FHCs or group entities.

Resolution authorities:

Authorities are independent and have clear mandates

Unclear – As with other FSB jurisdictions, China reports that it’s resolution

authorities are operationally independent, but this has not been verified

Toolkit:

Authorities have broad resolution powers

Partial – Current resolution

powers are limited

Set-off, netting, collateralization, segregate client assets:

Ability to preserve but suspend arrangements – subject to adequate safeguards

No

Legal safeguards:

Ability to depart from hierarchy of claims, subject to judicial review

No

Funding of firms in resolution:

Ability to minimize use of public funds

No

Cross-border cooperation:

Framework exists for active cooperation with foreign resolution authorities

No

Crisis management groups:

Home and host authorities participate in common groups to monitor and resolve G-SIFIs

No information

Institution-specific cross-border cooperation agreements:

Information sharing between authorities in place with respect to G-SIFI

Limited

Resolvability assessments:

Regular assessments for all G-SIFIs with authority to change management practices

Yes

Recovery and resolution planning:

Planning exists for recovery and resolution of systemically important firms

YesInformation sharing: Eliminate impediments to domestic and cross-border information exchange NoSlide15

Hong Kong’s Proposed Framework

Key Rating Considerations

Probability of default increases for senior debt and “old-style” capital instruments

Bail-in more likely for each class of instrument than under liquidation

Preserving hierarchy of claims implies no change in loss given default

Upon bail-in, senior bondholders remain senior to subordinated

Are “old style” and Basel III securities

pari

passu

in loss absorption?

Bail-in may not be the default policy choice

Other available options may be preferable if financial stability is prioritized

However, bail-in in Hong Kong is more likely due to its status as an international financial center and the position of G-SIFI’s in its banking system

Financial institution is or is expected

to become non-viable?

Yes

Resolution required to secure continuity of critical financial services?

Yes

No

Insolvency ProceedingsInsolvency proceedings +Protection schemes

Resolution RegimeResolution options

Partial or full transfer of FI to another FIPartial or full transfer of FI to bridge institution“Bail-in”

Temporary public ownershipDealing with residual parts FIAsset-management vehicle

Insolvency proceedings

Proposed Resolution FrameworkSlide16

Hong Kong

Lower Tier 2

Upper Tier 2

Innovative

Tier 1

Non-Innovative

Tier 1

D-SIB / G-SIFI

Capital Surcharges

(CET1)

Hong Kong has set a precedent in the region by incorporating broad bail-in provisions in a consultation paper on establishing a resolution regime.

Alignment of present regime with FSB Key Attributes

Scope:

Covers all financial institutions that could become systemically significant

Yes

Resolution authorities:

Authorities are independent and have clear mandates

Yes – HKMA meets the criteria

Toolkit:

Authorities have broad resolution powers

Yes – Resolution powers to be widened by proposed revisions to the resolution regime

Set-off, netting, collateralization, segregate client assets:

Ability to preserve but suspend arrangements – subject to adequate safeguards

Yes – Considerations are being given to provide such safeguards

Legal safeguards:

Ability to depart from hierarchy of claims, subject to judicial review

Yes – The resolution authorities will broadly respect the hierarchy of claims, although authorities may depart from equal treatment of creditors of the same class

Funding of firms in resolution:

Ability to minimize use of public funds

Yes

Cross-border cooperation:

Framework exists for active cooperation with foreign resolution authorities

Yes

Crisis management groups:

Home and host authorities participate in common groups to monitor and resolve G-SIFIs

Yes

Institution-specific cross-border cooperation agreements:

Information sharing between authorities in place with respect to G-SIFI

Yes

Resolvability assessments:

Regular assessments for all G-SIFIs with authority to change management practices

N/A – Hong Kong is not

the home regulatory authority for any G-SIFIs

Recovery and resolution planning:

Planning exists for recovery and resolution of systemically important firms

Yes – Being

rolled out for banks

Information sharing:

Eliminate impediments to domestic and cross-border information exchange YesSource: Hong Kong Banking Ordinance, Hong Kong Monetary Authority, Financial Services and the Treasury Bureau’s Consultation on Establishing an Effective Resolution Regime for Financial Institutions in Hong Kong, and Moody’s Investors ServiceSlide17

Japan

Lower Tier 2

Upper Tier 2

Innovative

Tier 1

Non-Innovative

Tier 1

D-SIB / G-SIFI

Capital Surcharges

(CET1)

Japan has an existing resolution regime that, according to the authorities, is broadly consistent with the

Key Attributes

.

The regime is embodied in the Deposit Insurance Act and can be triggered after deliberation of the Financial Crisis Response Council and confirmation by the prime minister.

However, the intent is to provide liquidity and capital to solvent financial institutions and prevent triggering bail-in.

Powers within Resolution Toolkit

Assume

Control

Replace management

Yes

Appoint administrator

Yes

Tools

Transfer assets, liabilities to bridge bank or AMC

Yes

Bail-in creditors

Yes – Although

authorities’ preference is to prevent triggering bail-in by providing liquidity and capital support to solvent financial institutions

Impose merger, sale, or capital injections

Yes

Support

Suspend payments to unsecured creditors

Yes

Temporary stay on termination rights

Yes

Oblige related groups to provide operational services

Unclear

Source: FSB Thematic Review on Resolution Regimes, Financial Services Agency, and Moody’s Investors ServiceSlide18

Japan (cont’d)

Lower Tier 2

Upper Tier 2

Innovative

Tier 1

Non-Innovative

Tier 1

D-SIB / G-SIFI

Capital Surcharges

(CET1)

Japan has an existing resolution regime that, according to the Japanese authorities, is broadly consistent with the

Key Attributes

.

Alignment of present regime with FSB Key Attributes

Scope:

Covers all financial institutions that could become systemically significant

Yes

Resolution authorities:

Authorities are independent and have clear mandates

Yes – FSA

Toolkit:

Authorities have broad resolution powers

Yes

Set-off, netting, collateralization, segregate client assets:

Ability to preserve but suspend arrangements – subject to adequate safeguards

Yes

Legal safeguards:

Ability to depart from hierarchy of claims, subject to judicial review

Yes

Funding of firms in resolution:

Ability to minimize use of public funds

Yes

Cross-border cooperation:

Framework exists for active cooperation with foreign resolution authorities

Yes – Supervisor and central bank can share information with foreign resolution authorities

Crisis management groups:

Home and host authorities participate in common groups to monitor and resolve G-SIFIs

Likely – Given large role of G-SIFI’s in Japan, such as MUFG, SMFG, and Mizuho

Institution-specific cross-border cooperation agreements:

Information sharing between authorities in place with respect to G-SIFI

Likely – Given large role of G-SIFI’s, such as MUFG, SMFG, and Mizuho in Japan

Resolvability assessments:

Regular assessments for all G-SIFIs with authority to change management practices

Yes

Recovery and resolution planning:

Planning exists for recovery and resolution of systemically important firms

Yes

Information sharing:

Eliminate impediments to domestic and cross-border information exchange Yes – When international coordination is required, the Deposit Insurance Corporation of Japan shall take the role (DIA, Article 137-5)Slide19

Key Takeaways

D-SIB / G-SIFI

Capital Surcharges

(CET1)

Asia-Pacific countries are latecomers to the global agenda on bank resolution and bail-in regimes, but progress is now underway with peer pressure to adopt the FSB’s

Key Attributes of Effective Resolution Regimes

Already far along in issuing Basel III-compliant securities, though implementation of statutory bail-in regimes is lagging (only Hong Kong and India have issued proposals)

Introduction of statutory bail-in regimes would be credit negative for bank bondholders, but will ultimately depend on regional authorities’ willingness to use such powers Slide20

Michael Taylor

Managing Director

– Credit Policy

Moody’s Investors Service

+852.3758.1539

michael.w.taylor@moodys.comSlide21

© 2014 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. (“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. 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 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.

MIS, 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 MIS have, prior to assignment of any rating, agreed to pay to MIS 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 www.moodys.com under the heading “Shareholder 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 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. 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 2001. 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.