U.S. markets open in 7 hours 27 minutes
  • S&P Futures

    3,836.00
    -10.00 (-0.26%)
     
  • Dow Futures

    30,981.00
    -101.00 (-0.32%)
     
  • Nasdaq Futures

    13,357.50
    -38.00 (-0.28%)
     
  • Russell 2000 Futures

    2,135.00
    -3.50 (-0.16%)
     
  • Crude Oil

    52.46
    -0.67 (-1.26%)
     
  • Gold

    1,860.10
    -5.80 (-0.31%)
     
  • Silver

    25.55
    -0.30 (-1.18%)
     
  • EUR/USD

    1.2164
    -0.0009 (-0.07%)
     
  • 10-Yr Bond

    1.1090
    0.0000 (0.00%)
     
  • Vix

    21.32
    -0.26 (-1.20%)
     
  • GBP/USD

    1.3685
    -0.0045 (-0.33%)
     
  • USD/JPY

    103.6440
    +0.1390 (+0.13%)
     
  • BTC-USD

    31,624.91
    +1,057.20 (+3.46%)
     
  • CMC Crypto 200

    623.79
    +13.80 (+2.26%)
     
  • FTSE 100

    6,715.42
    -24.97 (-0.37%)
     
  • Nikkei 225

    28,631.45
    -125.41 (-0.44%)
     

Ineos Styrolution US Holding LLC -- Moody's downgrades INEOS Quattro (formerly Styrolution) to Ba3 with negative outlook; senior secured debt at Ba2

·20 min read

Rating Action: Moody's downgrades INEOS Quattro (formerly Styrolution) to Ba3 with negative outlook; senior secured debt at Ba2

Global Credit Research - 11 Jan 2021

London, 11 January 2021 -- Moody's Investors Service, ("Moody's") has today downgraded the corporate family rating of INEOS Quattro Holdings Ltd ("INEOS Quattro", formerly known as INEOS Styrolution Holding Limited) to Ba3 from Ba2. Moody's has also downgraded INEOS Quattro's probability of default rating to Ba3-PD from Ba2-PD. The agency further confirmed at Ba2 ratings assigned to INEOS Styrolution Group GmbH's and INEOS Styrolution US Holding LLC's senior secured Term Loan B facilities due January 2027, as well as the Ba2 rating assigned to the E600 million senior secured notes due January 2027 issued by INEOS Styrolution Group GmbH. Further, Moody's assigned a rating of Ba2 to the senior secured term loan B currently being marketed by INEOS Quattro, as well as the revolving credit facility (RCF) and term loan A facilities. The rating outlook is assigned negative for INEOS US Petrochem LLC and changed to Negative from Rating Under Review for INEOS Quattro Holdings Ltd, INEOS 226 Limited, INEOS Styrolution Group GmbH and Ineos Styrolution US Holding LLC. This rating action concludes Moody's review for downgrade initiated on 1 July 2020 of INEOS Quattro's ratings following the company's planned acquisition of the petrochemical assets of BP p.l.c. (A1 negative).

On 31 December 2020, INEOS Quattro (formerly INEOS Styrolution) completed its acquisition of INOVYN, a sister company with common ownership, as well as its acquisition of certain assets of BP p.l.c. (BP, A1 negative). Upon completion of the refinancing contemplated in connection with this transaction, Moody's expects to withdraw all ratings and the outlooks of INOVYN Limited and its subsidiaries. The transaction was originally announced in June 2020 including a purchase consideration of $5 billion.

RATINGS RATIONALE

The Ba3 corporate family rating reflects the large size and scope of INEOS Quattro with top market positions globally in a variety of chemical products, its diverse product lines and end markets, a track record of successful acquisition integration by the INEOS Group coupled with a history of consistently exceeding initial synergy expectations. The rating further considers the company's publicly stated financial policy and Moody's expectations of moderating leverage -- particularly if the recent recovery in trading is sustained.

Counterbalancing these strengths, the rating also incorporates significant uncertainty related to the integration of the legacy and acquired businesses that have limited vertical integration, material underperformance in the aromatics business in the wake of coronavirus, expectations of $150 million in synergies (primarily fixed costs) which are yet to be realized, as well as a history of significant risk appetite across the broader INEOS Group and the limited available disclosure regarding the larger INEOS Group outside of the rated entities.

The transaction will create a globally scaled company with attractive market positions in a number of sectors, as well as provide a measure of backward integration. The new entity will benefit from the global leadership positions in styrenics including polystyrene, ABS and specialties, PVC and caustic soda, as well as paraxylene, PTA and acetic acid. The combined company generated pro forma revenues of E15 billion and EBITDA of E1.9 billion in 2019. With 50 production facilities in 19 countries and over 5,000 customers, the merged company is positioned to be among the larger players in the industry. In addition, Styrolution's production of styrene monomer will benefit from access to benzene from BP's aromatics business.

The combined entity will further benefit from geographic and product diversity, good safety track record and flexible cost structure. In 2019, EMEA contributed about half of pro-forma EBITDA while US and Asia each contributed about a quarter to the combined business. The company's end markets include electronics, healthcare, automotive, household, construction and packaging, as well as industrial applications ranging from coatings to textiles which makes the overall business relatively resilient. Positively, there has been improvement in the automotive sector demand in the second half of 2020; however, some of the textile applications have weakened which negatively impacted the aromatics business.

Both Styrolution and INOVYN have long-serving and experienced management with a mostly positive track record of integrating acquisitions and delivering on synergy targets which bodes well for the proposed transaction and mitigates a measure of execution risk. Still, recent weakness in the performance of aromatics business will require close attention from INEOS Quattro's management. The company indicated that it expected to achieve $150 million of primarily fixed cost synergies and Moody's views these as a realistic target.

Following weakened performance in the second quarter of 2020 owing to coronavirus pandemic, the chemical industry has demonstrated a measure of recovery in the second half of 2020 which Moody's expects to continue into 2021. INEOS Styrolution reported a slight increase in both its historical cost and replacement cost EBITDA in the third quarter of 2020 driven by strong polystyrene and ABS demand, although slightly offset by softer demand for styrene. INOVYN reported strong demand for GP-PVC counterbalanced by weakness in caustic soda pricing leading to only a slight EBITDA decline for the quarter. Moody's understands that both INEOS Styrolution and INOVYN have continued to achieve strong performance through the end of 2020 and expect to post robust results in the fourth quarter. Conversely, the performance of BP's aromatics assets lagged owing to the reduced demand for fibre amid global pandemic and widespread lockdowns. Acetyls' good performance was buoyed by good demand from Asia.

Whilst Moody's expects INEOS Quattro to achieve a measure of de-leveraging over the next 12-24 months as the industry recovers and synergies are realized such that its gross leverage measured as debt/EBITDA remains sustainable below 4.5x (including Moody's standard adjustments), the rating agency calculates pro-forma Moody's adjusted leverage, excluding synergies, as at year end 2020 to be in excess of 5x which it considers high for the rating category. Positively, the company is expected to generate strong operating cash flow which should help deleveraging, although the business also has material capital expenditure requirements that will need to be funded. INEOS Quattro has a clearly stated financial policy of maintaining net leverage below 3.0x through the cycle. Whilst Moody's expects the combined company to follow this policy and manage its dividend distributions accordingly, it also notes that rated INEOS entities have paid higher dividends in the past 12-18 months than historically.

ESG Considerations

Soil, water and air pollution regulations continue to represent the key environmental risks to the chemical sector, with petrochemical companies particularly exposed to carbon emission regulations. The packaging sector is the largest end market for polystyrene. This is a sector that is under pressure from both regulations and changing consumer behavior around single-use plastics.

Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Still, INEOS Quattro businesses were able to continue operating owing to their vital importance to the value chain. Apart from disruptions related to coronavirus, health and safety risks will remain very high for the chemical sector due to the handling of hazardous materials during production, storage and transportation.

INEOS Styrolution and INOVYN Limited are private companies that are part of the INEOS family of companies ultimately 100% owned by James Ratcliffe (61.8%), Andrew Currie (19.2%) and John Reece (19.0%), 95% of which is held through INEOS Limited. Despite their private status, the companies benefit from better transparency and more clearly defined financial policy than a number of sponsor-owned peers, and Moody's expects the new entity to be managed in the same manner. INEOS targets net leverage of below 3.0x through the cycle to which Moody's expects INEOS Quattro to adhere.

Liquidity

Moody's expects the new group's liquidity to be adequate with over E300 million of cash, an undrawn $300 million revolving credit facility at closing and combined undrawn asset securitization programs of almost E700 million We also anticipate the company's operating cash flows will be sufficient to cover its substantial planned capital expenditure program of slightly over E2.0 billion over the next three years, although it could be scaled back to some extent. The only near term maturities are the securitization programs which expire during 2021, although Moody's expects these to be extended and potentially upsized prior to expiry. The new RCF and term loan A facilities contain a net leverage covenant that tightens over time.

Structural Considerations

The senior secured debt of INEOS Quattro is rated Ba2 one notch above its corporate family rating of Ba3 in line with Moody's Loss Given Default model assuming a standard 50% recovery rate. The senior secured instruments are pari passu and benefit from subsidiary guarantees comprising 85% of EBITDA. The collateral includes substantially all assets of the company including cash, bank accounts, inventories and PP&E but excluding receivables that are pledged to asset securitization programs.

RATING OUTLOOK

The negative rating outlook reflects the high leverage for the rating category, the uncertain macroeconomic climate and the execution risk that INEOS Quattro will successfully integrate its acquired businesses and achieve or exceed its target synergies while gradually reducing leverage towards its stated financial policy target. The rating could be stabilized if Moody's-adjusted leverage moves sustainably towards or below 4.5x and the integration of the businesses proceeds as planned.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Whilst unlikely in the near term, positive rating pressure would occur from successful integration of the acquired businesses, achieving synergy targets and reducing leverage to well below 4.0x on a sustained basis while generating positive free cash-flow and maintaining good liquidity at all times.

Conversely, negative rating pressure could occur from failure to integrate the businesses and realized synergies as outlined such that leverage remains above 4.5x on a sustained basis. Any material deterioration in liquidity or dividend payments could also cause negative rating pressure.

LIST OF AFFECTED RATINGS Assignments: ..Issuer: INEOS 226 Limited

....BACKED Senior Secured Bank Credit Facility, Assigned Ba2

..Issuer: INEOS US Petrochem LLC

....BACKED Senior Secured Bank Credit Facility, Assigned Ba2

Confirmations, previously placed on review for downgrade:

..Issuer: INEOS Styrolution Group GmbH

....Senior Secured Bank Credit Facility, Confirmed at Ba2

....Senior Secured Regular Bond/Debenture, Confirmed at Ba2

..Issuer: Ineos Styrolution US Holding LLC

....Senior Secured Bank Credit Facility, Confirmed at Ba2

Downgrades, previously placed on review for downgrade::

..Issuer: INEOS Quattro Holdings Ltd

....Corporate Family Rating, Downgraded to Ba3 from Ba2

....Probability of Default Rating, Downgraded to Ba3-PD from Ba2-PD

Outlook Actions:

..Issuer: INEOS Quattro Holdings Ltd

....Outlook, Changed To Negative From Rating Under Review

..Issuer: INEOS 226 Limited

....Outlook, Assigned Negative

..Issuer: INEOS Styrolution Group GmbH

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Ineos Styrolution US Holding LLC

....Outlook, Changed To Negative From Rating Under Review

..Issuer: INEOS US Petrochem LLC

....Outlook, Assigned Negative

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Chemical Industry published in March 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1152388. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

COMPANY PROFILE

INEOS Quattro Holdings Limited is an indirect wholly-owned subsidiary of INEOS AG formed in January 2021 through a merger of INEOS Styrolution Holdings Limited and INOVYN together with aromatics and acetyls petrochemical assets acquired from BP plc. INEOS Quattro is a globally diversified chemical company with leadership market positions in a wide range of chemicals with broad market applications such as polystyrene, vinyls and caustic soda, paraxylene, PTA, acetic acid and acetate derivatives. On a pro-forma basis, businesses comprising INEOS Quattro generated revenues of E15 billion and EBITDA of E1.9 billion in 2019.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Maria Maslovsky Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service Ltd. One Canada Square Canary Wharf London E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Peter Firth Associate Managing Director Corporate Finance Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody's Investors Service Ltd. One Canada Square Canary Wharf London E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454

© 2021 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 CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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 OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER 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. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS 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, ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN 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.

MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.

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 its 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 CREDIT RATING, ASSESSMENT, 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 credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service 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 “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

Additional terms 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 investors.

Additional terms 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 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 credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.