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MOODY'S ASSIGNS A1 RATING TO GUNDERSEN LUTHERAN'S (WI) $205 MILLION OF SERIES 2011A FIXED RATE AND SERIES 2011B VARIABLE RATE DEMAND BONDS; RATING OUTLOOK REMAINS NEGATIVE

01 Sep 2011

GUNDERSEN LUTHERAN TO HAVE APPROXIMATELY $205 MILLION OF PROFORMA RATED REVENUE BONDS OUTSTANDING

Wisconsin Health & Educational Fac. Auth.
Health Care-Hospital
WI

Moody's Rating

ISSUE

RATING

Series 2011A Fixed Rate Revenue Bonds

A1

  Sale Amount

$165,000,000

  Expected Sale Date

09/12/11

  Rating Description

Hospital Revenue Bonds

 

Series 2011B Variable Rate Demand Bonds

A11

  Sale Amount

$40,000,000

  Expected Sale Date

09/29/11

  Rating Description

Hospital Revenue Bonds

 

1 1 Expected to be supported by a letter of credit from JPMorgan Chase Bank, N.A. Ratings reflecting joint support expected to be assigned separately
 
Moody's Outlook   Negative
 

Opinion

NEW YORK, Sep 1, 2011 -- Moody's Investors Service has assigned an A1 long-term and underlying ratings to Gundersen Lutheran's (Gundersen) $165 million of Series 2011A fixed rate revenue bonds and $40 million of Series 2011B variable rate demand bonds (VRDBs) to be issued through the Wisconsin Health and Educational Facilities Authority. The 2011A and 2011B bonds will be the only rated bonds outstanding after the completion of the financing. The Series 2011B bonds are expected to be supported by an irrevocable direct pay letter of credit (LOC) from JPMorgan Chase, N.A. (the LOC is expected to expire September 29, 2016). At this time, we are also affirming Gundersen's A1 underlying ratings on approximately $77 million of rated debt outstanding listed at the conclusion of this report. Moody's expects to issue a separate report assigning the joint support rating to the Series 2011B bonds. The outlook remains negative.

SUMMARY RATING RATIONALE: The A1 rating reflects the system's fundamental strengths as a integrated delivery system led by a large employed medical staff, health plan, investments in technology for over a decade and clinical achievements from its emphasis on delivering high quality and low cost care. Furthermore, Gundersen has strengthened its balance sheet in recent years with growth in unrestricted cash and improved liquidity measures. We believe Gundersen will be able to leverage its leading market presence and continue to produce favorable operating cash flow and maintain good liquidity and debt service coverage measures to support current large borrowing plans.

The maintenance of the negative outlook reflects moderating of operating performance in recent years, a large debt issuance for sizable capital plans that adds operating and construction risk, and recent unexpected findings of weakness in accounting practices that led to the restatement of audited financial statements and reduction in operating income over two years. Future rating action and/or outlook revision will depend on the system's ability to support the increased debt load, manage the construction and operations of new capital projects, improve performance and maintain favorable liquidity and debt service coverage measures. Any material weakening of financial performance could pressure the rating.

STRENGTHS

*Large integrated delivery system (with over $830 million revenue base in fiscal year 2010) anchored by large teaching hospital located in La Crosse, Wisconsin; maintains leading market share in a broad 19-county service area covering western Wisconsin, southeastern Minnesota, and northeastern Iowa

*Wide breadth of clinical services, including high-end tertiary procedures (except burn and transplants) indicated by a high Medicare case mix index (CMI) of 1.65 in fiscal year (FY) 2010 increasing to 1.73 through six month of FY 2011 due to continued favorable surgery volume growth

*Growth in unrestricted cash and investments to $465 million as of December 31, 2010, resulting in 223 days cash on hand and 190% cash-to-debt; proforma cash-to-debt decreases but remains favorable at 147%

*Current financing plan is expected to lower the system's variable rate debt exposure to 52% of total debt from an aggressive 96% at fiscal year end (FYE) 2010; proforma cash-to-demand debt (including LOC-backed debt and direct bank loans) is over two times coverage

CHALLENGES

*Sizable increase in debt load by 40% (debt will increase by a net $100 million) to support a major campus renewal project that includes the construction of a new five-story patient tower, which adds operating and construction risk

*Operating performance has moderated over the last few years due to variability in volume trends and deterioration in payor mix with a sizable increase in Medicare and Medicare (combined represented 54.2% of gross revenues in FY 2010 from 50% in FY 2008 and decrease in commercial payors (represented 40.2% of gross revenues from 44% in FY 2008)

*Recent restatement of financial statements identified weaknesses in accounting practices that led to a combined $10 million net reduction in operating income over FY 2009 and FY 2010; through six months of FY 2011, operating results are on par with the prior year period (2.5% operating margin and 7.9% operating cash flow margin)

*Presence of a sizable primary competitor in town; Franciscan Skemp Healthcare (affiliated with Aa2-rated Mayo Health System since 1995) has a strong alliance with a sizable physician clinic, although Gundersen is larger in size and provides more comprehensive services

DETAILED CREDIT DISCUSSION

USE OF PROCEEDS: The proceeds from the Series 2011A fixed rate bonds and Series 2011B VRDB bonds will be used to (1) refund approximately $67.9 million of Series 2000A,B VRDB bonds and $26.0 million Series 2008A variable rate direct purchase bank loan, (2) finance the costs of the campus renewal project that will include construction and equipping a new five-story patient tower and expansion of services, (3) cash reimburse Gundersen for prior capital expenditures for the campus renewal project; and (4) pay the cost of issuance.

LEGAL SECURITY: The Series 2011A and Series 2011B are expected to be full, unlimited joint and several obligations secured by a pledge of revenues from the obligated group. Current members of the obligated group include the Gundersen Lutheran Medical Center, Inc., the Gundersen Clinic, Ltd., Gundersen Lutheran Administrative Services, Inc., and Gundersen Lutheran Medical Foundation, Inc. The bonds will not be secured by a mortgage. A debt service reserve fund will not be included. Covenants include additional indebtedness and debt service coverage tests.

DEBT STRUCTURE: Gundersen is expected to issue approximately $165 million of Series 2011A fixed rate bonds and $40 million of Series 2011B VRDB bonds supported by five-year JPMorgan Chase Bank N.A. LOCs (expires on September 29, 2016). Based on current proposed financing plan, the proforma debt structure will be 47.5% fixed rate debt, 40.8% variable rate direct bank loans, and 11.7% LOC-backed VRDB bonds (for a total of 52% variable rate debt).

INTEREST RATE DERIVATIVES: In connection with the Series 2000B, Series 2003B, Series 2003C, and Series 2008B bonds Gundersen has entered into four floating-to-fixed payor interest rate swap agreements in the notional amount of approximately $178.9 million. Under the terms of the swaps, Gundersen pays fixed rates ranging between 3.26% and 3.79% and receives 67% of one-month LIBOR index. The counterparty for the swaps related to Series 2000B, 2003C, and 2008B bonds is Merrill Lynch Capital Services, Inc and the counterparty for the swap related to Series 2003B bonds is Piper Jaffrey Financial Products, Inc. The swap related to the Series 2003C bonds is currently insured by Assured Guaranty and does not require collateral posting. As of August 18, 2011, the mark-to-market value of all of the swaps was equal to a liability of $39.4 million and the mark-to-market value of the insured swaps related to the 2000B and 2008B bonds was equal to a liability of $23.5 million. Gundersen was required to post collateral in the amount of $8.5 million as of August 22, 2011 on these uninsured swaps. Gundersen plans to keep all swaps in place as part of the current financing plan. In connection with the current bond offering and current debt restructuring, Gundersen intends to terminate the insurance on the insured swap and, following such termination, Gundersen will be required to post cash collateral to secure obligations to the related swap counterparty if the negative value of the swaps related to the 2000B, 2008B and 2003C bonds falls below $15 million. Assuming the termination occurred as of August 22, 2011, Gundersen would be required to post an additional $7.0 million as a result of the termination of the insured swap.

MARKET POSITION/COMPETITIVE STRATEGY: STRONG REGIONAL PRESENCE AS A LARGE ESTABLISHED INTEGRATED DELIVERY SYSTEM WITH LEADING MARKET SHARE IN A BROAD SERVICE AREA

Moody's continues to view favorably Gundersen's leading market position in a wide 19-county service area. Gundersen is an integrated healthcare delivery system that includes a 325-licensed bed (of which 259 are staffed) teaching hospital located in the city of La Crosse, WI (Aa2 general obligation rating), the Gundersen Clinic physician practice with over 430 employed physicians (almost all of its active medical staff is employed), a health plan (membership has grown to 91,000 in FY 2010 from 52,000 in FY 2005, premium revenues represent nearly 28% of Gundersen's total operating revenues), and 21 regional medical clinics and 12 vision centers located throughout western Wisconsin, southeastern Minnesota, and northeastern Iowa. Gundersen also serves as the western campus of the University of Wisconsin School of Medicine and Public Health and School of Nursing.

According to management, Gundersen maintains a leading 58% market share in La Crosse County and captures 43% market share from its primary service area (PSA). Gundersen's primary competitor is Franciscan Skemp Healthcare (affiliated with Aa2-rated Mayo Health System), also located in La Crosse but is smaller in size with 192 staffed beds and has a smaller physician clinic. Franciscan Skemp maintains about 38% market share in La Crosse County and 26% in the PSA.

Gundersen's service area covers a wide geography including western Wisconsin, southeastern Minnesota, and northeastern Iowa. La Crosse County (Aa1 general obligation rating) has a population of about 115,000 and the total 19-county service area has a population of over 550,000. The local economy has a diverse employer base made of healthcare, manufacturing, education, government, and retail sectors. Gundersen is the largest employer in the county with approximately 6,200 employees followed by Ashley Furniture with 4,000 employees. The county is also home to the University of Wisconsin - La Crosse campus and Western Technical College District. The population has been relatively stable with some growth (7% population growth from 2000 to 2010 in La Crosse County based on US Census Bureau). Favorably, the unemployment rate has remained a low 6.2% compared state and national average (based on July 2011 US Census Bureau of Labor Statistics).

OPERATING PERFORMANCE: OPERATING PEFORMANCE HAS MODERATED OVER LAST THREE YEARS; ALTHOUGH MAINTENANCE OF GOOD PROFORMA DEBT SERVICE COVERAGE

Gundersen's operating performance has moderated and fluctuated in recent years following several years of consistent operating performance with 4% operating margins and 10% operating cash flow margins from FY 2003 to FY 2007. Favorably, operating performance improved in FY 2010 (but not to the historical level) with operating income of $31.7 million (3.8% operating margin) and operating cash flow of $77.1 million (9.3% operating cash flow margin), from a material downturn in FY 2009 with a operating income of $1.6 million (0.2%) and operating cash flow of $48.8 million (6.3% margin) (based on restated FY 2009 and FY 2010 audited financial statements discussed below). The first six months of FY 2011 are slightly ahead of the prior year period results with operating income of $10.9 million (2.6% margin) and operating cash flow of $33.6 million (7.9% margin) from $9.1 million (2.2% margin) and $31.0 million (7.6% margin), respectively, through six months of FY 2010. Total surgery and outpatient volumes continue to increase resulting in nearly 5% revenue growth through the first six months of FY 2011. Surgery volume growth continues to be favorable in part due to the successful recruitment of eight new surgeons in 2010.

Management attributed the improvement in FY 2010 to more favorable volume trends, operating efficiencies and a favorable $2.9 million CMS risk adjustment settlement for the prior year in the second half of the year. Combined inpatient admissions and observation stays increased 4.7% and total surgeries were up 3.2%. The modest performance in FY 2009 was due largely to a significant deterioration in payor mix with growth in government payors (Medicare increased to 43% of gross charges in FY 2010 from 42% in FY 2008 and Medicaid spiked to 11% of gross charges from 8% in FY 2008) and decrease in commercial payors (decreased to 40.2% of gross charges from 44% in FY 2008). Additionally, volume trends were also weaker than in prior years with 3.1% decline in combined inpatient admissions and observation stays and flat surgery volumes in FY 2009.

In late May 2011, Gundersen found errors in internal accounting practices that had been redesigned in FY 2009. As a result, Gundersen restated the FY 2009 and FY 2010 audited financial statements, resulting in an approximately $10 million combined net reduction in operating income recorded over two years. Corrections were made to several key areas and estimates including accounts receivable allowances and collectability rate, incurred but not recorded (IBNR) expense and liability estimates for capitation arrangements under the health plan and employee health benefits and other capitation estimates. Gundersen also had to reclassify some revenue and expense items. There was very little effect to the balance sheet.

Gundersen appointed a new Chief Financial Officer (CFO) earlier this year in February 2011. A national search for a new CFO was planned as the former CFO was transitioning into a newly created role as Chief of Corporate Ventures, Partnerships and Investments. Also, a new Senior Vice President, Strategy was appointed in January 2011. There have been no other notable changes in senior management or at the board level at this time.

BALANCE SHEET POSITION: GROWTH IN CASH AND INVESTMENTS IN RECENT YEARS SUPPORTS CURRENT SIZABLE INCREASE IN DEBT; CASH EXPECTED TO IMPROVE FURTHER AFTER CURRENT BORROWING PLANS

Gundersen's balance sheet has strengthened since FY 2008 with unrestricted cash and investments reaching $465 million as of FYE 2010, equating to strong 223 days cash on hand and 190% cash-to-debt. The issuance of the Series 2011A and Series 2011B bonds will weaken proforma cash-to-debt but will remain adequate at 147%. Gundersen adheres to a relatively conservative investment policy with unrestricted cash and investments currently allocated to 71% cash and fixed income securities and 29% to equities. Investments are highly liquid with all investments able to be liquidated within one month. Gundersen maintains a defined contribution plan and 401(k) plan covering almost of its employees. As of June 30, 2011, unrestricted cash and investments balance declined slightly to $459 million due to timing of the annual contribution to the retirement plan (made in the first quarter of every year) in February 2011 of nearly $47 million.

The proposed issuance of the Series 2011A fixed rate bonds will be used to refund approximately $67.9 million of Series 2000A,B VRDB bonds and $26.0 million of Series 2008A variable rate direct purchase bank loan. Additionally, about $70 million of the Series 2011A and $40 million of the 2011B VRDB bonds will finance a portion of the large campus renewal project (discussed below). The initial phase of the construction began in January 2011 and about $40 million of the bond proceeds will be used to cash reimburse the system for prior capital spending on the project. Gundersen's total debt outstanding will increase by a sizable 40%, the net increase in debt will be about $100 million after the cash defeasance of $9.1 million of Series 2003A fixed rate bonds. As of FYE 2010 (December 31), Gundersen had approximately $246 million of total debt outstanding, which will increase to proforma $345 million debt outstanding based on the current financing plan. Favorably, Gundersen's variable rate debt exposure will be reduced to 52% from the current 96%. Gundersen's pro forma ratio of cash-to-demand debt will remain a strong 277%.

The Series 2011B VRDB bonds will be supported by a JPMorgan Chase Bank five-year LOC) (expected to expire September 29, 2016). The LOC includes several financial and rating covenants (similar to the direct bank loan covenants) including a minimum liquidity covenant of 75 days cash on hand measured semiannually, debt service coverage ratio of no less than 1.1 times measured quarterly, debt to capitalization ratio equal to or less than 0.65 measured quarterly, and maintenance of at least Baa2 long-term rating from two rating agencies at all times. Gundersen maintains sufficient headroom under all covenants at this time. The 2008B and 2009A,B direct bank loans allow the system to request a one year extension prior to the expiration dates. Favorably, the renewal dates for all the bank agreements are staggered over four years starting in 2013, 2014, and 2016.

Capital spending over the past five years (FY 2006 to FY 2010) has ranged between approximately $45-$76 million (averaging 1.7 times depreciation expense). Capital spending is projected to ramp up over the next three years (FY 2011 to FY 2013) for the campus renewal project. Routine capital including upgrades to information systems, maintenance and equipment is projected to range between $40-55 million annually. Capital spending for Phase I of the campus renewal project is expected to range between $50-95 million annually.

The total cost of the campus renewal project is approximately $322 million (about $218 million for Phase I and $104 million for Phase II). The system has entered into a $147 million guaranteed maximum price contract for the initial phase of the project. The scope of Phase I of the project includes the construction of a new, all private room five-story patient tower (will be located adjacent to the existing patient tower), a new and expanded trauma and emergency department, new operating rooms with specialized technology, a new hospital entrance and lobby, centralized services for women and children services, and improved medical/surgical and critical care units. The project is expected to add 25 new acute care beds and 18 new bays in the ED. Future phases are expected to build-out remaining floors scheduled to begin in FY 2014. The entire project is scheduled to be completed over a four-to-eight year period with the opening of the new patient tower at the end of CY 2013.

Phase I of the project is expected to be funded partially through the current borrowing planned of $110 million of new bonds, $68 million through excess operating cash flow, and $40 million in fundraising. Management expects to raise over $40 million from philanthropy over a five year period. As of June 30, 2011, contributions and pledges totaled about $9 million. The public campaign was launched in late June 2011. Future phases of the project are expected to be funded through fundraising, operations, and a possible $50 million new debt issuance in the future that will be contingent on the success of its fundraising campaign, the system's financial performance at the time, and subject to review and approval by the board of trustees.

Gundersen physicians developed an ambulatory electronic health record 18 years ago. In 2008, the system implemented EPIC in the hospital and recently went live with the upgraded EPIC ambulatory system with all of its physicians. Gundersen also recently submitted an application to Medicare for EHR meaningful use incentive payments for the hospital and is anticipating to receive over $20 million over five years.

Proforma debt measures weaken but remain adequate to service a manageable debt load (measured by proforma debt-to-operating revenues of 42%). Based on FY 2010 results and the current financing plan, proforma Moody's adjusted maximum annual debt service (MADS) coverage measures 4.7 times (A1 median is 4.7) and adjusted debt-to-cash flow a higher (unfavorable) 3.7 times (A1 median is 3.1), compared 5.5 and 2.6, respectively, in FY 2010

Outlook

The maintenance of the negative outlook reflects moderating of operating performance in recent years and a sizable debt issuance for large capital plans over the next five years which adds operating and construction risk. Future rating action and/or outlook revision will depend on the system's ability to support the increased debt load, manage the construction and operations of new capital projects, improve financial performance, and maintain favorable liquidity and debt service coverage measures. Any material weakening of financial performance could pressure the rating.

WHAT COULD MAKE THE RATING GO - UP

Favorable and consistent inpatient and outpatient volume and revenue growth; material improvement in operating performance and ability to sustain improved performance for multiple years; improved liquidity ratios; material strengthening of debt coverage measures; increase in market share

WHAT COULD MAKE THE RATING GO - DOWN

Decline in volumes and revenue growth; inability to improve and sustain higher financial performance; weakening debt service coverage measures; decline in liquidity or significant unexpected debt issuance without significant commensurate increase in cash flow generation; loss in market share

KEY INDICATORS

Assumptions & Adjustments:

-Based on Gundersen Lutheran (consisting of Gundersen Clinic, Ltd.; Gundersen Lutheran Medical Center,

Inc.; Gundersen Lutheran Administrative Services, Inc.; and Gundersen Lutheran Medical Foundation, Inc.)

combined financial statements

-First number reflects restated audit year ended December 31, 2009

-Second number reflects restated audit year ended December 31, 2010

-Third number reflects pro forma based on restated audit year end December 31, 2010; including refunding and issuance of 2011A and 2011B bonds and $40 million cash reimbursement for prior capital expenditures on the campus renewal project

-Investment returns smoothed at 6%

*Inpatient admissions: 13,785; 13,430; 13,430

*Total operating revenues: $778 million; $832 million; $832 million

*Moody's-adjusted net revenues available for debt service: $74.5 million; $105million; $107 million

*Total debt outstanding: $262 million; $246 million; $345 million

*Maximum annual debt service (MADS): $21 million; $19 million; $23 million

*MADS Coverage with reported investment income: 6.2 times; 5.7 times; 4.7 times

*Moody's-adjusted MADS Coverage with normalized investment income: 3.9 times; 5.5 times; 4.7 times

*Debt-to-cash flow: 4.1 times; 2.6 times; 3.7 times

*Days cash on hand: 213 days; 223 days; 237 days

*Cash-to-debt: 164%; 189%; 145%

*Operating margin: 0.2%; 3.8%; 3.3%

*Operating cash flow margin: 6.3%; 9.3%; 9.3%

RATED DEBT (debt outstanding as of December 31, 2010)

Issued through Wisconsin Health and Educational Facilities Authority:

-Series 2000A, B (variable rate demand bonds) ($67.9 million outstanding), insured by Assured Guaranty, secured by a standby bond purchase agreement from Dexia Credit Local, A1 underlying rating (expected to be refunded with Series 2011A fixed rate bonds as part of the current financing plan)

-Series 2003A (fixed rate) ($9.1 million outstanding), insured by Assured Guaranty, A1 underlying rating (expected to cash defease bonds as part of the current financing plan)

NON RATED DEBT

-Series 2008A (variable rate) Wells Fargo Bank direct purchase bank loan ($26.0 million outstanding, expires 2013) (expected to refunded with Series 2011A fixed rate bonds as part of the current financing plan)

-Series 2008B (variable rate) Wells Fargo Bank direct purchase bank loan ($61.4 million outstanding, expires 2013)

-Series 2009A,B (variable rate) Wells Fargo Bank direct purchase bank loan ($78.7 million outstanding, expires 2014)

CONTACTS

Obligor: Gordon Edwards, Chief Financial Officer, Gundersen Lutheran Health System (608) 775-1132; Susan Sharpe, Director of Treasury (608) 775-0171

Financial Advisor: Andy Majka, Managing Partner and Chief Executive Officer, Kaufman Hall, (847) 441-8780,

Underwriter: Terence Mieling, Director, Bank of America/Merrill Lynch, (312) 537-6374

The last rating action with respect to Gundersen Lutheran was on May 1, 2009, when a municipal finance scale A1 rating affirmed and the outlook was revised to negative from stable. That rating was subsequently recalibrated to A1 on May 7, 2010.

PRINCIPAL METHODOLOGY USED

The principal methodology used in this rating was Not-for-Profit Hospitals and Health Systems published in January 2008. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant 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.

Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information, confidential and proprietary Moody's Analytics' information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a 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.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

Analysts

Deepa Patel
Analyst
Public Finance Group
Moody's Investors Service

Mark Pascaris
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
USA

MOODY'S ASSIGNS A1 RATING TO GUNDERSEN LUTHERAN'S (WI) $205 MILLION OF SERIES 2011A FIXED RATE AND SERIES 2011B VARIABLE RATE DEMAND BONDS; RATING OUTLOOK REMAINS NEGATIVE
No Related Data.
© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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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 $2,700,000. 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 JPY250,000,000.

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

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