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Rating Action:

Moody's assigns definitive ratings to mortgage insurance credit risk transfer notes issued by Radnor Re 2020-2 Ltd.

08 Oct 2020

New York, October 08, 2020 -- Moody's Investors Service, ("Moody's") has assigned definitive ratings to five classes of mortgage insurance credit risk transfer notes issued by Radnor Re 2020-2 Ltd.

Radnor Re 2020-2 Ltd. is the fifth transaction issued under the Radnor Re program, which transfers to the capital markets the credit risk of private mortgage insurance (MI) policies issued by Essent Guaranty (Essent, the ceding insurer) on a portfolio of residential mortgage loans. The notes are exposed to the risk of claims payments on the MI policies, and depending on the notes' priority, may incur principal and interest losses when the ceding insurer makes claims payments on the MI policies.

On the closing date, Radnor Re 2020-2 Ltd. (the issuer) and the ceding insurer will enter into a reinsurance agreement providing excess of loss reinsurance on mortgage insurance policies issued by the ceding insurer on a portfolio of residential mortgage loans. Proceeds from the sale of the notes will be deposited into the reinsurance trust account for the benefit of the ceding insurer and as security for the issuer's obligations to the ceding insurer under the reinsurance agreement. The funds in the reinsurance trust account will also be available to pay noteholders, following the termination of the trust and payment of amounts due to the ceding insurer. Funds in the reinsurance trust account will be used to purchase eligible investments and will be subject to the terms of the reinsurance trust agreement.

Following the instruction of the ceding insurer, the trustee will liquidate assets in the reinsurance trust account to (1) make principal payments to the notes as the insurance coverage in the reference pool reduces due to loan amortization or policy termination, and (2) reimburse the ceding insurer whenever it pays MI claims after the Class B-2H and Class B-3H coverage levels are written off. While income earned on eligible investments is used to pay interest on the notes, the ceding insurer is responsible for covering any difference between the investment income and interest accrued on the notes' coverage levels.

The complete rating actions are as follows:

Issuer: Radnor Re 2020-2 Ltd.

Cl. M-1A, Definitive Rating Assigned Ba1 (sf)

Cl. M-1B, Definitive Rating Assigned Ba2 (sf)

Cl. M-1C, Definitive Rating Assigned Ba3 (sf)

Cl. M-2, Definitive Rating Assigned B2 (sf)

Cl. B-1, Definitive Rating Assigned B3 (sf)

RATINGS RATIONALE

Summary Credit Analysis and Rating Rationale

We expect this insured pool's aggregate exposed principal balance to incur 2.96% losses in a base case scenario, and 19.80% losses under a Aaa stress scenario. The aggregate exposed principal balance is the product, for all the mortgage loans covered by MI policies, of (i) the unpaid principal balance of each mortgage loan, (ii) the MI coverage percentage, and (iii) the reinsurance coverage percentage. Reinsurance coverage percentage is 100% minus existing quota share reinsurance through unaffiliated insurer, if any. The existing quota share reinsurance applies to nearly 100% of unpaid principal balance of the reference pool, in which approximately 10.1% have 40% quota share existing reinsurance, and 89.9% have 20% quota share existing reinsurance. The ceding insurer has purchased quota share reinsurance from unaffiliated third parties, which provides proportional reinsurance protection to the ceding insurer for certain losses.

The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Our analysis has considered the effect on the performance of residential mortgage loans from the current weak US economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high. We increased our model-derived median expected losses by 15% (mean expected losses by 13.43%) and our Aaa losses by 5% to reflect the likely performance deterioration resulting from a slowdown in US economic activity in 2020 due to the COVID-19 outbreak.

We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.

We calculated losses on the pool using our US Moody's Individual Loan Analysis (MILAN) model based on the loan-level collateral information as of the cut-off date. Loan-level adjustments to the model results included, but were not limited to, adjustments for origination quality.

Collateral Description

Each mortgage loan has an insurance coverage effective date on or after September 1, 2019, but on or before July 31, 2020. The reference pool consists of 243,890 prime, fixed- and adjustable-rate, one- to four-unit, first-lien fully-amortizing, predominantly conforming mortgage loans with a total insured loan balance of approximately $68 billion. All loans in the reference pool had a loan-to-value (LTV) ratio at origination that was greater than 80%, with a weighted average of 91.4%. The borrowers in the pool have a weighted average FICO score of 748, a weighted average debt-to-income ratio of 35.9% and a weighted average mortgage rate of 3.6%. The weighted average risk in force (MI coverage percentage net of existing reinsurance coverage) is approximately 19.4% of the reference pool unpaid principal balance. The aggregate exposed principal balance is the portion of the pool's risk in force that is not covered by existing quota share reinsurance through unaffiliated parties.

The weighted average LTV of 91.4% is far higher than those of recent private label prime jumbo deals, which typically have LTVs in the high 60's range, however, it is in line with those of recent STACR high LTV CRT transactions. All these insured loans in the reference pool were originated with LTV ratios greater than 80%. 100% of insured loans were covered by mortgage insurance at origination with 96.6% covered by BPMI and 3.4% covered by LPMI based on risk in force.

Underwriting Quality

We took into account the quality of Essent's insurance underwriting, risk management and claims payment process in our analysis.

Essent's underwriting requirements address credit, capacity (income), capital (asset/equity) and collateral. It has a licensed in-house appraiser to review appraisals.

Lenders submit mortgage loans to Essent for insurance either through delegated underwriting or non-delegated underwriting programs. Under the delegated underwriting program, lenders can submit loans for insurance without Essent re-underwriting the loan file. Essent issues an MI commitment based on the lender's representation that the loan meets the insurer's underwriting requirement. Lenders eligible under this program must be pre-approved by Essent's risk management group and are subject to targeted internal quality assurance reviews. Under the non-delegated underwriting program, insurance coverage is approved after full-file underwriting by the insurer's underwriters. As of June 2020, approximately 62.3% of the loans in Essent's overall portfolio are insured through delegated underwriting and 37.8% through non-delegated underwriting. Essent broadly follows the GSE underwriting guidelines via DU/LP, subject to certain additional limitations and requirements.

Servicers provide Essent monthly reports of insured loans that are 60-day delinquent prior to any submission of claims. Claims are typically submitted when servicers have taken possession of the title to the properties. Essent's claims review process include loan files, payment history, quality review results, and property value. Essent will send the first document request letter to the related servicer within 20 days of receipt of claim, and may take additional 10 day period after receipt of response to make additional requests. Claims are paid within 60 days after all required documents are submitted.

Essent performs an internal quality assurance review on a sample basis of delegated and non-delegated underwritten loans. Essent selects a random and targeted sample of loans for review, and assesses each loan file for data accuracy, underwriting quality and process integrity. Third party vendors are utilized in the quality assurance reviews as well as re-verifications and investigations. Vendors must meet stringent approval requirements. 10% of all third party reviewed loans are evaluated by Essent's staff to ensure accuracy of findings.

Third-Party Review

Essent engaged Consolidated Analytics, Inc. to perform a data analysis and diligence review of a sampling of mortgage loans files submitted for mortgage insurance. This review included validation of credit qualifications, verification of the presence of material documentation as applicable to the mortgage insurance application, updated valuation analysis and comparison, and a tape-to-file data integrity validation to identify possible data discrepancies. The scope does not include a compliance review.

The scope of the third-party review is weaker than other MI CRT transactions we rated because the sample size was small (only 321 of the total loans in the initial reference pool as of May 2020, or 0.13% by loan count). Once the sample size was determined, the files were selected randomly to meet the final sample count of 321 files out of a total of 243,890 loan files.

In spite of the small sample size and a limited TPR scope for Radnor Re 2020-2 Ltd., we did not make an additional adjustment to the loss levels because, (1) approximately 35% of the loans in the reference pool were submitted through non-delegated underwriting, which have gone through full re-underwriting by the ceding insurer, (2) the underwriting quality of the insured loans is monitored under the GSEs' stringent quality control system, and (3) MI policies will not cover any costs related to compliance violations.

In addition, the TPR available sample does not cover a subset of pool that have MI coverage effective date on and after June 2020, representing 36.2% of the pool by loan count. We did not make any adjustment because we found no material difference in credit characteristics between the post-June 2020 subset and the pre-June 2020 subset, including the percentage of loans with MI policies underwritten through non-delegated underwriting program, which ceding insurer requires full loan file and performs independent re-underwriting and quality assurance. We took this into consideration in our TPR review.

Scope and results. The third-party due diligence scope focuses on the following:

Appraisals: The third-party diligence provider also reviewed property valuation on 321 loans in the sample pool. The third-party review concluded a property grade of A for 315 loans. For those loans with property grade A, an AVM was first ordered on all loans, in which 6 AVMs returned no results due to insufficient property information. The AVM variance is calculated as difference between AVM value and the lesser of original appraisal or sales price. If the resulting negative variance of the AVM was greater than 10%, or if no results were returned, a BPO was ordered on the property. If the resulting value of the BPO was less than 90% of the value reflected on the original appraisal a field review was ordered on the property. Within these grade A loans, all the appraisal values are supported by BPO within a 10% variance. Loans qualified with a property inspection waiver were excluded from a BPO or a field review.

In addition, there were 6 loans not assigned a property grade. For these loans, the vendor ordered 1 broker price opinion (BPO) and 5 field review appraisals for the related properties, however, the results were not obtained in time for this offering. We did not make additional adjustment to these loans given we used the lower of appraisal and purchase price as property value in our analysis.

Credit: The third-party diligence provider reviewed credit on 321 loans in the sample pool. The third-party diligence provider reviewed each mortgage loan file to determine the adherence to stated underwriting or credit extension guidelines, standards, criteria or other requirements provided by Essent. For GSE eligible mortgage loan files, the review of the Automated Underwriting System (AUS) output was also performed. Per the TPR report, 314 loans have credit grade A, 1 loan has grade B and 6 loans have grade C. These grade C exceptions were due to insufficient document provided to due diligence provider from the lender or servicer, given the time frame of this offering. We did not make adjustment to our losses for these exceptions because these were all GSE eligible loans underwritten to full documentation. Such exceptions will likely to be cured after transaction closing.

Data integrity: The third-party review firm was provided a data file with loan level data, which was audited against origination documents to determine the accuracy of data found within the data tape. The following 16 data fields were reviewed against the list of source documents in loan files to confirm the integrity of data tape information. As the TPR report suggests, there are 29 discrepancy findings under DTI column, in which only 6 loans have higher DTI per TPR provider's calculation.

Reps & Warranties Framework

The ceding insurer does not make any representations and warranties to the noteholders in this transaction. Since the insured mortgages are predominantly GSE loans, the individual sellers would provide exhaustive representations and warranties to the GSEs that are negotiated and actively monitored. In addition, the ceding insurer may rescind the MI policy for certain material misrepresentation and fraud in the origination of a loan, which would benefit the MI CRT noteholders.

Transaction Structure

The transaction structure is very similar to GSE CRT transactions that we have rated. The ceding insurer will retain the senior coverage level A-H, coverage level B-2H and the coverage level B-3H at closing. The offered notes benefit from a sequential pay structure. The transaction incorporates structural features such as a 10-year bullet maturity and a sequential pay structure for the non-senior tranches, resulting in a shorter expected weighted average life on the offered notes.

Funds raised through the issuance of the notes are deposited into a reinsurance trust account and are distributed either to the noteholders, when insured loans amortize or MI policies terminate, or to the ceding insurer for reimbursement of claims paid when loans default. Interest on the notes is paid from income earned on the eligible investments and the coverage premium from the ceding insurer. Interest on the notes will accrue based on the outstanding balance of the notes, but the ceding insurer will only be obligated to remit coverage premium based on each note's coverage level.

Credit enhancement in this transaction is comprised of subordination provided by mezzanine and junior tranches. The rated Class M-1A, Class M-1B, Class M-1C, Class M-2 and Class B-1 offered notes have credit enhancement levels of 5.90%, 5.20%, 4.50%, 3.75% and 3.50%, respectively. The credit risk exposure of the notes depends on the actual MI losses incurred by the insured pool. MI losses are allocated in a reverse sequential order starting with the coverage level B-3H. Investment deficiency amount losses are allocated in a reverse sequential order starting with the class B-1 notes.

So long as the senior coverage level is outstanding, and no performance trigger event occurs, the transaction structure allocates principal payments on a pro-rata basis between the senior and non-senior reference tranches. Principal is then allocated sequentially amongst the non-senior tranches. Principal payments are all allocated to the senior reference tranche when a trigger event occurs.

A trigger event with respect to any payment date will be in effect if the coverage level amount of coverage level A-H for such payment date has not been reduced to zero and either (i) the preceding three month average of the sixty-plus delinquency amount for that payment date equals or exceeds 75.00% of coverage level A-H subordination amount or (ii) the subordinate percentage (or with respect to the first payment date, the original subordinate percentage) for that payment date is less than the target CE percentage (minimum C/E test: 7.50%).

Premium Deposit Account (PDA)

The premium deposit account will benefit the transaction upon a mandatory termination event (e.g. the ceding insurer fails to pay the coverage premium and does not cure, triggering a default under the reinsurance agreement), by providing interest liquidity to the noteholders, when combined with the income earned on the eligible investments, of approximately 70 days while the reinsurance trust account and eligible investments are being liquidated to repay the principal of the notes.

On the closing date, the ceding insurer will establish a cash and securities account (the PDA) but no initial deposit amount will be made to the account by the ceding insurer unless the premium deposit event is triggered. The premium deposit event will be triggered (1) with respect to any class of notes, if the rating of that class of notes exceeds the insurance financial strength (IFS) rating of the ceding insurer or (2) with respect to all classes of notes, if the ceding insurer's IFS rating falls below Baa2. If the note ratings exceed that of the ceding insurer, the insurer will be obligated to deposit into and maintain in the premium deposit account the required PDA amount (see next paragraph) only for the notes that exceeded the ceding insurer's rating. If the ceding insurer's rating falls below Baa2, it will be obligated to deposit the required PDA amount for all classes of notes.

The required PDA amount for each class of notes and each month is equal to the excess, if any, of (i)(a) the coupon rate of the note multiplied by (b) the applicable funded percentage, (c) the coverage level amount for the coverage level corresponding to such class of notes and (d) a fraction equal to 70/360, over (ii) two times the investment income collected (but not yet distributed) on the eligible investments.

We believe the requirement that the PDA be funded only upon a rating trigger event does not establish a linkage between the ratings of the notes and the IFS rating of the ceding insurer because, 1) the required PDA amount is small relative to the entire deal, 2) the risk of PDA not being funded could theoretically occur only if the ceding insurer suddenly defaults, causing a rating downgrade from investment grade to default in a very short period, which is a highly unlikely scenario, and 3) even if the insurer becomes insolvent, there would be a strong incentive for the insurer's insolvency regulator to continue to make the interest payments to avoid losing reinsurance protection provided by the deal.

Claims Consultant

To mitigate risks associated with the ceding insurer's control of the trust account and discretion to unilaterally determine the MI claims amounts (i.e. ultimate net losses), the ceding insurer will engage Consolidated Analytics, Inc., as claims consultant, to verify MI claims and reimbursement amounts withdrawn from the reinsurance trust account once the coverage level B-3H and the coverage level B-2H have been written down. The claims consultant will review on a quarterly basis a sample of claims paid by the ceding insurer covered by the reinsurance agreement. In verifying the amount, the claims consultant will apply a permitted variance to the total paid loss for each MI Policy of +/- 2%. The claims consultant will provide a preliminary report to the ceding insurer containing results of the verification. If there are findings that cannot be resolved between the ceding insurer and the claims consultant, the claims consultant will increase the sample size. A final report will be delivered by the claims consultant to the trustee, the issuer and the ceding insurer. The issuer will be required to provide a copy of the final report to the noteholders and the rating agencies.

Unlike RMBS transactions where there is typically some level of independent third party oversight by the trustee, the master servicer and/or the securities administrator, MI CRT transactions typically do not have such oversight. As noted, the ceding insurer not only has full control of the trust account but can also determine, at its discretion, the MI claims amount. The ceding insurer will then direct the trustee to withdraw the funds to reimburse for the claims paid. Since the trustee is not required to verify the MI claims amount, there could be a scenario where funds are withdrawn from the reinsurance trust account in excess of the amounts necessary to reimburse the ceding insurer. As such, we believe the claims consultant in this transaction will provide the oversight to mitigate such risks.

Factors that would lead to an upgrade or downgrade of the ratings:

Down

Levels of credit protection that are insufficient to protect investors against current expectations of loss could drive the ratings down. Losses could rise above Moody's original expectations as a result of a higher number of obligor defaults or deterioration in the value of the mortgaged property securing an obligor's promise of payment. Transaction performance also depends greatly on the US macro economy and housing market. Other reasons for worse-than-expected performance include poor servicing, error on the part of transaction parties, inadequate transaction governance and fraud.

Up

Levels of credit protection that are higher than necessary to protect investors against current expectations of loss could drive the ratings of the subordinate bonds up. Losses could decline from Moody's original expectations as a result of a lower number of obligor defaults or appreciation in the value of the mortgaged property securing an obligor's promise of payment. Transaction performance also depends greatly on the US macro economy and housing market.

Methodology

The principal methodology used in these ratings was "Moody's Approach to Rating US RMBS Using the MILAN Framework" published in April 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1201303. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

In addition, Moody's publishes a weekly summary of structured finance credit ratings and methodologies, available to all registered users of our website, www.moodys.com/SFQuickCheck.

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.

The analysis relies on an assessment of collateral characteristics to determine the collateral loss distribution, that is, the function that correlates to an assumption about the likelihood of occurrence to each level of possible losses in the collateral. As a second step, Moody's evaluates each possible collateral loss scenario using a model that replicates the relevant structural features to derive payments and therefore the ultimate potential losses for each rated instrument. The loss a rated instrument incurs in each collateral loss scenario, weighted by assumptions about the likelihood of events in that scenario occurring, results in the expected loss of the rated instrument.

Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.

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.

Ruomeng Cui
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Sonny Weng
Vice President - Senior Analyst
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

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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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.

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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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