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Rating Action:

Moody's withdraws EFH's Corporate Family Rating; Assigns two new CFR's to differentiate default probability; Lowers Oncor's senior secured debt to Baa3 with a stable outlook

26 Feb 2013
NOTE: On March 12, 2013 the press release was revised as follows: Under Ratings downgraded, the twelfth debt under issuer Texas Competitive Electric Holdings was corrected from unsecured to secured and now reads as follows: “7.46% Legacy Sr. Sec. Notes due 01/01/2015 to C LGD6, 96% from Caa3 LGD5, 82%”
Under Ratings downgraded, the tenth debt under issuer Oncor Electric Delivery Company was corrected to read as follows: “7.0% Sr Sec Notes due 05/01/2032 to Baa3 from Baa2”
Revised release follows.

Approximately $47 billion of debt affected

New York, February 26, 2013 -- Moody's Investors Service has withdrawn Energy Future Holdings Corp.'s (EFH) Caa3 Corporate Family Rating (CFR), Caa3-PD Probability of Default Rating (PDR), SGL-4 Speculative Grade Liquidity Rating and developing rating outlook.

At the same time, Moody's assigned a Ca CFR to Energy Future Competitive Holdings Company (EFCH) and a B3 CFR to Energy Future Intermediate Holdings Company LLC (EFIH). Both EFCH and EFIH are intermediate subsidiary holding companies wholly-owned by EFH. EFCH's rating outlook is negative. EFIH's rating outlook is negative.

"We see different default probabilities between EFCH and EFIH," said Jim Hempstead, senior vice president. "We believe EFCH has a high likelihood of default over the next 6 to 12 months, because it is projected to run out of cash in early 2014. EFIH has a much lower likelihood of default owing to the credit separateness that EFH is creating between EFIH and Texas Competitive Electric Holdings Company LLC (TCEH) along with EFIH's reliance on stable cash flows from its regulated transmission and distribution utility, Oncor Electric Delivery Company."

The withdrawal of EFH's CFR reflects a series of recent actions taken by EFH to insulate both EFH and EFIH from its more distressed subsidiary, EFCH, which appears to have a much higher probability of default within the consolidated corporate family. In addition, we believe EFH will continue transferring its remaining debt to EFIH over the next 6 to 12 months, leaving as little as debt as possible at the EFH parent holding company entity. In that vein, we believe that credit separateness has been enhanced by the full repayment of all intercompany borrowings received by EFH from TCEH since the initial October 2007 leveraged buyout transaction.

"Because our CFR and Loss Given Default frameworks assume all entities within a family default at the same time, assigning two separate CFR's is a more accurate reflection of our current credit analysis," said Moody's Hempstead.

As part of that analysis, Moody's downgraded the senior secured rating for Oncor Electric Delivery Company LLC (Oncor) to Baa3 from Baa2 due to the highly leveraged capital structure at EFIH, Oncor's indirect parent; EFIH's high reliance on Oncor's up-stream dividends to support EFIH's debt service; the high reliance on Oncor's up-stream tax payments to support EFH's debt service, along with the inter-woven cash transfer relationship that remains between EFH and EFIH. Oncor's stable rating outlook reflects the stability and predictability of its revenues and cash flows; its supportive regulatory environment and Moody's expectation that Oncor will not be materially affected by any contagion risks of a default and restructuring at its EFCH-TCEH affiliate or EFH-EFIH parents, given the existing ring-fencing type arrangements. At this time, all else being equal, Moody's does not see Oncor's Baa3 senior secured rating falling below investment grade unless the ring-fence provisions fail.

"Fundamentally, Oncor is an investment grade credit," Moody's Hempstead added "and we do not see Oncor's secured rating falling below the investment grade ratings category, in part due to the strong insulation provided by its ring-fence type mechanisms. But from a long-term credit perspective, we see a heavy and permanent reliance by a highly levered EFIH on Oncor, which is now more appropriately reflected in Oncor's lower rating."

RATINGS RATIONALE

Energy Future Competitive Holdings

EFCH's Ca CFR, C-PD PDR, SGL-4 speculative grade liquidity rating and negative rating outlook reflect its ownership of TCEH, which is a financially-distressed wholesale merchant generating company with an untenable capital structure. TCEH faces several challenging business conditions, including a sustained period of low natural gas and power commodity prices, weak market heat rates, rising environmental compliance expenditures, slow electric power volume growth and compressing retail margins. Moody's projects TCEH to run out of cash by early 2014.

"We think there is a high probability for a default or material reorganization within the next 6 to 12 months," Hempstead said, "and material impairments are likely to be realized across the capital structure. But we also think negotiations with lenders regarding a restructuring of TCEH's balance sheet will be relatively organized and amenable."

Moody's actions incorporate a view that TCEH's lenders will eventually wind up receiving approximately 90% of the equity in any restructuring, but it remains unclear whether that equity will reside at the TCEH, EFCH or EFH entity level.

EFCH's SGL-4 speculative grade liquidity rating reflects steadily dwindling liquidity reserves, which Moody's believes will be fully exhausted between late 2013 and early 2014. TCEH's senior secured revolver was fully drawn in late December 2012, leaving approximately $1.9 billion of cash, no material alternate sources of liquidity, and roughly $1.8 billion of EBITDA (including hedge benefits) in 2013 to satisfy almost $2.7 billion in interest expense and $0.6 billion in capital expenditures.

In light of the negative outlook and untenable capital structure, near-term prospects to stabilize or upgrade the rating are limited.

Moody's used its Loss Given Default (LGD) methodology to determine the ratings for EFCH and TCEH's individual securities. Based on EFCH's Ca CFR and C-PD PDR, the $24 billion of TCEH senior secured first lien securities are rated Caa3 LGD3, 37% (downgraded from Caa1 LGD2, 26%). The Loss Given Default model output indicates a C rating for the $1.6 billion of second lien securities, but a one-notch upgrade override was applied to reflect TCEH's collateral value, which rates the securities Ca LGD5, 70% (downgraded from Caa3 LGD4, 58%). The $4.9 billion of TCEH senior unsecured (guaranteed) LBO Notes are rated C LGD6, 90% (downgraded from Ca LGD5, 82%), while the $1.1 billion of TCEH's senior unsecured (legacy) pollution control revenue bonds are rated C LGD6, 96% (downgraded from Ca LGD6, 94%). A list of these securities is included at the end of this press release.

Energy Future Intermediate Holdings

EFIH's B3 CFR and B3-PD PDR reflect some contagion risk with its more distressed affiliate, EFCH, as well as significant leverage, which points to a capital structure that may become untenable over the longer term horizon, absent any new liquidity infusions or debt reductions. The ratings also reflect the complex intercompany lending arrangements that EFIH maintains with its parent, EFH, and the potential implications that such a relationship may have on EFH and EFIH in a EFCH or TCEH restructuring. That said, Moody's sees a much lower probability of default at EFIH than at its lower rated affiliates EFCH-TCEH. The B3 CFR also incorporates the stable and predictable revenue and cash flow stream of the rate regulated subsidiary, Oncor. EFIH owns approximately 80% of Oncor, and Oncor has a strong suite of ring-fence type provisions designed to insulate the utility from any contagion effects emerging from EFCH and TCEH. Because of the strength of these ring-fence type provisions, including the limitations around dividends, there is a seven notch rating difference between EFIH's CFR and Oncor's senior secured debt, even though EFIH indirectly owns Oncor.

As such, EFIH's corporate family boundaries include the remaining debt that resides at EFH, but does not include the debt at Oncor, due to its ring-fence type provisions. Moody's believes that EFH will engage in additional liability management and debt exchange activities aimed to transfer EFH's remaining debt securities to EFIH from EFH.

The B3 CFR factors in EFIH's dependence on unreliable external sources of liquidity, which is a growing risk to its capital structure. Moreover, we view the EFH senior unsecured (legacy) note maturity in November 2014 as a risk factor for EFIH, because EFIH owns approximately $282 million of the note and repayment of the note is important to EFIH's 2014 liquidity profile. EFH's stand-alone ability to repay this note is questionable, absent an infusion of liquidity.

Based on our LGD methodology and the B3 CFR, EFIH's $4.0 billion of senior secured 1st lien notes (which look to the implied equity value of Oncor as collateral) are rated B2 LGD3 33% (upgraded from Caa3 LGD4, 62%). The Loss Given Default model output indicates a B1 rating for the 1st lien, but a one notch downgrade override was applied to reflect the stock collateral pledge; the $2.2 billion of senior secured 2nd lien notes are rated B3 LGD4, 53% (upgraded from Caa3 LGD4, 58%) and the $1.4 billion of senior unsecured notes due 2018 are rated B3 LGD4, 53%.

Because EFH is included within the EFIH corporate family boundaries, the B3 CFR for EFIH and Moody's LGD methodology also drive the instrument ratings for EFH's remaining debt securities. There are $6 million of senior secured 1st lien notes due 2019 and 2020 that used to share, pro-rata, the collateral value of EFIH's senior secured 1st lien notes, the implied equity value in Oncor. The lien was removed as part of recent liability management and debt exchange activities. As such, these securities now carry the same rating as EFH's senior unsecured (legacy) notes, Caa2 LGD6 95% (upgraded from Caa3 LGD4, 58%). The lien was also removed from EFIH's 9.75% senior secured 1st lien notes due 2019, which are now rated as senior unsecured debt instruments at B3 LGD4, 53%.

EFH's $60 million of remaining senior unsecured LBO notes due 2017, which are guaranteed by both EFIH and EFCH, are rated Caa2, LGD6 90% (upgraded from Ca LGD6, 92%) and the $1.8 billion of EFH's senior unsecured (legacy) notes due 2014, 2024 and 2034 are rated Caa2, LGD6 95% (upgraded from Ca LGD6, 96%). Moody's notes that EFIH owns approximately $1.2 billion of the EFH senior unsecured (legacy) notes.

EFIH's speculative grade liquidity rating is SGL-4. Moody's estimates slightly more than $575 million in cash at EFIH, which will be supplemented by Oncor's upstream dividend (approximately $250 million, excluding the minority investors) and the interest income associated with the $1.2 billion of EFH's senior unsecured (legacy) notes owned by EFIH (approximately $80 million in annual interest income for 2013 and 2014). Combined, EFIH's approximately $320 million in cash inflows is insufficient to fully address the approximately $615 million in cash interest expenses, so the cash balance will quickly be reduced over the next few quarters. This expected reduction in cash balances means EFIH will need to rely on external sources of cash over the near term horizon.

Moody's expects EFIH to have two sources of cash infusion over the next eight quarters: up to $250 million in second lien debt capacity and the November 15, 2014 maturity of EFH's 5.55% senior unsecured (legacy) notes, of which EFIH owns roughly $280 million in principal. Neither source of liquidity is strong or reliable, since EFH's ability to repay this debt maturity is uncertain and EFIH's incremental second lien capacity is subject to market conditions.

As a result, the outlook on EFIH's ratings is negative, primarily reflecting its weak liquidity profile, its heavy reliance on Oncor for upstream dividend and tax payments and the potential for contagion risk from an EFCH-TECH restructuring.

Oncor Electric Delivery Company

The rating downgrade of Oncor's senior secured debt, to Baa3 from Baa2, reflects the steadily rising debt at its parent holding companies, which look to Oncor's implied equity value for collateral or recovery. The downgrade also reflects the heavy reliance of both EFIH (in the form of upstream dividends) and EFH (in the form of upstream tax payments) on Oncor for liquidity support, which constrains Oncor's otherwise robust financial flexibilities.

As indicated by the maintenance of an investment grade rating and a stable outlook, Moody's does not expect Oncor to be pulled into any restructuring proceeding related to its affiliates, EFCH or TCEH, but Moody's does think Oncor will indirectly feel some contagion risk. Approximately 30% of Oncor's revenues are derived from its affiliate, TCEH though it's retail electric provider subsidiary, TXU Energy. Notwithstanding Moody's understanding of Onocr's ring fence provisions, both EFH and Oncor have consistently disclosed in their SEC risk factor disclosures that the ring fence might not work as planned.

Oncor's stable rating outlook reflects Moody's view that a failure of the ring fence provisions is a remote probability; that Oncor's regulatory relationships will remain constructive, and that Oncor will continue to receive timely recovery of its prudently incurred costs and investments. The stable outlook also reflects an expectation that Oncor will produce, on average, a ratio of cash flow adjusted for the effects of working capital and extraordinary bonus depreciation to debt will remain in the high-teen's range and that Oncor will not materially revise its liquidity strategies, where it has been carrying approximately $1.0 billion in short-term debt. While Oncor's short-term revolver borrowings are excluded from its capital structure with respect to regulatory requirements that govern its upstream dividend policy, Oncor is prohibited from exceeding a 60/40 debt capital structure.

Moody's has taken the following actions:

Ratings withdrawn:

Issuer: Energy Future Holdings Corp.

Corporate Family Rating: WR, from Caa3

Probability of Default Rating: WR, from Caa3-PD

Speculative Grade Liquidity Rating: WR, from SGL-4

Rating Outlook: NOO, from Developing

Issuer: Texas Competitive Electric Holdings

Rating Outlook: NOO, from Negative

Revolving Credit Facility due October 2013: WR, from Caa1 LGD2, 26%

Ratings Assigned:

Issuer: Energy Future Competitive Holdings

Corporate Family Rating: Ca

Probability of Default Rating: C-PD

Speculative Grade Liquidity Rating: SGL-4

Rating Outlook: Negative

Issuer: Energy Future Intermediate Holdings

Corporate Family Rating: B3

Probability of Default Rating: B3-PD

Speculative Grade Liquidity Rating: SGL-4

Rating Outlook: Negative

11.25%/12.25% Sr Unsec PIK Notes due 2018: B3 LGD4, 53%

Issuer: Texas Competitive Electric Holdings

Revolving Credit Facility due October 2016: Caa3, LGD3, 37%

The following ratings were changed:

Ratings downgraded:

Issuer: Energy Future Competitive Holdings

9.58% Sr Unsec Notes due 12/04/2019 to C LGD6, 97% from Ca LGD6, 96%

8.254% Sr Unsec Notes due 12/31/2021 to C LGD6, 97% from Ca LGD6, 96%

Issuer: Texas Competitive Electric Holdings

$1.4b Revolving Credit Facility due October 2016 to Caa3 LGD3, 37% from Caa1 LGD2, 26%

11.5% Sr Sec 1st Lien Notes due 10/01/2020 to Caa3 LGD3, 37% from Caa1 LGD2, 26%

Sr. Sec. Term Loan due 10/10/2014 to Caa3 LGD3, 37% from Caa1 LGD2, 26%

Sr. Sec. Letter of Credit Facility due 10/10/2014 to Caa3 LGD3, 37% from Caa1 LGD2, 26%

Sr. Sec. Term Loan due 10/10/2017 to Caa3 LGD3, 37% from Caa1 LGD2, 26%

Sr. Sec Letter of Credit Facility due 10/10/2017 to Caa3 LGD3, 37% from Caa1 LGD2, 26%

15% Sr Sec 2nd Lien Notes due 04/01/2021 to Ca LGD5, 70% from Caa3 LGD4, 58%

15% Sr Sec 2nd Lien Notes Series B due 04/01/2021 to Ca LGD5, 70% from Caa3 LGD4, 58%

10.25% Sr Unsec Notes due 11/01/2015 to C LGD6, 90% from Ca LGD5, 82%

10.25% Sr Unsec Notes Series B due 11/01/2015 to C LGD6, 90% from Ca LGD5, 82%

10.5/11.25% Sr Unsec Toggle Notes due 11/01/2016 to C LGD6, 90% from Ca LGD5, 82%

7.46% Legacy Sr. Sec. Notes due 01/01/2015 to C LGD6, 96% from Caa3 LGD5, 82%

Legacy Pollution Control Bonds to C LGD6, 96% from Ca LGD6, 94%

Issuer: Oncor Electric Delivery Company

4.1% Sr Sec Notes due 06/01/2022 to Baa3 from Baa2

4.55% Sr Sec Notes due 12/01/2041 to Baa3 from Baa2

5.0% Sr Sec Notes due 09/30/2017 to Baa3 from Baa2

5.25% Sr Sec Notes due 09/30/2040 to Baa3 from Baa2

5.3% Sr Sec Notes due 06/01/2042 to Baa3 from Baa2

5.75% Sr Sec Notes due 09/30/2020 to Baa3 from Baa2

6.375% Sr Sec Notes due 01/15/2015 to Baa3 from Baa2

6.8% Sr Sec Notes due 09/01/2018 to Baa3 from Baa2

7.0% Debentures due 09/01/2022 to Baa3 from Baa2

7.0% Sr Sec Notes due 05/01/2032 to Baa3 from Baa2

7.25% Sr Sec Notes due 01/15/2033 to Baa3 from Baa2

7.5% Sr Sec Notes due 09/01/2038 to Baa3 from Baa2

Ratings upgraded:

Issuer: Energy Future Intermediate Holdings

9.75% Sr Sec 1st Lien Notes due 10/15/2019 (now senior unsecured) to B3 LGD4, 53% from Caa3 LGD4, 62%

10% Sr Sec 1st Lien Notes due 12/01/2020 to B2 LGD3, 33% from Caa3 LGD4, 62%

6.875% Sr Sec 1st Lien Notes due 08/15/2017 to B2 LGD3, 33% from Caa3 LGD4, 58%

11.75% Sr Sec 2nd Lien Notes due 03/01/2022 to B3 LGD4, 53% from Caa3 LGD4, 58%

Issuer: Energy Future Holdings Corp

9.75% Sr Sec 1st Lien EFIH Transfer Notes due 10/15/2019 (now senior unsecured) to Caa2 LGD6, 95% from Caa3 LGD4, 58%

10% Sr Sec 1st Lien EFIH Transfer Notes due 1/15/2020 (now senior unsecured) to Caa2 LGD6, 95% from Caa3 LGD4, 58%

10.875% Sr Unsec Notes due 11/01/2017 to Caa2 LGD6, 90% from Ca LGD6, 92%

11.25/12% Sr Unsec Toggle Notes due 11/01/2017 to Caa2 LGD6, 90% from Ca LGD6, 92%

5.55% Legacy Sr Unsec Notes Series P due 11/15/2014 to Caa2 LGD6, 95% from Ca LGD6, 96%

6.5% Legacy Sr Unsec Notes Series P due 11/15/2024 to Caa2 LGD6, 95% from Ca LGD6, 96%

6.55% Legacy Sr Unsec Notes Series P due 11/15/2034 to Caa2 LGD6, 95% from Ca LGD6, 96%

Rating Outlooks:

Issuer: Energy Future Intermediate Holdings

Rating Outlook: Negative, from Developing

Issuer: Oncor Electric Delivery Company LLC

Rating Outlook: Stable, from Developing

Rating correction:

Issuer: Texas Competitive Electric Holdings

Due to an administrative error the LGD for CUSIP 882850CM0 has an incomplete rating history. The correct rating history is as follows:

10/9/07-LGD6-91%

8/28/08 - WR

3/31/09 -- reinstated -- to LGD5, 83%

8/3/09 -- to LGD5-86%, from LGD5, 83%

11/16/09 -- to LGD4-50%, from LGD5-86%

8/17/10 -- to LGD4-51% , from LGD4-50%

10/11/10 -- to LGD4-52% - from LGD4-51%

1/31/12 -- to LGD4-62% - from LGD4-52%

8/9/12 -- to LGD5-82% - from LGD4-62%

The principal methodology used in rating EFCH is the Unregulated Power Companies Methodology published in August 2009 and the principle methodology used in rating EFIH is the Global Regulated Electric and Gas Utilities Methodology published in August 2009. Other methodologies used include Loss Given Default for Speculative-Gate Non-Financial Companies in the U.S., Canada, and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain 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 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 rating action, and whose ratings may change as a result of this 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.

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.

James Hempstead
Senior Vice President
Infrastructure Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

William L. Hess
MD - Utilities
Infrastructure Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's withdraws EFH's Corporate Family Rating; Assigns two new CFR's to differentiate default probability; Lowers Oncor's senior secured debt to Baa3 with a stable outlook
No Related Data.
© 2019 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 rating, agreed to pay to Moody’s Investors Service, Inc. for ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and MIS also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “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 rating, agreed to pay to MJKK or MSFJ (as applicable) for 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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