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Credit Ratings Advisory

Corporate Finance – Capital & Debt Advisory

Q4 2014

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What we do

Credit ratings assessment

For unrated clients we assess the likely outcome of a credit ratings process to support funding options advice or debt capital raising/refinancing transactions.

We also optimise the execution of private, unrated debt capital raising/refinancing transactions by assessing and communicating client credit quality to prospective investors and other transaction stakeholders.

Ratings execution

We support our clients throughout all stages of a ratings process: engaging with agencies, preparing for agency interviews, ensuring all appropriate supporting information and analysis is prepared and presented to agencies in the best possible light, and helping clients communicate ratings results to internal and external stakeholders.

Credit Ratings Advisory 2

Credit optimisation

Across markets, from secured corporate debt to project finance, we structure transactions to optimise credit outcomes.

We help clients achieve the right balance between higher credit quality (lower cost of debt) and the increased sponsor financial risk, loss of control and higher capital intensity that credit enhancement can require.





Securitisation

Securitisation is a ratings-driven funding structure. Even for unrated deals, banks rely upon (though are not bound by) rating agency methodologies.

We act as independent financial advisor to sponsors from the initial assessment phase of a securitisation right through to financial close.

Scenario testing for rated clients

For rated clients we conduct scenario analyses: advice on potential changes to existing ratings based on proposed transactions or business plan changes.



Why work with us?

► EY has a team of experienced individuals that have undertaken credit rating advisory projects for a number of corporates and sponsors globally. This team has come to EY from both leading global investment banks and rating agencies, including Fitch, S&P and Moody’s.

► We are constantly “in the market” – the breadth of transactions we advise on means we remain in continuous dialogue with funders and rating agencies.

► We are able to optimise the ratings outcome through our expertise in presenting credits, structuring transactions, communicating with agencies and applying their methodologies.

► EY is very well-placed to assist you.

► Our London-based Capital and Debt Advisory team will work closely with you in every step of the ratings process to provide you with the best possible advice.

► Ratings advisory work is led by Anton Krawchenko, who is a former Fitch Ratings credit analyst, and supported by Francesco Cauli, a former S&P credit analyst, as well as other EY professionals with extensive in-house ratings advisory experience and credit experience from previous banking roles.


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Expertise

Credibility

Confidential — all rights reserved © Ernst & Young LLP 2013 5


Background ► Anton is a Director in EY’s Capital and Debt Advisory team

► He joined EY in 2011, coming from Fitch Ratings

Background ► Francesco is a Senior Executive in EY’s Capital and Debt Advisory

team

► He joined EY in 2013, coming from S&P Capital IQ Risk Solutions, Standard and Poor’s Credit Risk Advisory department

Anton Krawchenko Director

T: +44 207 951 6395 M: +44 776 987 2450 E: [email protected]

Francesco Cauli Senior Executive

T: +44 207 806 9089 E: [email protected]

Our team

Professional Experience ► Financial and ratings advisor (ongoing) to a leading UK

factoring business on a £600m securitisation of trade receivables

► Ratings advisor (ongoing) to a global financial services entity to support a private placement process

► Ratings advisor (ongoing) to one sovereign and one UK sub-sovereign client to support public bond issuance

► Financial and ratings advisor (ongoing) to a UK plc refinancing a £105m receivables-backed securitisation facility

► Financial and ratings advisor to Rio Tinto plc (2013)

► Financial and ratings advisor (ongoing) to the European Commission on the evaluation of pilot projects under its Europe 2020 Project Bond Initiative

► Financial advisor (ongoing) to BlackRock Infrastructure Fund on valuation of new infrastructure assets

► Ratings advisor to a private equity-owned German real estate developer considering refinancing options (2013)

► Ratings advisor to Jersey Telecom in its successful private placement of £51m (2012)

► Rating advisor and joint lead arranger for a securitisation and private placement of £143m in nominal and inflation-linked amortising notes back by property income (2012)

Professional Experience ► Financial advisor (ongoing) to BlackRock Infrastructure

Fund on valuation of new infrastructure assets

► Financial and ratings advisor (ongoing) to the European Commission on the evaluation of pilot projects under its Europe 2020 Project Bond Initiative

► Rating advisor (ongoing) to EDF Trading in respect to rating optimisation process for a major subsidiary

► Financial advisor to Bristol Water plc on debt funding and sequencing options

► Fundamental credit analysis and production of internal ratings of project finance and large corporates based on major rating agencies methodologies

► In depth knowledge of the full rating process on a non-recourse and corporate basis

► Extensive experience in analysing complex greenfield and brownfield deals and advising major investors on optimisation of transaction credit quality and rating outcomes

► Comprehensive research analysis across a wide range of industries including Transportation, Energy, PPP/PFI, Natural Resources and Utilities

Confidential — all rights reserved © Ernst & Young LLP 2013 6


Background ► Mathieu is a Senior Executive in EY’s Capital and Debt

Advisory team

► He joined EY in July 2014, coming from Moody’s Investors Service

Mathieu Scemama Senior Executive

T: +44 207 951 7110 E: [email protected]

Our team

Professional Experience at Moody’s ► In-depth analysis of corporate issuers across Investment

Grade and High Yield universes

► Writing detailed issuer and industry research

► Reviewing legal documentation and assessment of Loss Given Default

► Maintenance of investors relationships through investors meetings and roundtables

► Most recent portfolio largely composed of media Issuers, including among others broadcasters (BSkyB), conglomerates (Vivendi), advertisers (WPP), publishers (Pearson).

► Previous portfolios included Retail (Metro, Carrefour) and Airlines (BA, Lufthansa)

► Provision of High Yield shadow ratings (typically LBOs) across industries used internally in Moody’s as inputs in the ratings of CLOs


We provide credit ratings advice as

an integral part of a wider Capital and Debt Advisory team

We provide capital and debt advice throughout the capital lifecycle We work with you to develop optimal and flexible capital structures and competitive financing programmes

We harness the energies of our people to create clarity, bring insight and produce results

We know your priority is delivering the best possible results for your business and we can help you achieve this

We support our clients throughout the entire capital lifecycle to provide objective and independent advice on:

► Transaction financing/acquisition financing

► Refinancing

► Special situations

► Covenant reset advisory

► Growth capital

► Credit ratings advisory

► Asset management fund raising

In 2012 we advised on £18 billion of debt capital across 60 transactions

We work as part of EMEIA which means we bring together people and knowledge from 93 countries across Europe, the Middle East, India and Africa

Our transactions ranged from £5 million to £2 billion in debt quantum, across markets ranging from asset backed lending through to public bonds and securitisation

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Credit is at the heart of our debt advisory service

INVESTMENT GRADE

LEVERAGED & REGIONAL

INFRASTRUCTURE &

STRUCTURED FINANCE

FINANCIALS

Credit Assessment

Credit

Ratings

TRANSPORT

ENVIRONMENT

ENERGY & UTILITIES

INFRASTRUCTURE

FINANCE

REAL ESTATE

CORPORATES

SOVEREIGNS & GOVT



How we can help


“What are my funding options? Am I investment grade?”

“How can I optimise the ratings outcome?”

“Which agency will give me the best rating?”

“What are the financial benefits of obtaining a rating – what are the costs and risks?”

“For my private placement, should I obtain a private rating, an NAIC pre-designation, or neither?”

Credit Ratings Assessment

“How can I best communicate my credit quality to investors in the absence of a formal rating?”

“I am proposing a new strategy to my board - how will the underlying business plan impact my existing ratings?”

“How will a proposed acquisition impact my existing ratings?”

Scenario testing


► Our aim in this process is to:

► Collect all the information required for a ratings process;

► Analyse this information with reference to agency rating methodologies and each agency’s rated peer universe;

► Discuss key credit issues with relevant agency analysts to see where they stand; and

► Make a clear and detailed recommendation on which rating agency(ies) you should contract with, what the likely rating outcome will be, and what can be done to optimise the ratings outcome before launching a formal ratings process.

How we can help


Weeks

1 2 3 4

1 Information gathering and analysis

► Including, for example: financial performance, business strategy, debt profile, liquidity, governance, ownership, capital structure, market context and competition, regulatory information, investment programme

2 Management interviews

► As required to supplement information provided

3 Methodology review

► Assessment of credit rating methodologies ► Identification of critical issues or areas of ambiguity that require clarification ► Identification of methodological differences that may influence the choice of rating agency

4 Informal rating agency meetings

► Meeting agencies on an informal basis (can be on a ‘no names’ basis if needed) to clarify analytical approach, views on peers and on outstanding credit issues that could affect the rating outcome

5 Quantitative analysis

► Analyse historical financial statements and produce forecast financial statements/credit ratios, adjusted for agency methodologies and appropriate stresses and/or business plan scenarios, as appropriate

6 Peer analysis ► Preparation of comparative analysis against rated peer groups

7 Conclude and present findings

► Identification of key risks and ratings constraints, having reference to company information and agency methodologies and peers

► Recommendations on possible actions to improve ratings outcome ► Recommendation on which rating agencies should be engaged, having reference to likely

rating outcome, stability of the ratings over time, costs and analyst quality and availability

Indicative ratings assessment process


“How do I compare to my rated peers?“


“What ratings product should I purchase?”

“How do I best prepare for a ratings process?”

“What interview questions will the agency ask?”

How we can help

Ratings Execution


► During this process we work closely with you to prepare for rating agency interviews, ensure we have collected all appropriate supporting information and presented it in the best possible light, provide supplemental analysis where appropriate, and remain in contact with rating agency analysts to support their internal process with additional information, challenging assumptions or conclusions as appropriate.

How we can help


Weeks

1 2 3 4 5 6 7 8

1 Formally engage rating agencies

► Select and contract with agencies, negotiate fees and product types, negotiate pace of work as required

2 Preparation of agency submissions

► Complete first draft of rating agency presentations and supplementary material ► Review by management and finalisation of rating presentations ► Preparation of supporting information packs and analysis as appropriate

3 Management preparation

► Provide draft questions with key messages to highlight credit strengths and address weaknesses, supplemented by mock interviews if required

4 Rating agency meeting

► Management meetings with rating agency(ies)

5 Rating agency analytical process and follow-up

► Provide additional information and analysis to rating agencies as required

6 Ratings committee decision

► Communication of rating outcomes with verbal description of rationale ► Advise on whether to appeal any aspect of the decision or accept the outcome

and convert to a public rating as appropriate

7 Ratings report ► Production of agency press releases: review for errors, misstatements, or the

omission of material information ► Production of ratings report by agencies with similar review process

8 Investor/stakeholder Communication

► As required, prepare responses to investor or other stakeholder questions, draft or review press releases and other stakeholder material if required

Indicative ratings execution process

Confidential — all rights reserved © Ernst & Young LLP 2013 Credit Ratings Advisory 13

How we can help

Securitisation

“What will the impact be on my working capital needs?”

“How can I structure a transaction to achieve debt ratings above my corporate rating?”

“How will securitisation impact my company’s net cost of capital? How much credit enhancement do I have to fund myself?”

“What assets can I securitise? What are the specific funding consequences for including certain types of assets?”

“What are the operational requirements to put in place a securitisation? Am I ready?”

“What net cost of funds can I achieve given transaction expenses?”


“What non-cash related transaction features can I change to improve credit quality?”

“How can I maximise the capital release from partial asset disposal whilst keeping interest costs below my existing average cost of debt?”

“How much cash must I trap in the transaction to enhance my project up to investment grade?”

Credit optimisation



Credentials

Ongoing


Bibby Financial Services (structured finance)

Ongoing

Ratings and financial advisor on £600m securitisation of factoring receivables

Confidential (structured finance)

Ongoing

Ratings and financial structuring advice on refinancing of £105m securitisation facility

UK Department for Environment Food and Rural Affairs (project finance)

Ongoing

Ratings and financial advice on £4bn Thames tunnel project

Blackrock (project finance)

Ongoing

Financial and ratings advisor regarding valuation of infrastructure debt portfolio

Confidential (Insurance)

Ongoing

Ratings advisor on debut ratings for a captive insurer in a global group

Confidential (financial Services)

Ongoing

Ratings advisor on debut private ratings for a global financial services group

Confidential (property)

Ongoing

Ratings advisor in respect of private ratings to a major London property estate

Confidential (structured finance)

Ongoing

Ratings and financial advisor in respect of structured finance facility backed by UK truck leases

Confidential (Sovereign)

Ongoing

Ratings advice in respect of sovereign rating to support debut bond issue

Local Capital Finance Company (local government)

Ongoing

Ratings and financial advisor to municipal bond agency for UK local government

Confidential (energy)

Ongoing

Ratings advisor to an African energy utility

Confidential (property)

Ongoing

Expert witness in a UK trial (property dispute), opining on credit rating impacts from lease changes


Credentials

Completed


States of Jersey

2014

Ratings and financial advisor on debut public bond issue

EDF Trading

2014

Ratings advisor in respect of subsidiary operations

Jersey Telecom

2013

Credit rating and financial advisor on £51m private placement due 2019 and 2022

Rio Tinto

2013

Ratings and financial structuring advisor for a major business development initiative

Wells Fargo Securities International

2014

Ratings advisor on debut public ratings

Confidential (Real estate)

2013

Ratings advisor to German property developer considering refinancing scenarios

UK Department of Energy & Climate Change

2012

Ratings and financial structuring advice on infrastructure roll out (Green Deal)

Wallace Estates

2012

Ratings and financial advisor on £143m placement of securitisation notes

OCS

2012

Advisor in relation to credit ratings (NAIC) designation

European Commission

2013

Ratings and financial advisor on evaluation of the Project Bond Initiative (EIB sub-debt product)

Macquarie Energy Leasing

2014

Ratings advice in respect of utilities using of smart energy meters

EY | Assurance | Tax | Transactions | Advisory

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