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Special Report
AUTHORS:
CONTENTS:
Yvonne Fu Falcone, Ph.D. Assistant Vice President (212) 553-1494 Jeremy Gluck, Ph.D. Managing Director (212) 553-3698 CONTACTS: Eileen Murphy Managing Director (212) 553-4061 Julie A. Culhane Investor Relations (212) 553-7941
Introduction Transaction Structure Factors Affecting Asset Price Volatility Volatility in a Portfolio Context The Role of Liquidity Measuring Portfolio Volatility Sources of Market Data Volatility and Correlation Adjustments and Liquidity Applying the Simulation Approach Role of the Collateral Manager Legal Concerns Summary Conclusion Exhibits
INTRODUCTION
As the market for collateralized debt obligations (CDOs) has mushroomed in recent years, the range of structures has widened considerably. For example, the underlying collateral in CDOs has evolved toward a variety of emerging market and developed country bond and loan types and away from an almost exclusive reliance on speculative-grade U.S. corporate bonds. At the same time, structures have changed to include ramp-up periods and a greater degree of dynamism. A minority of CDOs have been cast as market-value transactions, in which the credit enhancement is reflected in a cushion between the current market value of the collateral and the face value1 of the structures obligations. Within this framework, the collateral must normally be liquidated, either in whole or in part, if the ratio of the market value of the collateral to the obligations falls below some threshold. The liquidated collateral is used to pay down obligations, bringing the structure back into balance. In contrast, cash-flow transactions normally provide for the diversion of cash flows from junior to senior classes if certain tests that relate to the structures soundness are not met. Since the primary risk in a market-value transaction is that of a sudden decline in the value of the collateral pool, our analysis will focus on the price volatility of the assets that may be incorporated into these structures. We will see that this volatility can be reflected in a set of advance rates that represent adjustments to the value of each asset and are designed to provide a cushion against market risk.
1 To be more precise, the obligation is principal plus accrued interest.
April 3, 1998
Changes in Ratings
A speculative-grade bond is particularly vulnerable to changes in ratings. A rating change, which is reflective of a change in the likelihood of default, affects the discount rate that the market applies to the cash flows promised by the bonds. The discount rate must capture the likelihood of default, although it may also embody a liquidity premium and other factors. One can therefore think of the price impact of a change in a bonds rating as the change in value implied by the change in the discount factor.4 The likelihood of any particular change in rating is given by a ratings transition matrix.5
2 Both cash-flow and market-value deals may also benefit from diversification, which reduces the likelihood that losses will exceed a structures credit enhancement. 3 See, for example, Bencivenga, Joseph C., The High-Yield Corporate Bond Market in The Handbook of Fixed Income Securities, Frank J. Fabozzi, Ed., Chapter 15. 4 This relationship is a focus of JP Morgans CreditMetrics. 5 See Moodys Rating Migration and Credit Quality Correlation, 1920-1996, Moodys Special Comment, July 1997.
Defaults
Of course, an extreme case of a change in rating is the movement to actual default. The same rating transition matrix that suggests potential changes in rating level also gives the likelihood of default for a bond with any initial rating. However, the price impact of the change is not easily represented as a change in discount rate because any instrument in default can no longer be thought of as promising a well-defined set of cash flows. Instead, the price impact can be inferred from Moodys studies of the recovery value of an instrument following default.6
investors suddenly decide that speculative-grade bonds are undesirable, that too will force some correlation in the prices of these instruments. Sources of correlation need not be economy-wide. For instance, to the extent that firms within a particular industry exhibit similar economic performance, there may be a corresponding tendency for the prices of bonds issued by firms in the industry to be positively correlated. Investor attitudes toward an industry may have a similar impact. In some cases, price correlation may arise from regional, rather than industry-related factors. The relevant regions may be international: the recent sharp downturn in emerging market bond prices during the Asian crisis clearly cut across national borders.
Even the choice of direct simulation of asset prices admits two possible approaches. The first the parametric approach requires assumptions about the relevant distributions and incorporates the parameters of those distributions within the simulation. This method has the advantage of allowing the generation of a very large number of scenarios, including those that have not been observed in the past. The second approach relies on a historical simulation. In this case, rather than generating changes in market variables from a theoretical distribution, one draws actual percentage changes in price (or in the underlying factors) from history. The advantage of the historical simulation approach is that no assumptions need be made about the distributions of market variables; the disadvantage is that only historically observed changes can be simulated.
9 The tails of the return distributions precisely our focus in assigning a rating are much too fat to be consistent with normality. This is true not only of individual assets, but even of entire portfolios because of the high degree of correlation that prevails during market breaks. Moreover, the distributions are skewed in the sense that sharp market downturns are more likely than sharp rallies. The normal assumption may be an adequate characterization of average portfolio behavior; however, our concern with the lower tail of the return distribution implies that the skewness and kurtosis (fat tails) associated with the returns for the relevant assets cannot be neglected. 10 It is extremely difficult to obtain historical price information on certain instruments, for example trade claims. For transactions involving trade claims, we stress the reorganized equity data to obtain advance rates for trade claims. As the price information for trade claims, or other instrument types, becomes available, we will incorporate them in our historical database.
Although the number of assets representing each asset type is often large, the data are sparse in the sense that many of the assets remain in the samples for a relatively short period of time. High-yield debt may be upgraded to investment-grade or may default; in either case, the instrument will no longer be tracked in a high-yield database. Distressed instruments either disappear or lose their distressed status following the conclusion of the bankruptcy process.
11 Note that this mirrors our approach with respect to cash-flow transactions, where instead of stressing return volatilities, we stress default rates.
In addition to boosting volatilities to reflect relatively limited data, we have also made an adjustment for data series where the prices do not appear to be true trading prices. For distressed instruments, the reported prices sometimes remain unchanged for a few consecutive months. We have removed these zero-return observations from the data, which has the impact of raising overall volatility. The stressing of asset returns directly increases the volatility of returns for the individual assets.12 By contrast, the stressing of correlations acts indirectly by raising portfolio volatility.
Correlation
Appropriate correlations are particularly difficult to infer from historical (or any other) data, because although correlations clearly rise during market downturns, there are few observations on such periods. We have imposed intra- and interindustry correlations by observing correlations for pairs of firms over a relatively long sample period and by comparing those longer term measures to correlations that prevailed in relatively stressful periods, such as 1987 and 1990-1991. We have chosen levels that are higher than those that prevail during normal periods to reflect our concerns about data imperfections; they are not, however, as high as those observed during the most stressful periods. The data are not sufficiently rich to provide a basis for distinguishing between correlations for particular pairs of industries. Rather, we use the assumptions presented in Table 3. Although correlations are embedded in the historical return Table 3 data, we impose these assumptions by sampling from the CORRELATION ASSUMPTIONS database in a nonrandom fashion. We achieve this by first ranking the returns for each asset from lowest to highest, and Pairs of firms: Assumed Correlation (%) by then selecting the individual asset returns in such a way that Within same industry 55 the correlation assumptions in Table 3 will be satisfied. 13 In different industries 40
Liquidity
Whenever an asset is sold, the seller must theoretically sacrifice half the bid-ask spreadthe difference between a mid-market price and the bid. For most instruments in most markets, this is a trivial consideration in comparison to ordinary price volatility. For the instruments that typically find their way into market-value transactions, liquidity becomes a key consideration during a period of financial stress. We have made assumptions about the loss that a seller of a Table 4 high-yield or distressed asset would incur as a result of illiqLIQUIDITY HAIRCUTS BY ASSET CLASS uidity. Although we have tried to preserve the ordinal relationships among the bid-ask spreads for each instrument the Liquidity assets with the largest bid-ask spreads receive the greatest Asset Type Haircut (%) liquidity haircuts the discount for illiquidity greatly exceeds normal bid-ask spreads. Since no reliable time-series data Performing Bank Loans 7 exist on bid-ask spreads for the relevant assets, our assumpPerforming High-yield Bonds 5 tions follow from discussions with market participants and their Distressed Bank Loans 12.5 views as to how difficult it would be to sell the assets during a Distressed Bonds 10 sharp market downturn. Table 4 contains the liquidity assumptions for the respective asset classes. Reorganized Equities/ Trade Claims 20
12 If the random return for an individual asset has a standard deviation of , then stressing the return by a factor implies that the standard deviation of the stressed return will be . 13 Specifically, let the historical return data be arranged in a matrix of m rows by n columns, where m is the number of issues, n is the number of periods, and the returns for each issue are ranked from the lowest to the highest. In a historical simulation, we need to select the row and column indices and obtain the return for each position in the portfolio. For any position in the portfolio, we select the issue (the row index) by sampling from a uniform distribution. When selecting the column indices for the positions, we first sample from a correlated normal distribution based on the correlation parameters in Table 3; the number of samples drawn for each simulation iteration is equal to the number of positions in the portfolio and thus each sample corresponds to a position in the portfolio. Each of these correlated normally distributed drawings is then mapped into a number ranging between 0 and 1 by using the inverse of the cumulative of the standard normal distribution. If we multiply this number between 0 and 1 by n (the total number of periods), the result gives the column index for a position in a portfolio. Because the returns are ordered for each issue, we wind up with correlations roughly consistent with the assumptions in Table 3. We say roughly because we have imposed rank order correlation, which may differ somewhat from the usual correlation measure.
max(0,D
(1) L=
D (1+rp)) AR
Notice that a loss occurs if the portfolio return is sufficiently negative that (1+rp)< AR. The expected loss, E(L), is the average of the losses across all the scenarios within the simulation:
AR-1
1+rp AR
)(rp)drp
where f(rp) is the probability density function for rp. Although we dont know what f(rp) looks like, the historical simulation will effectively map out the portfolio return distribution. From Equation (2), we see that the appropriate advance rates for a transaction seeking to achieve a certain expected loss target depend on the left tail of the distribution of the portfolio return, which in turn depends on the attributes of the portfolio itself, including diversification, asset types and asset compositions. The expected loss considered above applies to a particular one-month period. A CDO, however, normally has a life of several years. The calculation of expected loss thus requires a repetition of the one-month calculation over the life of the CDO say, for 60 months in the case of a 5-year
14 The advance rate for the portfolio is the weighted average of the individual advance rates where the weights are portfolio shares for the different asset types.
transaction. If, at any point over the five-year period, the entire portfolio must be liquidated and at least some of the investors take a loss, then the simulation stops at that point. In order to arrive at the appropriate rating for each tranche, one would compare the expected loss for the tranche over the entire 5-year period to the expected loss for a five-year conventional bond.
In the following discussion and in the accompanying exhibits, we provide examples of the calculation of the advance rates for specific structures. We emphasize that the particular calculation must be consistent with the structure actually proposed, which may be quite complex. The tables will, nonetheless, provide insights as to how various factors affect the advance rates. We begin with the simplest case of a one-tranche structure one with subordination provided only by the advance rates. We make the following assumptions regarding portfolio diversification. 1. Maximum allowable investment in one issuer is 5%. 2. Maximum allowable investment in one industry is 20%. 3. Maximum allowable investment in one asset type is 100%. The least diversified portfolio consistent with these standards thus consists of 20 issuers and 5 industries. We obtain the empirical return distribution of this least diversified portfolio, with 100% invested in one asset type, by sampling the returns of individual positions from the historical price movements for that asset type. Assuming that the maturity of the transaction is five years, we then evaluate expected loss with different advance rates to obtain Table 5. Table 5 provides guidance for assigning advance rates for different asset types for the given diversification criteria of the portfolio. For specific transactions, certain structural provisions can result in more or less favorable advance rates for some or all of the asset types. We now consider the impacts of these provisions.
Table 5
Asset Type Aaa Aa1 Aa2 Performing Bank Loans Valued $0.90 and Above 0.870 0.890 0.895 Distressed Bank Loans Valued $0.85 and Above 0.760 0.780 0.790 Performing High-Yield Bonds Rated Ba 0.76 0.79 0.80 Performing High-Yield Bonds Rated B 0.72 0.75 0.76 Distressed Bank Loans Valued Below $0.85 0.58 0.62 0.63 Performing High-Yield Bonds Rated Caa 0.45 0.49 0.50 Distressed Bonds 0.35 0.39 0.40 Reorganized equities 0.31 0.37 0.38
A3
Baa1 Baa2
0.900 0.905 0.910 0.915 0.930 0.935 0.795 0.810 0.815 0.820 0.830 0.840 0.81 0.77 0.64 0.51 0.41 0.39 0.83 0.78 0.67 0.56 0.47 0.44 0.84 0.79 0.68 0.58 0.48 0.46 0.85 0.80 0.69 0.60 0.50 0.47 0.87 0.82 0.71 0.62 0.54 0.51 0.88 0.83 0.72 0.64 0.56 0.52
Diversification Across Assets and Industries One of the most important determinants of the advance rates is the extent to which the portfolio is diversified, both by asset and by industry. Between the two, asset diversification is, perhaps, more important. The data suggest that in stressful times, correlations for high-yield and distressed assets within and across industries become somewhat similar. The assets behave as a class, rather than as members of an industry. Diversification across industries is of some value, but it is perhaps less critical than in the case of cash-flow transactions.
Moodys Approach to Rating Market-Value CDOs 9
The effect of diversification on the advance rates is reported in Exhibit A. Asset Type Limitations The advance rates for each asset type in Table 5 are obtained under the assumption that 100% of the portfolio investment is in that asset type. In some transactions, portfolio limitations are established with respect to investment in certain asset classes. For those transactions, we would need to test whether the advance rates shown in Table 5 are still appropriate for these asset classes given the portfolio limitations. Because of the interaction between various factors, there is no theoretical conclusion as to what the outcome should be. In some instances, more favorable advance rates might be achieved due to the restrictions. In other instances, the advance rates are unaffected. The outcome depends on the possible asset types in the portfolio, as well as any limitations on portfolio composition. Virtually any set of asset-class restrictions might apply. To focus on a particular case, suppose that the collateral manager wishes to invest mainly in performing high-yield bonds rated B3 and above, as well as in distressed bonds, and is willing to limit the investment in distressed bonds to be at most 30% of the portfolio. Given this limitation, our simulation produces advance rates for distressed bonds that are higher than those reported in Table 5. In fact, for a transaction in which an A2 rating is sought, the advance rate for distressed bonds rises from 0.48 to 0.54; for a transaction geared toward a Baa2 rating, the advance rate rises from 0.56 to 0.61. The advance rates associated with these two target ratings for the possible asset types in this transaction are presented in Table 6.
Table 6
Rating Asset Type Performing High-yield Bonds Rated Ba1-Ba3 Performing High-yield rated B1-B3 Distressed Bond A2 0.84 0.79 0.54 Baa2 0.88 0.83 0.61
To demonstrate that such limitations do not always result in higher advance rates, consider a case in which the collateral manager wishes to invest in bank loans and that up to 30% of the portfolio will be invested in distressed bank loans. Simulation results reveal that the advance rates for distressed bank loans shown in Table 5 are in fact not affected by the portfolio limitation in this case. Further examples of the impact of portfolio limitations are presented in Exhibit B. Subordination If there are multiple debt tranches and there is a set of advance rates for each tranche, subordination might provide credit enhancement beyond that associated with the advance rates for senior tranches. This, however, will depend on the relative sizes of the debt tranches, the desired ratings and the possible portfolio composition limitations imposed by the structure. The impact of subordination is explored in Exhibit C. A Minimum Net Worth Test May Permit Higher Advance Rates Some structures contain a minimum net worth test to ensure that a certain percentage of the initial equity level must be maintained; the test is often performed with a different frequency from the monthly period that is otherwise relevant. The impact of the test is to introduce a second relevant horizon say, one quarter over which changes in portfolio value must be evaluated. When the minimum net worth test is performed with a lower frequency than the OC test, we need to run simulations to evaluate the effect of this impact; indeed, it would be very difficult to incorporate such a test without running simulations. The introduction of a quarterly minimum net worth standard may serve to raise the advance rates by assuring that at the beginning of each quarter, equity will exceed some level. Even
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though the level may fall during the quarter, a decline in value is by no means assured, potentially leaving a bit of extra cushion beyond what the advance rates provide. The interplay between a minimum net worth test and the advance rates is explored in Exhibit D.
LEGAL CONCERNS
Though a thorough review of the documents governing a market value CDO is an absolute prerequisite to assigning a rating, the legal issues for these transactions are similar to those relevant to cash-flow transactions. In particular, the structure must mitigate concerns about (1) bankruptcy remoteness (so that the SPV will not face claimants other than the senior noteholders that might force a filing for bankruptcy), (2) true sale (i.e., the assets sold to the SPV are purchased in a legitimate fashion), and (3) the enforceability of the underlying agreements.15
SUMMARY CONCLUSION
We have mapped out a procedure for evaluating market-value transactions and provided various examples of its implementation. As with all of our rating approaches, we will reevaluate the procedure over time. In particular, we will update our database of asset returns at least annually, and more often should there appear to be a fundamental shift in the environment.16
15 For a detailed discussion of these issues, see Rating Cash-Flow Transactions Backed by Corporate Debt: 1998 Update, Moodys Special Comment, April 1998. 16 At least on a temporary basis, such shifts can also be addressed by adjusting the appropriate stressing factors.
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We will also extend the database to other asset classes, such as emerging market debt. In fact, there is little in the way of a theoretical limit on the type of instrument that can be incorporated into these structures, so long as the appropriate data are available. It should be apparent from our discussion that the interactions between the various components of market-value structures are complex, so that it is difficult to imagine that anything other than a simulation approach will do justice to these structures. Nonetheless, we hope that we have given some guidance as to the impact of various structural choices on the advance rates. The exhibits that follow should further clarify these impacts.
Asset Type Performing Bank Loans Valued $0.90 and Above Distressed Bank Loans Valued $0.85 and Above Performing High-Yield Bonds Rated Ba Performing High-Yield Bonds Rated B Distressed Bank Loans Valued Below $0.85 Performing High-Yield Bonds Rated Caa Distressed Bonds Reorganized equities
Target Rating A1 A2 0.890 0.790 0.79 0.73 0.62 0.49 0.43 0.38 0.895 0.795 0.80 0.74 0.64 0.52 0.45 0.41
Table A2
Asset Type Performing Bank Loans Valued $0.90 and Above Distressed Bank Loans Valued $0.85 and Above Performing High-Yield Bonds Rated Ba Performing High-Yield Bonds Rated B Distressed Bank Loans Valued Below $0.85 Performing High-Yield Bonds Rated Caa Distressed Bonds Reorganized equities
Target Rating A1 A2 0.905 0.810 0.83 0.78 0.67 0.56 0.47 0.44 0.910 0.815 0.84 0.79 0.68 0.58 0.48 0.46
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Table A3
Asset Type Performing Bank Loans Valued $0.90 and Above Distressed Bank Loans Valued $0.85 and Above Performing High-Yield Bonds Rated Ba Performing High-Yield Bonds Rated B Distressed Bank Loans Valued Below $0.85 Performing High-Yield Bonds Rated Caa Distressed Bonds Reorganized equities
Target Rating A1 A2 0.910 0.815 0.86 0.80 0.70 0.61 0.52 0.47 0.915 0.820 0.87 0.81 0.71 0.62 0.53 0.48
Table A4
Asset Type Performing Bank Loans Valued $0.90 and Above Distressed Bank Loans Valued $0.85 and Above Performing High-Yield Bonds Rated Ba Performing High-Yield Bonds Rated B Distressed Bank Loans Valued Below $0.85 Performing High-Yield Bonds Rated Caa Distressed Bonds Reorganized equities
Target Rating A1 A2 0.910 0.820 0.87 0.81 0.69 0.61 0.52 0.49 0.915 0.825 0.88 0.82 0.70 0.62 0.53 0.50
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Advance Rate For Distressed Bonds 0.48 0.54 0.56 0.56 0.61 0.62
Advance Rate For Distressed Bonds 0.48 0.52 0.54 0.56 0.60 0.61
x x+y x , AR AR 1 2
(5)
x+y AR 1
>
x , AR 2
the OC test for the subordinated debt can provide additional protection for the senior debt. If equation (5) holds for all possible portfolio compositions, the rating of the senior debt implied by a) the rating of the subordinated debt and b) the relative size of the senior and subordinated tranches, is higher than the rating associated with AR1, the nominal senior advance rate. Notice that AR1 and AR2 are portfolio advance rates (see footnote 14) and the above result is highly sensitive to the portfolio composition, as well as the relative sizes of the debt tranches. Given the dynamic nature of the portfolio composition, the positive effect of the subordination has to be viewed in the context of the overall structure. Consider a case where the collateral manager wishes to invest in high-yield bonds rated B3 and better and that up to 50% of the investment is in distressed bonds, if the capital structure
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dictates that the senior and subordinated debt account for 75% and 5% of liabilities, respectively, and if the ratings sought for the senior and subordinated debt are A2 and Baa2, respectively, then the effective senior advance rate for performing high-yield bonds rated B3 or above (based on Equation (4)) is 0.78, which corresponds to a higher rating (A1) than the desired rating (A2). This does not imply that we should assign a rating of A1 to the senior debt, because this rating applies only if 100% of the portfolio investment is in performing high-yield bonds rated B3 or above. Simulation shows that for other possible portfolio compositions, e.g., 70% investment in performing high-yield bonds and 50% investment in distressed bonds, A2 and Baa2 are indeed the appropriate ratings for the senior and subordinated debt, respectively. If, however, senior and subordinated debt account for 70% and 10% of liabilities and the portfolio limitation assumptions still hold, then the senior rating consistent with the rating of the subordinated debt (Baa2) and the relative sizes of the tranches (70% senior, 10% subordinated debt) is in fact A1, one notch higher than the initially desired rating A2.
Table C1
Subordinated Debt 5% 5% 7%
Let us consider a case where investments are limited to performing high-yield bonds rated Ba3 and above. Assume that we have a structure with 80% senior debt, 10% subordinated debt, and 10% equity and that the desired ratings for the senior and the subordinated debt are A2 and Baa2, respectively. If the minimum net worth test dictates that 50% of the initial equity level must be maintained, then the effective advance rates for senior and subordinated debt are 84% and 88% respectively. Since these effective advance rates are the same as the advance rates
Moodys Approach to Rating Market-Value CDOs 15
presented in Table 5, the minimum net worth test does not have a direct impact on the advance rates in this structure. If, by contrast, the structure provides 60% senior debt, 10% subordinated debt, and 30% equity, then the effective advance rates implied by the minimum net worth test are 71% and 82%, respectively, and are therefore lower than the advance rates for performing high-yield bonds presented in Table 5. For this example, a simulation reveals that due to the additional protection provided by the equity and the minimum net worth test, we can increase the subordinated advance rate for performing high-yield bonds rated Ba3 from 0.88 to 0.89.
Table D1
Copyright 1998 by Moodys Investors Service, Inc., 99 Church Street, New York, New York 10007. All rights reserved. ALL INFORMATION CONTAINED HEREIN IS COPYRIGHTED IN THE NAME OF MOODYS INVESTORS SERVICE, INC. (MOODYS), AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODYS PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODYS from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, such information is provided as is without warranty of any kind and MOODYS, in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such information. Under no circumstances shall MOODYS have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODYS or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODYS is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODYS IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for, each security that it may consider purchasing, holding or selling. Pursuant to Section 17(b) of the Securities Act of 1933, MOODYS hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MOODYS have, prior to assignment of any rating, agreed to pay to MOODYS for appraisal and rating services rendered by it fees ranging from $1,000 to $550,000.
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