WARMING UP EUROPEAN CORPORATE CREDIT OUTLOOK

Q2, 2014

Standard & Poor's Ratings Services | European Corporate Credit Outlook

CONTENTS
WARMING UP CONTENTS CORPORATE CREDIT OUTLOOK BORROWING AND ISSUANCE DEFAULTS AND RECOVERY RATINGS TRENDS AEROSPACE AND DEFENCE AUTOS BUSINESS & CONSUMER SERVICES CAPITAL GOODS CHEMICALS CONSTRUCTION MATERIALS CONSUMER DURABLES CONSUMER NON-DURABLES HEALTHCARE HOTELS, RESTAURANTS & LEISURE MEDIA METALS & MINING OIL & GAS PAPER & PACKAGING REAL ESTATE RETAILING TECHNOLOGY TELECOMMUNICATIONS TRANSPORTATION UTILITIES KEY CONTACTS 1 2 3 9 12 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59

CreditResearch | May 2014

Standard & Poor's Ratings Services | European Corporate Credit Outlook

CORPORATE CREDIT OUTLOOK

PRIMARY CREDIT ANALYSTS: Paul Watters, CFA, London,+44 20 7176 3542, [Link]@[Link] Gareth Williams, London,+44 20 7176 7226, [Link]@[Link] GENERAL CONTACT: Alexandra Dimitrijevic, London,+44 20 7176 3128, [Link]@[Link] OVERVIEW The operating environment in Europe continues to improve, with a palpable sense of 'crisis over' reflected in improving economic trends and a narrowing schism between north and south risk premiums. Our ratings analysis reflects this with a continued reduction in the net outlook bias from minus 6.3% in Q4 2013 to minus 4.7% currently. Positive changes in responses to our internal industry credit conditions survey outweigh negative changes by a factor of over five-to-one. Nevertheless this remains a relatively modest recovery. There is little sign of a substantive recovery in aggregate revenues and cash flow and heightened risks are evident in emerging markets, from domestic currency strength and fears of cold-war era tensions with Russia. Fragility is still apparent in the banking system with non-housing loan-books contracting and subject to write-downs. Deflation risk looms larger with nine European countries reporting falling consumer prices over the last year. On balance we expect to see continuing modest improvement in non-financial corporate credit quality and lower default rates, driven by economic recovery and the continuation of supportive monetary policy from central banks. While we expect to see a broader pickup in M&A and IPO activity, financial policy is likely to remain broadly cautious and protective of cash.

WARMING UP Our view on the credit outlook in 2014 is framed on an expectation of an increasingly well entrenched economic recovery, but one still weak enough to warrant supportive monetary policy from central banks and tight financial discipline from the corporate sector. This suggests a continuing improvement in corporate credit quality and a moderate reduction in the overall default rate for public and private ratings. We have seen little this year to alter that view. The sense of crisis over has grown stronger in Western Europe, with the pace of economic recovery better-than-expected and a remarkable narrowing of the schism in risk premiums between north and south. This has been partly counterbalanced by continuing volatility in emerging markets in the wake of the US Federal Reserves moves to taper off its quantitative easing policy, broader questions around credit quality in key markets like China, and, more recently, fears of a return to cold war tensions in the wake of 2 Russias annexation of the Crimea . The improvement in Europes economic conditions is apparent across a broad spectrum of measures. Euro area consumer confidence, for example, is at a six-year high on a normalized basis. It is echoed in a return to positive growth in terms of new passenger and commercial vehicle registrations (see Chart 1), both indicative of a growing comfort with bigger-ticket expenditure and expectations of continuing recovery. Even unemployment, usually one of the
See "Proceed With Caution: European Corporate Credit Outlook 2014", December 11 2013 2 See "Russia-Ukraine: An Unfolding Crisis", March 28 2014
1
1

last measures to reflect an economic upturn, has started to decline for the region as a whole. CHART 1 | EURO AREA LIGHT COMMERCIAL VEHICLE REGISTRATIONS AND CONSUMER CONFIDENCE
Euro Area, New Light Commercial Vehicle Registrations, 3mma YOY% [LHS] Euro Area, Consumer confidence, Normalised, 3mma +3 +2 +1 +0 -1 -2 07 08 09 10 11 12 13 14 -3

+35 +25 +15 +5 -5 -15 -25 -35

Source: ACEA, Eurostat, Thomson Reuters Datastream, S&P Ratings

The improvement has also been reflected in continuing capital market buoyancy in terms of rising equities, strong corporate debt issuance and an upsurge in IPO (see Chart 2) and M&A activity. Moreover, 50% of the IPO activity that has taken place in the last year has involved private equity backing or exit, giving an indication of the extent to which financial conditions are normalizing.

CreditResearch | May 2014

Standard & Poor's Ratings Services | European Corporate Credit Outlook CHART 2 | WESTERN EUROPEAN IPOs
Western Europe IPO Value 14 12 10 8 6 4 2 04 05 06 07 08 09 10 11 12 13 14 billion Count [RHS] 90 80 70 60 50 40 30 20 10 0

CHART 4 | DEFLATION RISK IN EUROPE

2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 Deflation
HICP YOY% (March 2014)

Inflation

Source: Bloomberg, S&P Ratings

Source: Eurostat, Thomson Reuters Datastream, S&P Ratings

BUT FINANCIAL FRAGILITY REMAINS Nevertheless, there are continued grounds for caution with respect to the pace and depth of economic recovery in Europe. Loan growth, for example, remains negative in relation to non-financial corporations and for non-housing loans to households (see Chart 3). Loans for housing are barely growing. Deepening debt capital markets have helped offset the impact of this on larger non-financial corporates but loan finance will remain pressured while Europes banks continue to wrestle with bad debts, tightened capital adequacy rules and addressing regulatory inspections such as the ECBs Asset Quality Review. CHART 3 | EURO AREA MFIs LOANS TO NON FINANCIAL CORPORATIONS AND HOUSEHOLDS
Euro Area MFI's: Non-Housing Related Loans To Households - Total (YOY%) Euro Area MFI's: Loans To Non-Financial Corporations (YOY%) Euro Area MFI's: Loans To Households For House Purchases (YOY%)

So, while recovery appears increasingly well established, this remains a sub-par recovery (see Table 1) with France, Italy, Spain and the Netherlands all expected to grow GDP by less than 1% in 2014. Nevertheless, it would be wrong not to acknowledge the clear improvement in sentiment and prospects for European economies in 2014 and our economic forecasts have seen a moderate increase as a result. Europes fragile economies are no longer center-stage and requiring substantial financial risk premiums to compensate for the difficult process of austerity and adjustment being endured. In particular, this improvement in sentiment has brought respite for Southern Europe in the form of renewed access to capital markets, rising confidence and the end of recession. TABLE 1 | GDP GROWTH AND UNEMPLOYMENT FORECASTS FOR SELECTED EUROPEAN COUNTRIES Real GDP
Baseline forecast (%) France Germany Italy Netherlands Spain Eurozone Switzerland U.K. 2013 0.2 0.4 -1.9 -0.8 -1.2 -0.4 2.0 1.7 2014f 0.7 1.8 0.5 0.8 0.8 1.0 2.2 2.7 2015f 1.4 2.0 1.0 1.3 1.4 1.5 2.5 2.4

16 14 12 10 8 6 4 2 0 -2 -4 -6

Source: S&P Global Economics

04 05 06 07 08 09 10 11 12 13 14

Source: ECB, Thomson Reuters Datastream, S&P Ratings

This underlying fragility in the banking system and the impact of continuing fiscal austerity is part of the explanation for the disinflation and even outright deflation apparent in many countries. Nine European nations have negative year-on-year inflation rates (using harmonized CPIs) and for another seven the annual rate is less than 0.5% (see Chart 4). Should deflation deepen, this poses risks to the still fragile debt-dynamics of European sovereigns.

The UK is the major exception to the story of weak recovery. It is expected to deliver a much more convincing rate of growth of 2.7% in 2014, which ought to allow a more substantial recovery in revenues than expected for the euro area (see Chart 5). Even here though, questions remain about the medium-term sustainability of this pace of growth given its reliance on reduced savings rates and something of a return to old housing-market vices.

CreditResearch | May 2014

Bulgaria Greece Czech Cyprus Portugal Sweden Spain Slovakia Hungary Netherlands Denmark Ireland Italy Latvia Lithuania Euro Area Austria Slovenia Estonia France Luxembourg Germany Iceland Finland Malta UK Norway

Unemployment
Baseline forecast 2013 10.8 5.3 12.2 6.7 26.4 12.1 3.2 7.6 2014f 11.0 5.2 12.7 7.5 25.7 12.0 3.0 6.8 2015f 11.0 5.1 12.5 7.2 24.5 11.9 2.9 6.5

Standard & Poor's Ratings Services | European Corporate Credit Outlook CHART 5 | EUROPEAN SALES GROWTH (S&P RATED NONFINANCIAL CORP) VS UK AND EURO AREA GDP GROWTH
Europe - Sales Growth (YOY%) Euro Area - GDP Growth (YOY%) [RHS] UK - GDP Growth (YOY%) [RHS] 20 15 10 5 0 -5 -10 -15 -20 5.0 3.0 1.0 -1.0 -3.0 2002 2004 2006 2008 2010 2012 2014 -5.0
160 150 140 130 120 110 100 90

most reliant on external financing - have seen their currencies recover ground against the US dollar (see Chart 7). Continued currency declines now appear to be more associated with specific political risks (Ukraine and Venezuela, for example). While substantial problems and uncertainties remain apparent in key economies such as China and Brazil, this easing of currency volatility does at least suggest that the risks of a much broader immediate problem in emerging markets may have eased. CHART 7 | SELECTED SPOT RATES VERSUS US DOLLAR SINCE FIRST TAPERING SIGNAL: (MAY 21, 2013 = 100)
Argentine Peso Turkish Lira Ukraine Hryvnia Indonesian Rupiah

Source: S&P Capital IQ, Eurostat, ONS, Thomson Reuters Datastream, S&P Ratings

EMERGING-MARKET RISKS EASE The shift in global risk perceptions away from Europe has not been an entirely unmixed blessing. Renewed uncertainty in relation to emerging markets has brought heightened risk and volatility to key parts of Europe's corporate revenue stream. Our work has shown that the regions large companies now spend over 40% of their capital expenditure 3 outside of Europe . Fast growing revenues from emerging markets in particular have been a critical offset to slow domestic revenue growth. In that context, the sharp depreciations in many EM currencies (see Chart 6) and tightening monetary policy in response, has increased the risks associated with operations in those markets. CHART 6 | DECLINES IN SPOT RATES VERSUS US DOLLAR SINCE FIRST TAPERING SIGNAL: (MAY 21, 2013)
Pct Change in Spot Rate vs USD since May 21, 2013 70 60 50 40 30 20 10 0

Source: Thomson Reuters Datastream, S&P Ratings

CURRENCY STRENGTH POSING PROBLEMS One unwelcome aspect of Europes move out of the crisis spotlight has been the renewed strength of regional currencies including the euro, pound and Swiss franc (see chart 8). While undoubtedly a vote of confidence in recovery, this brings with it added pressure on corporate profitability. CHART 8 | TRADE-WEIGHTED INDICES FOR MAIN EUROPEAN CURRENCIES
Sterling Trade-Weighted Index Euro Trade-Weighted Index Swiss Franc Trade-Weighted Index 108 106 104 102 100 98
One-year trend, rebased to 100

Source: Thomson Reuters Datastream, S&P Ratings

It is therefore encouraging that the broader EM uncertainty is showing signs of abating. For example, Turkey and Indonesia - two of the so-called fragile five, EM countries
3

96 04/13

06/13

08/13

10/13

12/13

02/14

04/14

Source: Bank of England, Thomson Reuters Datastream, S&P Ratings

See "Cash, Caution And Capex Why A Trillion Euro Cash Pile Is Unlikely To Drive A European Capex Boom", February 1, 2013

For example, there is a notable inverse relationship between euro area corporate earnings and the direction of year on year changes in the trade-weighted euro (see Chart 9).

CreditResearch | May 2014

Standard & Poor's Ratings Services | European Corporate Credit Outlook Earnings appear to respond with an approximate twoquarter lag to the transaction and translation effect of currency strength or weakness. Given the crucial contribution of export-led growth to the euro areas recovery, further currency strength represents an important risk to profitability. CHART 9 | EURO TRADE-WEIGHTED CURRENCY TRENDS AND EARNINGS GROWTH (MSCI EMU)
MSCI EMU - EPS Growth YOY% Trade-weighted Euro - YOY% led by 2 quarters [RHS] 60 40 20 0 -20 -40 -60 04 05 06 07 08 09 Euro TWI Rising 10 11 12 13 14 Euro TWI Falling -15 -10 -5 +0 +5 +10 +15 100 90 80 70 60 50 40 30 20 10 0

Moreover, many European countries particularly those in the east are heavily reliant on Russia for natural gas imports (see Chart 11). To the extent that political tensions result in tougher sanctions on Russia, this exposure creates an obvious pressure point for retaliation. Our view is that mutual self-interest is likely to bring restraint here given that gas exports to Europe are a crucial part of Russia's export earnings. Nevertheless, the potential for an adverse price shock and a worsening of Europe's global industrial competitiveness - is clear. CHART 11 | EXPOSURE TO RUSSIAN GAS SUPPLIES
Share Of Natural Gas Supplied By Russia in 2012 (%)

Source: MSCI, Bank of England, Thomson Reuters Datastream, S&P Ratings

RUSSIA ADDING TO EUROPE'S ENERGY RISKS Another key concern for European profitability has been the differential in energy costs that have opened up relative to the US as a result of the latter's shale gas boom. This is at risk of being exacerbated by the political tensions resulting from Russian policy in the Ukraine. Both UK and German natural gas prices are currently double those prevalent in the US (see Chart 10) with parity last seen in 2009. With natural gas representing an increasingly important part of Europe's electricity generation capacity, this differential already posed a key risk to competitiveness. CHART 10 | UK AND GERMAN NATURAL GAS PRICES AS A MULTIPLE OF US PRICES
UK / US Natural Gas Prices (NBP/Henry Hub) German / US Natural Gas Prices (Gaspool/Henry Hub) 6 5 4 3 2 1 0 06/09 06/10 06/11 06/12 06/13 Ratio (x)

Source: Eurogas

FINANCIAL POLICY TO REMAIN CONSERVATIVE Faced with these continuing risks and uncertainties a degree of caution is both apparent and warranted in terms of corporate treasurer policy. For example, we are not yet seeing widespread evidence of financial engineering such as borrowing money to fund share buybacks. Share buybacks as a percentage of operating cash flow are running close to the average level seen since 2002 (see Chart 12) and far below the high of 2007. CHART 12 | EUROPEAN SHARE BUYBACKS / OPERATING CASH FLOW S&P RATED NON-FINANCIAL CORPORATES
Europe - Share Buybacks/Operating Cashflow (%) 30 25 20 15 10 5 0 2002 2004 2006 2008 2010 2012 12.2

Source: Platts, S&P Ratings

Source: S&P Capital IQ, S&P Ratings. S&P rated non-financial corporates only. Figures for 2013 are for the last twelve months.

CreditResearch | May 2014

Croatia Denmark Ireland Portugal Spain Sweden UK Belgium Netherlands France Switzerland Luxembourg EU-28 Romania Italy Germany Greece Czech Turkey Poland Austria Slovenia Hungary Slovakia Bulgaria Estonia Finland Latvia Lithuania

Standard & Poor's Ratings Services | European Corporate Credit Outlook We are also skeptical of the degree to which the growing pressure to raise capital expenditure will be borne out in increased spending. We have written extensively about the 4 structural impediments to a capex surge in Europe the drag from a sharp slowdown in energy and materials spending, for example, and the structural overcapacity in some cash-rich industries such as autos. Moreover, capital expenditure in relation to operating cash flow has recovered substantially since the financial crisis and is close to the top of its post-2002 range (see Chart 13). While Europe's share of global capital expenditure has been declining, it is not obvious that there has been underinvestment in absolute terms. A substantial increase in capital expenditure will require either a sharp improvement in operating cash flows to give financial headroom or a strong conviction that such a recovery is on its way. CHART 13 | EUROPEAN CAPITAL EXPENDITURE / OPERATING CASH FLOW S&P RATED NON-FINANCIAL CORPORATES
Europe - Capex/Operating Cashflow (%) 75 70 65 60 55 50 45 40 2002 2004 2006 2008 2010 2012 66.4

CHART 14 | EUROPEAN NET OUTLOOK-BIAS TREND

Net Outlook Bias (%) 0 -2 -4 -6 -8 -10 -12 -14 -16 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Europe

Source: S&P Ratings. Shows trend for current rated universe.

The results of our internal industry credit conditions survey (see Table 2) a key input into our Credit Conditions Committee also have a positive tilt. Of the twenty-eight industry groups surveyed, nine have reported a more positive sector outlook for the next year than in the previous survey and none gave a more negative response. CONTINUED IMPROVEMENT On balance, we continue to expect a positive direction of travel for European credit quality. Economic recovery has become increasingly well established particularly in the UK - and there had been a significant easing of financial market tensions in relation to southern Europe. At the same time, the fragility of the recovery and in particular the ongoing deleveraging of the banking system and the emergence of deflation risks means that corporates are likely to be relatively cautious with their cash. Substantive risks remain in the form of emerging market volatility, energy prices and domestic currency strength but, on balance, we do not expect these to derail the recovery. This all speaks to resilient credits and a further moderation of default rates.

Source: S&P Capital IQ, S&P Ratings. S&P rated non-financial corporates only. Figures for 2013 are for the last twelve months.

REDUCTION IN NEGATIVE OUTLOOK BIAS This mixed picture sustained financial discipline, better, if still fragile, domestic economic performance and heightened external risks - is reflected in the trends apparent in our ratings analysis. The net outlook bias the percentage of rated companies with positive outlooks less those with negative outlooks remains negative but has continued to progress in a positive direction (see Chart 14).

See "Global Corporate Capital Expenditure Survey 2013", July 10, 2013

CreditResearch | May 2014

Standard & Poor's Ratings Services | European Corporate Credit Outlook

TABLE 2 | EUROPEAN CORPORATE CREDIT CONDITIONS SURVEY

Sector / Question 1. Current Business Conditions Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Weak Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Weak Satisfactory Weak Satisfactory Weak Weak Weak Weak Satisfactory Weak Satisfactory Weak Weak Satisfactory Weak Weak 2. Business Outlook Over Next 12 Months No change Stronger No change Somewhat stronger No change No change Somewhat stronger No change No change Somewhat stronger No change No change Somewhat weaker Somewhat stronger No change No change No change Somewhat stronger Somewhat stronger Somewhat stronger No change No change No change Somewhat stronger No change No change No change No change No change 3. Free Operating Cash 4. Capital Expenditure Flow Over Next 12 Over Next 12 Months Months Higher Higher Same Same Same Same Higher Same Same Same Same Same Same Same Higher Same Same Higher Higher Same Lower Lower Same Higher Same Same Same Same Same Same Same Same Same Same Same Same Same Same Same Same Same Same Same Lower Lower Same Same Higher Same Same Lower Same Higher Lower Same Same Same Lower 5. Sector Outlook Over Next 12 Months Positive to Stable Positive to Stable Positive to Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable to Negative Stable to Negative Stable to Negative Stable to Negative Stable to Negative Stable to Negative Stable to Negative Stable to Negative Stable to Negative

Aerospace & Defence Leisure Real Estate Transportation Airlines Transportation Airports Building materials Capital goods Chemicals Consumer goods Forest products Autos Manufacturers Autos Suppliers Telecoms HY Telecoms IG Oil & gas Upstream Packaging Pharma & healthcare Service Companies Technology Toll Roads Media Mining Oil & gas - Downstream Utilities Regulated Retail Steel Transportation Ports Transportation Shipping Utilities - Unregulated

S&P Ratings Services - European Corporate Credit Conditions Survey Questions Change indicators Weaker since November 2013 Stronger since November 2013 Question
1. Current Business Conditions 2. Business Outlook Over Next 12 Months 3. Free Operating Cash Flow Over Next 12 Months 4. Capital Expenditure Over Next 12 Months 5. Sector Outlook Over Next 12 Months

Definitions
Very strong/very weak = sharply above/below conditions unusual; Strong/weak = above/below average conditions Stronger/weaker = more than 5% improvement/deterioration; Somewhat stronger/weaker = up to 5% improvement/deterioration Stronger/weaker = more than 5% improvement/deterioration; Somewhat stronger/weaker = up to 5% improvement/deterioration Significantly higher/lower = substantial increase/decrease unusual for the industry; Higher/lower = increase/decrease Positive/negative = material number of potential upgrades/downgrades; Positive to stable /negative to stable = modest number of potential rating and outlook changes

Source: S&P Ratings. S&P Ratings Services' corporate analysts are surveyed quarterly as part of the S&P Credit Conditions Committee process. The survey is conducted with additional sub-industry categories than the industry classification used for this report.

CreditResearch | May 2014

Standard & Poor's Ratings Services | European Corporate Credit Outlook

BORROWING AND ISSUANCE

Increasingly borrower-friendly issuing conditions in Europe continue to attract private companies to the bond market to refinance, and, slowly, debt financed M&A is picking up. Credit quality, while well anchored for the moment, will become more vulnerable if structures and pricing race ahead too far in the absence of a normalization of monetary policy in Europe.
HALF STEAM AHEAD Buoyed by strong signals that the ECB is still in easing mode, together with a highly favourable capital market environment, particularly in the U.S., European borrowers appear to be becoming a little more confident and prepared to be more opportunistic in their funding strategies. However, the fact remains that the lackluster, albeit burgeoning recovery in Europe, is not requiring much additional debt financing to be taken on balance sheet at this point, particularly for investment. Total European corporate loan and bond issuance in Q1 2014 amounted to 203 billion, in the middle of the 180230 billion range of quarterly primary volume that has been issued each quarter since the middle of 2010, according to Dealogic data. Within the detail, primary loan volumes contributed 117 billion (or 58%) to the first quarters total debt issuance, the slowest quarter since the third quarter of 2009. In fact, the slowdown all occurred in the investment grade segment as leveraged loan issuance, at 36.2 billion, was well above the average quarterly volume of 30.8 billion seen since the start of 2010. This was due to a sharp fall in refinancing in the first quarter of 2014 compared to the quarterly average in 2013. Corporate bond issuance continues to hold up well, with first quarter issuance of 86.5 billion the third highest quarterly issuance since the start of 2010. At 66.2 billion and 20.3 billion respectively for investment and sub-investment grade both segments saw stronger issuance than the 2013 quarterly averages of 53.8 billion and 17.8 billion. CHART 15 | EUROPEAN IG CORPORATE DEBT ISSUANCE
IG Loan Issuance IG Bond Issuance Bonds % IG

350 300 250

70% 60% 50% 40% 30% 20% 10%

bn

200 150 100 50 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

0%

Source: Dealogic. IGInvestment Grade

CHART 16 | EUROPEAN SIG CORPORATE DEBT ISSUANCE

Lev. Loan Issuance HY Issuance Bonds % SIG

160 140 120

40% 35% 30% 25% 20% 15% 10% 5%

bn

100 80 60 40 20 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

0%

Source: Dealogic. SIGSub-Investment Grade

DEBUT AND CROSSOVER ISSUERS TO THE FORE There are a couple of notable features of recent activity: Although 47% of high yield issuers have been single B rated (and mostly debut issuers see Chart 18), they only generated 38% of total deal volumes (or 7.0 billion) in the first quarter according to S&P Capital IQ LCD. The share of LBO high yield issuance fell to only 18% of the total deal volume share.

CreditResearch | May 2014

Standard & Poor's Ratings Services | European Corporate Credit Outlook CHART 17 | EUROPEAN NEW NON-FINANCIAL CORPORATE RATINGS BY QUARTER
AA 45 40 35 30 25 20 15 10 5 0 A BBB BB B CCC

This follows a failed bond refinancing in 2012 and a major restructuring of the group in 2009. Debt-funded M&A to date has remained subdued as can be seen in Chart 18 below. Nonetheless, financial market conditions appear highly favourable if a compelling business case can be devised. This is clearly illustrated by the recent April sale of the 11.6 billion jumbo cov-lite loan/bond cross-border financing backing Numericable Group S.A.s (B+) acquisition of a sizable stake in French cable telecom operator SFR. The order book is reported to have exceeded $100 billion.

CHART 18 | EUROPEAN NON-FINANCIAL CORPORATE LOAN MARKET ISSUANCE

Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Q313 Q413 Q114
Refinancing Project Financing 200 150 GCP LBO/MBO Repay Debt Acquisitions

Source: S&P Ratings

In our view this largely reflects a greater focus on LBO exits given the reopening of the IPO market for sponsor owned companies and the greater flexibility offered by the loan market. The reopening of the IPO market for sponsor-backed deals has provided a (low-cost) inducement to bring lenders on board for a refinancing ahead of a prospective (and uncertain) partial sale. Recent examples include Saga (B prelim) where the latest refinancing has documentation permitting a potential IPO without refinancing outstanding debt. 30% of high yield bond volume has been driven by GIPS issuers in Q1 2014. Bond investors are demanding a minimal risk premium for peripheral corporate borrowers relative to similarly rated companies in core markets. Italian BB+ rated "fallen-angels" such as Telecom Italia SpA and Finmeccanica SpA issued 7-year bonds with a 4.5% coupon or Spanish engineering and construction company Isolux Corsan S.A. (B) refinanced bank debt by issuing 7-year bonds with a 6 5/8% coupon would be a couple of examples. To date there has only been one solely European syndicated leveraged loan transaction without any maintenance covenants (i.e. cov-lite). This is despite 25% of European leveraged loan deals being cov-lite due to the material number of cov-lite cross-border leveraged deals with dual currency tranches sold into both the US and Europe. The developing pipeline of model 2.0 CLO issues in Europe is also starting to stoke up leverage multiples in the loan market. Year-to-date eight CLO vehicles have been issued for a volume of 3.5 billion. A measure of how far the market has moved in the last five years is the refinancing being completed for large, difficult credits, many having been restructured in recent years. Luxembourg-registered building materials manufacturer Braas Monier Building Group S.A. recently completed a combined floating rate note and loan refinancing paying E+500bp and E+450bp respectively.

bn

100 50 -

Q109

Q110

Q111

Q112

Q113

Q114

Source: S&P Ratings

MORE 2005 THAN 2007 Although leverage multiples are edging higher for leveraged loan transactions in Europe (5.1x in Q1 2014 according to S&P Capital IQ LCD), we remain of the view that corporate credit quality remains quite well anchored for the time being. A key reason is that cash coverage ratios, due to an unprecedented low level of interest rates, remain high by any historical measure, as illustrated in chart 20 looking at historical multiples for BB/BB- and B+/B rated companies. CHART 19 | EUROPEAN LEVERAGED LOAN PRIMARY CREDIT STATISTICS
Total Debt/EBITDA (x) 7 6 5 4 3 2 1 Cash Interest Cover (x)

na
B+/B B+/B B+/B B+/B B+/B BB/BBBB/BBBB/BBBB/BBBB/BBBB/BBB+/B

2003

2005

2007

2010

2013

Q114

Source: S&P Capital IQ LCD

CreditResearch | May 2014

10

Standard & Poor's Ratings Services | European Corporate Credit Outlook This continues to be the case in Q1 2014 despite the overall level of interest cover declining somewhat to 3.6x. We think headroom will likely remain sufficient until we get closer to the turning point in the European rate cycle that we anticipate will be towards the end of 2015. CREDIT TRANSMISSION GETTING INTO GEAR? The more pressing concern remains that the companies that would most benefit from Central Bank largesse are those least likely to be able to tap the markets namely private mid-market and smaller companies. Yet, after almost six years of uncertainty following the financial crisis, and with the monetary policy accelerator still firmly pushed to the floor, there are tentative signs that the credit transmission mechanism is starting to splutter back to life. This is most evident in the UK, where the latest Bank of England (BOE) Bank Lending Survey highlights some improvement in both availability of, and demand for, business loans (see Chart 20). Availability of credit has eased, particularly for larger corporates since the second quarter of 2012, together with some modest improvement for small and medium-size companies. Nonetheless, a majority of members of the Federation of Small Business still believe that availability is poor and affordability remains problematic. However, the perception may weigh more than reality given that just over 80% of smaller UK companies either have no requirement, or identified need, for new external debt financing according to BDRC Continentals SME Finance Monitor Q4 2013. CHART 20 | UK BANK LENDING SURVEY LARGE PRIVATE NON-FINANCIAL CORPORATIONS*
Loan Availability 40 30
Net % Balance

across all size of enterprise for the first time since the start of the financial crisis in 2008/09. Responses to the BOE survey indicate that this should be maintained over the next three months. The euroarea is not showing the same degree of improvement, although there are some grounds for cautious optimism. The latest ECB Bank Lending Survey (Chart 21) highlights that loan availability is continuing to increase as confidence in the economic outlook improves and competition from banks and other lenders grows. This is the case even in Spain and Italy where the local banks have been under severe funding pressures and have been capital constrained. Similarly corporate demand for loans across all sizes of firm became positive for the first time since Q2 2011 with the main impetus coming from an increase in inventories and funds for working capital rather than funds for investment. While still only a modest improvement in the credit transmission channel in the euroarea, it is encouraging nonetheless. With the ECB continuing to guide markets in the direction of further monetary easing to ward off any threat of deflation and a growing consensus that the ECBs Asset Quality Review will be rigorous and a key milestone on the road back to a more robust European banking system it is quite conceivable, in our view, that the monetary transmission process could continue to improve further through the course of the year. CHART 21 | ECB BANK LENDING SURVEY LARGE PRIVATE NON-FINANCIAL CORPORATIONS*
Loan Availability 40 20 Loan Demand

Loan Demand
Net % Balance

0 -20 -40 -60 -80 Mar-03 Mar-05 Mar-07 Mar-09 Mar-11 Mar-13

20 10 0 -10 -20 -30 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13

Source: ECB Bank Lending Survey, Apr 2014. *A positive balance indicates that more credit is available or an increase in demand.

Source: UK Bank Lending Survey, Apr 2014. *A positive balance indicates that more credit is available or an increase in demand.

Reported demand for loans from UK enterprises, that previously we have viewed as the main impediment to borrowing, has been growing positively since March 2013. It is also encouraging that the net increase in demand for loans is running materially ahead of the net increase in availability

CreditResearch | May 2014

11

Standard & Poor's Ratings Services | European Corporate Credit Outlook

DEFAULTS AND RECOVERY

Gradually improving economic conditions, and continued appetite for corporate credit in the bond markets on attractive terms is leading to some stabilization of credit quality for European non-financial corporates. Nonetheless, there is further work to be done in dealing with vulnerable, highly leveraged pre-2008 vintage credits that will maintain pressure on defaults in CLO portfolios. Taking account of the growing proportion of new high yield issuers in our portfolio we expect that the overall default rate (including private names) could decline to 5.2% by the end of March 2015 from 5.9% at the end of 2013. Material signs of overheating in the high yield market would be a risk to this assessment in our view.
STEADY STREAM OF DEFAULTERS Nonfinancial corporate defaults in Europe continue to percolate through investors' portfolios at a steady rate, as we saw in the fourth quarter of 2013. Looking both at issuers with public credit ratings and those to which we assign private credit estimates, 11 companies defaulted in the fourth quarter, taking the full-year total to 42. This compares with 17 in the fourth quarter of 2012 and 51 for the full year. As a consequence, the speculative-grade default-rate for fullyear 2013 declined to 5.9% from 7.2% at the end of 2012, and from 6.8% at the end of the third quarter of 2013 (see Table 3). TABLE 3 | EUROPEAN DEFAULT RATE BY VOLUME Private Credit Estimates
No. of entities* Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 582 574 599 623 616 608 578 556 539 522 516 510 507 478 475 458 441 429 424 392 Defaults 26 24 22 15 5 9 7 7 8 5 4 12 7 8 12 15 8 8 5 6 Default rate (%) 10.3 13.8 15.9 14.0 10.7 8.4 6.2 5.0 5.8 5.2 4.7 5.7 5.5 6.5 8.2 9.2 9.8 10.0 8.5 6.9

explanation of our revised methodology for calculating defaults). On the credit estimates side, there were six defaults in the fourth quarter of 2013, resulting in a full-year total of 27 and a 12-month trailing default rate of 6.9% (see Chart 22). This is somewhat below the full-year 2012 levels of 42 defaults and our revised 9.2% default rate. CHART 22 | EU DEFAULT RATE BY VOLUME
20% 16% 12% Combined Private CEs SIG Ratings

Public Ratings
No. of entities* 176 170 165 159 163 166 170 174 182 190 212 223 241 259 255 249 256 252 291 320 Defaults 4 2 6 4 1 3 1 0 1 1 0 2 3 3 1 2 4 4 2 5

Combined
Default Default rate rate (%) (%) 5.1 6.5 9.7 10.1 8.0 8.4 5.3 2.9 2.7 1.6 0.9 1.8 2.5 3.1 3.5 3.6 3.9 4.4 4.1 4.7 9.1 12.1 14.5 13.2 10.2 8.4 6.0 4.5 5.0 4.2 3.6 4.5 4.5 5.3 6.6 7.2 7.6 7.9 6.7 5.9

8% 4% 0%

Q109

Q309

Q110

Q310

Q111

Q311

Q112

Q312

Q113

Q313

Source: S&P Ratings

CALCULATION METHODOLOGY REVISION To improve consistency with our CreditPro default statistics, we have revised the calculation of the denominator used to derive the default rates in this study. From now on, we will take the initial number of rated nonfinancial speculativegrade corporates and credit estimates in our portfolio at the start of the year rather than take the average over the year. This will mean that the methodology for calculating our 12month trailing default rate will be consistent with other default data that Standard & Poors derives from CreditPro using our static pool methodology. The overall impact on the European non-financial corporate default rate for 2013 was insignificant because the lower implied default rate for credit estimates (using a higher startof-year count as the denominator) was almost exactly offset by the higher implied default rate for our rated speculativegrade companies (using a lower start-of-year count as the denominator).

Source: S&P Ratings. *Average number in database over period. TTM-Trailing 12 months. Europe--EU-28 + Iceland, Norway, and Switzerland

Looking at the composition of defaults, there were five defaults on publicly rated companies in the fourth quarter, taking the full-year default total to 15, generating a public speculative-grade default rate of 4.7%. This compares with nine defaults in 2012 for a default rate of 3.6% under our newly revised methodology (see sidebar below for an

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2003

2005

2007

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Standard & Poor's Ratings Services | European Corporate Credit Outlook According to our revised methodology, the average European default rate for nonfinancial corporates over the past five years (since the start of 2009) is 7.4%--exactly the same as under our prior average period method. This average rate combines both the heavy, albeit rapidly declining, weight of the private credit estimates pool, where the average default rate was 8.5% (versus 9.0% under our previous method) and the 4.6% average default rate for rated corporates (versus 4.3% under our previous method). DEFAULT RATE BY VALUE BACK TO Q3 2011 LEVELS The combined default rate by value of defaulted debt (see table 4) also declined in 2013, to 2.7% of the total outstanding balance, well below the 4.3% rate in 2012 and the annual average of 4.7% since the start of 2008. The amount of outstanding debt held by defaulting private credit estimate issuers fell in 2013 to 10.4 billion--the lowest annual figure since 2007 and well below the average 18.4 billion we've witnessed over the past six years. At the same time, we anticipate that there will be a steady stream of defaults throughout 2014 as 2007-2008 vintage CLOs finally exit their reinvestment periods, overleveraged 2006-2008 LBO loan issuers struggle to refinance maturing debt, and banks window-dress their balance sheets ahead of the European Central Bank's (ECB's) Asset Quality Review later in the year. These defaults may include some larger companies, since we maintain private credit estimates at the 'ccc/cc' level on seven issuers, each with outstanding debt liabilities that exceed 1 billion. TABLE 4 | EUROPEAN DEFAULT RATE BY VALUE Private Credit Estimates
No. of Value Default defaults (, Billion) rate (%) Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 26 24 22 15 5 9 7 7 8 5 4 12 7 8 12 15 8 8 5 6 14.2 12.0 9.3 5.4 0.7 9.3 2.8 1.4 2.9 1.8 6.0 4.9 4.6 1.4 5.5 6.1 1.7 5.2 2.2 1.3 6.6 9.8 12.1 11.5 8.2 7.9 6.2 5.2 6.6 3.6 4.9 6.3 7.1 6.4 6.6 7.2 6.2 8.5 8.0 5.7

SHIFT TOWARD SPECULATIVE GRADE RATINGS While we anticipate that the overall default rate will remain above the historical average of 4.7% over the next two years, the changing composition of the leverage finance market toward higher quality and more recently rated issuers should, in our view, enable the default rate to fall back toward more normal levels (all else being equal). Consequently the proportion of issuers in our combined portfolio originated since 2009 has risen to 62% (by number), with the majority of our new ratings centered on companies issuing debt in the high-yield market. This mainly reflects nonfinancial corporate issuers diversifying their term funding away from their relationship banks to the debt capital markets; the liquidity and relatively low cost of bond financing; and the hiatus in the CLO structured finance market in recent years (although that market is now picking up again). The result is that the proportion of our combined portfolio that we view as 'CCC/cc' has fallen below 10.0% to 9.5% for the first time since the second half of 2009. DEFAULT RATE TO FALL TO 5.2% BY MARCH 2015 This shift in the portfolio toward newer and higher-quality issuers from a credit perspective (see chart 23), coupled with our expectation that the economic environment will most likely continue to improve gradually over the next year or two, suggests that the underlying default rate could move lower. Our latest trailing 12-month default forecast for March 2015 reflects this view (see table 5). CHART 23 | OUTSTANDING EU SPECULATIVE GRADE RATING DISTRIBUTION BY VINTAGE (combining High Yield and Credit Estimates)
1990-2008 50% 40% 30% 20% 10% 0% 2009-2013

Public Ratings
No. of defaults 4 2 6 4 1 3 1 0 1 1 0 2 3 3 1 2 4 4 2 5

Combined

Value Default Default rate (, Billion) rate (%) (%) 3.4 8.2 5.1 4.9 0.0 2.5 2.2 0.0 0.4 0.4 0.0 3.2 10.5 2.0 0.5 4.1 4.4 3.9 2.0 3.6 6.5 8.8 10.1 5.9 5.0 3.4 2.6 1.2 1.3 0.8 0.2 0.9 2.8 2.8 2.6 3.1 1.9 2.1 2.2 1.9 6.6 9.3 11.1 8.7 6.5 5.5 4.2 2.9 3.4 1.9 2.0 2.9 4.2 4.0 3.8 4.3 3.1 3.8 3.5 2.7

BB+

BB

BB-

B+

B- CCC/CC

Source: S&P Ratings

Our basecase assessment takes into account the following assumptions: An ongoing gradual economic improvement in the eurozone (European Economic and Monetary Union), with Germany and the U.K. taking the lead and the periphery and France following in their trail, with a lag.

Source: S&P Ratings. Europe--EU-28 + Iceland, Norway, and Switzerland

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Standard & Poor's Ratings Services | European Corporate Credit Outlook Our expectation that the ECB official policy rates are unlikely to increase until late 2015 at the earliest, while the U.K. might initiate modest increases earlier in 2015. This would provide significant support for companies' debt service capacity. up over the year, especially businesses in the periphery and France. The weak and highly segmented shipping industry, along with the logistics industry, contributed the most to transportation defaults. TABLE 6 | EUROPEAN DEFAULT RATE BY VALUE
Default Rate* (%)
No. of Entities 2008 Business services 48 1.4 Media and entertainment 106 4.5 75 5.1 Retail/restaurants Transportation 40 4.9 Utilities 15 0.0 32 0.0 Forest Products Homebuilders/real estate 48 11.3 Automotive 34 9.5 36 3.3 Telecommunications Health care 61 3.2 Chemicals, pckg.,envir. 44 10.6 23 0.0 Oil and gas Capital goods 43 1.7 Consumer products 52 7.1 2009 13.3 14.3 22.7 7.5 0.0 0.0 22.6 23.7 11.5 3.3 19.0 0.0 10.0 13.0 2010 2011 4.5 1.7 6.7 6.4 2.6 7.0 4.8 7.4 0.0 0.0 0.0 0.0 0.0 3.9 2.5 4.9 8.0 3.3 3.2 3.3 1.7 3.9 4.5 0.0 3.8 7.0 1.6 6.4 2012 Q3 2013 16.4 12.6 8.5 10.4 4.0 8.1 10.5 7.6 0.0 6.9 0.0 6.3 2.0 6.3 2.6 6.0 3.2 5.6 5.0 5.0 13.5 4.5 4.1 4.4 4.7 0.0 13.2 0.0

TABLE 5 | EU NON-FINANCIAL CORPORATE DEFAULT PROJECTIONS TO MARCH 2015

Ratings / Credit Estimates
(% per annum) >B+ B+ B BCCC / CC Default Rates Percentage No. of Defaults Public Ratings 0.6 1.9 3.8 6.0 21.7 3.6 15

Default Assumptions Base Case

Credit Estimates Combined 0.6 2.1 4.3 6.7 23.4 7.9 20 5.2 35 Public Ratings 0.8 2.4 5.1 8.2 26.9 4.7 20

Downside Case
Credit Estimates Combined 0.9 2.6 5.5 8.9 28.6 10.0 26 6.7 46

Source: S&P Ratings

While the cost of corporate financing remains an issue across the eurozone, the combination of an improving liquidity position for the major banks and the increasing private nonbank provision of debt finance will continue to erode the higher risk premiums required for peripheral borrowers. Modest signs of improving liquidity in the loan market. Banks' underwriting capacity is benefiting from the return of the primary CLO market, older CLOs exiting reinvestment now being past their peak, as well as growing confidence in the broader economic environment and the banks' improving capital positions.

Source: S&P Ratings * Data combine public and private ratings. Europe-EU-28 + Iceland, Norway, and Switzerland

As a consequence, after applying slightly lower one-year default stress assumptions than for our previous default 5 forecast in December 2013 and reflecting the shifting weight in our speculative-grade portfolio away from private credit estimates, we envisage that the combined default rate will fall to 5.2% by the end of March 2015, from our previous baseline forecast of 6.0% for year-end 2014. In a more pessimistic downside scenario--which might correspond with growing issuance from more aggressively financed issuers or smaller businesses with weaker business risk profiles, or with a weaker, more disinflationary economic environment--we could envisage the default rate remaining elevated, at about 6.7%. SECTOR DEFAULT TRENDS In 2013, business services (mostly smaller businesses) and media and entertainment (boosted by Codere defaulting publicly three times in the space of six months) continued to suffer defaults at an above-average rate (see table 6). The retail and restaurant segment, which we also view as an asset-light, highly cyclical sector, saw the default rate pick
See European Defaults Remain Elevated As Legacy Transactions Take Their Toll, Dec. 10, 2013
5

However, it's revealing to compare the recent default experience with issuer characteristics in the high-yield market since the start of 2009, when activity in that market started to pick up. Prior to 2009, the most indebted companies looking to raise financing in the high-yield market were in the telecommunications, metals and mining, and paper and forest products sectors. In our view, this reflected a variety of factors, not least the capital intensity of the respective sectors, their degree of industry concentration, and the risk that high debt exposure represented to relationship banks. Since 2009, the picture has evolved. The three sectors with the most outstanding debt held by newly rated speculativegrade companies are now retail and restaurants, media and entertainment, and transportation, and these are three of the four sectors that experienced the highest default rates in 2013. Much of the new issuance for companies in these sectors represents loan-for-bond refinancing, which raises some interesting questions: What are the relationship banks doing to encourage these companies to diversify their funding? And are investors' risk assessments properly accounting for the default experience at the sector level? Of course, investors would need to consider many other elements to make a proper judgment of risk, including the security package and other investor protections provided in the various financing documents. UK CREDIT-QUALITY CONCERNS The 2013 default experience broadly reflects the economic trends playing out at the country level (see chart 24). Defaults in both Germany and the U.K., for instance, have slipped lower to well below average in 2013, while they

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Standard & Poor's Ratings Services | European Corporate Credit Outlook remain well above average in the periphery. The default rate in France remains significant even though it has fallen from an elevated 11.1% at the end of 2012 to 7.0% at year-end 2013, with eight defaults occurring in 2013, compared with 14 in 2012. In our view, this relatively high level partly reflects the relative underperformance of the French economy and the reticence of senior lenders in France to recognize the structural vulnerability of many overleveraged companies in France in recent years. CHART 24 | EU SPECULATIVE GRADE NON-FINANCIAL CORPORATE DEFAULT RATE BY COUNTRY
Spain Italy U.K. France The Netherlands Germany

European Recovery Rating Performance A Six Year Study, published Feb. 25, 2014. This study analyses the recoveries for a (somewhat limited) sample of 27 European rated companies that have emerged from default since 2007 where recovery ratings had been assigned to the various debt instruments. TABLE 7 | MEAN EUROPEAN CORPORATE RECOVERIES BY YEAR OF DEFAULT
Mean Percentage Recovery
Year 2007 2008 2009 2010 2011 2012 2013 Total Weighted Average* No. Companies Senior Secured Senior Secured Unsecured Exited Bank Debt Bonds Debt 2 0 11 6 3 4 1 27 90-100% 90-100% 50-60% 80-90% 83% 20-30% 30-40% 20-30% 50-60% 50-60% 37% 40-50% 30-40% 0-10% 70-80% 36% Subordinated Debt 10-20% 0-10% 0-10% 11%

30 25 20 15 10 5 0 2008
%

Source: S&P Ratings,* Weighted average by number of companies using mid-point of mean recovery range

2009

2010

2011

2012

2013

Source: S&P Ratings

However, the default experience to date likely masks the location of future weaknesses, from our perspective. First, notwithstanding the high level of non-performing loans monitored by the Bank of Italy and the Bank of Spain, the number of Italian and Spanish speculative-grade corporates that we track is low representing just over 11% of our portfolio, of which about one-third have credit quality of 'B-' or lower. Of greater concern to us is the credit quality of U.K. speculative-grade companies that comprise almost 23% of our portfolio, of which 8% have highly leveraged financial risk profiles in the 'B-/CCC' categories. Most of them are LBOs originated prior to the financial crisis. By comparison, the ratings distribution for French and German companies poses less of a prospective credit concern because we assess a little less than 5% of companies in both of these countries at the 'B-/CCC' level. SENIOR SECURED DEBT RECOVERY RATES RISING Tracking post-default recoveries over the most recent cycle (since 2007) reveals that average recovery rates for senior secured debt have improved materially since 2011. This reflects the upturn in the economy and improved prospects for companies facing restructuring or exiting bankruptcy as the capital markets began to reopen. The pattern has been similar to that in the U.S., although the improvement there began slightly earlier, toward the end of 2010, with 2009 reflecting the lowest point for recoveries. For more information on recovery rates, see table 7 and observations in our recent report titled "Standard & Poors CreditResearch | May 2014 15

Standard & Poor's Ratings Services | European Corporate Credit Outlook DEFAULT STUDY METHODOLOGY Our default study covers the broadest investable universe for European institutional investors by including leveraged loans and high-yield bonds. Our universe comprises speculativegrade nonfinancial companies (that is, those with a public rating of 'BB+' or private credit estimate of 'bb+' or lower) domiciled in Europe (EU-28 plus Iceland, Norway, and Switzerland). The calculation of the denominator used to determine the default rates is now the number of rated nonfinancial corporates and private credit estimates in our static pool at the start of the year rather than the average over the year. This methodology is slightly different to that applied by Standard & Poor's Global Fixed Income Research (GFIR). GFIR tracks corporate defaults including financial institutions and insurance companies but only for rated companies (not credit estimates). STANDARD & POOR'S DEFINITION OF DEFAULT For publicly rated companies (see chart 25), we record a default when we see that a company fails to make a scheduled payment of principal or interest on any financial obligation, files for bankruptcy, or completes the restructuring of a financial obligation involving what we consider to be a distressed exchange offer. We recognize defaults on the date that we assign a 'D' (Default) or 'SD' (Selective Default) classification to the company. CHART 25 | EU SPECULATIVE GRADE CORPORATE RATINGS DISTRIBUTION
Number 500 400 300 200 100 0
CCC/CC BB B+ BBBB BB+

However, in the case of a debt restructuring, we recognize that a default has occurred either on the date a restructuring plan is implemented (if payments remain current) or on the date of the first missed payment, whichever occurs first. CHART 26 | EU CREDIT ESTIMATE DISTRIBUTION
CCC/CC Number 600 500 400 300 200 100 0 2005 2006 2007 2008 2009 2010 2011 2012 Q3 2013 BB B+ BBBB BB+

Source: S&P Ratings

Due to the time lag involved in receiving information relating to restructurings for private unrated companies, or to companies that defaulted after their ratings were withdrawn, it is not uncommon to revise default rates over time.

2005 2006 2007 2008 2009 2010 2011 2012 Q3 2013

Source: S&P Ratings. SIGSub-Investment Grade

For companies with a private credit estimate (see chart 26), the process is not quite so straightforward. Where a coupon or principal payment is not paid on time we then consider that the default occurs on that date.

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Standard & Poor's Ratings Services | European Corporate Credit Outlook

RATINGS TRENDS
Credit quality for European rated corporates has shown modest further improvement in the first quarter of 2014. The net outlook bias remains modestly negative at 4.7% down from 6.3% at the end of 2013, only a little higher than the 4.1% net negative outlook bias in the US. The distribution of ratings continues to shift in favour of speculative grade companies reflecting the flow of new European companies tapping the bond markets.
CORPORATE CREDIT-QUALITY IMPROVING SLOWLY In the first quarter, there has been a further modest improvement in credit quality for European corporates. This has been particularly noticeable in the investment grade segment (see Chart 27) where improving operating conditions and a stabilization in Eurozone sovereign credit quality have resulted in the highest number of upgrades on a net basis since the second quarter 2011. CHART 27 | EUROPEAN INVESTMENT GRADE RATINGS UPGRADES, DOWNGRADES AND NET CHANGE
Upgrades 25 20 15 10 5 0 -5 -10 -15 -20 Downgrades Net

experienced a number of downgrades due to overcapacity and weak commodity prices translating into credit metrics incompatible with existing ratings (New World Resources N.V. (CCC), SGL Carbon SE (B+)). CHART 28 | EUROPEAN SUB-INVESTMENT GRADE RATINGS UPGRADES, DOWNGRADES AND NET CHANGE
Upgrades 20 10 0 -10 -20 -30 -40 Downgrades Net

Source: S&P Ratings. * Calculated as of March 31, 2014.

NUMBER OF STABLE OUTLOOKS RISING

Source: S&P Ratings. * Calculated as of March 31, 2014.

The picture is more mixed for speculative grade entities (see Chart 28) where more cross currents are in play. On the positive side, corporate actions such as IPOs, used partially to pay down debt or reduce private equity ownership, have led to upgrades (e.g. ISS A/S, Merlin Entertainments PLC). In addition, we have seen higher rated companies acquiring more highly levered LBOs (OXEA S.a.r.l. (BB-) acquired by state owned Oman Oil Co.), and speculative grade companies (Campofrio Food Group [Link] (BB-) acquisition by Mexico-based processed food producer Sigma Alimentos S.A. (BBB); Vodafone Group PLCss (A-) bid to buy Spanish ONO S.A. (B+), the parent of cable company Cableuropa S.A.U.). Consumer discretionary companies (in leisure and media for instance) have seen a material number of upgrades benefitting from stronger local business conditions and an improving operational performance, particularly in the UK. Conversely, corporate ratings in sectors such as steel and mining have been under greater ratings pressure and have

Overall, our ratings have become more stable with the proportion with a stable outlook increasing from 74% to 79% over the last three months (see Chart 29). Watch listings represent less than 3% of the portfolio reflecting the relatively subdued level of large-value M&A activity. CHART 29 | EUROPEAN RATINGS OUTLOOK DISTRIBUTION
Positive 6% Negative 12%

WatchPos 2%

WatchNeg 1%

Stable 79%

Source: S&P Ratings. Calculated as of End-March, 2014.

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Standard & Poor's Ratings Services | European Corporate Credit Outlook In addition, the net negative outlook bias for European rated corporates has continued to move lower to 4.6% by end March 2014. This continues the downward trend we have seen since December 2012 (see chart 30) CHART 30 | EUROPEAN NET OUTLOOK-BIAS TREND
Net Outlook Bias (%) 0 -2 -4 -6 -8 -10 -12 -14 -16 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 40 30 70 60 50 % Europe

Although current business conditions remain weak for 40% of the sectors we cover, business prospects for the next year have improved significantly. We expect one third of our sectors to experience somewhat-stronger or stronger business conditions over this horizon. Expressing these results as a diffusion index (with 50% representing no change) the latest reading of 58% is the highest since we started this survey in April 2011. CHART 31 | S&P CORPORATE CREDIT SECTOR SURVEY DIFFUSION INDICES
Current Business Conditions Business Outlook Sector Rating Outlook

Source: S&P Ratings

BUSINESS OUTLOOKS MOST UPBEAT SINCE APR 2011 This improvement in outlooks is quite evident in our most recent European quarterly corporate credit conditions sector survey (see Chart 31).
20 04/11 10/11 04/12 10/12 04/13 10/13

Source: S&P Ratings. See footnote to Table 2 for definitions

CHART 32 | EUROPEAN RATINGS OUTLOOK DISTRIBUTION BY INDUSTRY (RANKED BY ASCENDING NET OUTLOOK BIAS)
Negative Metals & Mining Construction & Engineering Construction Materials Transportation Utilities Chemicals Telecommunication Services Media Paper & Packaging Oil & Gas Retailing Capital Goods Business & Consumer Services Hotels Restaurants & Leisure Consumer Durables Aerospace & Defense Real Estate Consumer Non Durables Healthcare Autos Technology 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Watch Negative Stable Watch Positive Positive

Source: S&P Ratings. Ratings as of End-March, 2014.

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Standard & Poor's Ratings Services | European Corporate Credit Outlook

AEROSPACE AND DEFENCE

Overall, we expect the global A&D industry's credit quality will remain fairly stable in 2014, with commercial aerospace somewhat positive and defense somewhat negative. Demand remains strong for manufacturers of jetliners and their suppliers as airlines continue to buy new aircraft to replace old, fuel-thirsty models and, in some regions, to increase capacity. Therefore, most commercial aerospace companies should see higher revenues and profits in 2014. Cash flows will likely be constrained somewhat by the need to invest in both capital expenditures and working capital to increase production and introduce new models, which could limit the improvement in credit quality.
CHART 33 | RATINGS DISTRIBUTION
Aerospace & Defense

CHART 34 | OUTLOOK DISTRIBUTION

Negative 14% WatchPos 0% Positive 14% WatchNeg 0%

3 2 1 0
Stable 72%

Source: S&P Ratings. Calculated as of end-March, 2014

AAA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B BCCC+ CCC CCCCC C SD D

Source: S&P Ratings. Calculated as of end-March, 2014

CHART 35 | REVENUE GROWTH

Aerospace & Defense - Sales Growth (YOY%) 15 10 5 0 -5 2002 2004 2006 2008 2010 2012 2

CHART 36 | EBITDA MARGIN

Aerospace & Defense - EBITDA Margin (%) 12 10 8 6 4 2 0 2001 2003 2005 2007 2009 2011 LTM 8

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 37 | EBITDA / INTEREST EXPENSE

Aerospace & Defense - EBITDA/Interest Expense (x) 9 8 7 6 5 4 3 2 1 0 2001 2003 2005 2007 2009 2011 LTM 8

CHART 38 | CASH FLOW AND PRIMARY USES

Capex Net Acquisitions Operating CF Dividends Share Buybacks

Bn 15 10 5 0 -5 -10

2002

2004

2006

2008

2010

2012

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

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Standard & Poor's Ratings Services | European Corporate Credit Outlook

CHART 39 | CASH & EQUIVALENTS / TOTAL ASSETS

Aerospace & Defense - Cash & Equivalents/Total Assets (%) 16 14 12 10 8 6 4 2 0 2001 2003 2005 2007 2009 2011 LTM 11

CHART 40 | TOTAL DEBT /TOTAL ASSETS

Aerospace & Defense - Total Debt / Total Assets (%) 18 16 14 12 10 8 6 4 2 0 2001 2003 2005 2007 2009 2011 LTM 10

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 41 | LOAN AND BOND ISSUANCE (GROSS)

bn 30 25 20 15 10 5 03 05 07 09 11 13 LTM Loans Bonds

CHART 42 | LT DEBT TERM STRUCTURE

LT Debt Due 1 Yr LT Debt Due 3 Yr LT Debt Due 5 Yr Nominal Due In 1 Yr 100% 80% 60% 40% 20% 0% LT Debt Due 2 Yr LT Debt Due 4 Yr LT Debt Due 5+ Yr 6,000 5,000 4,000 3,000 2,000 1,000 0

2001

2003

2005

2007

2009

2011

Source: Dealogic, S&P Ratings. LTM data to end of March 31, 2014

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 43 | FIXED VERSUS VARIABLE RATE EXPOSURE

Aerospace & Defense - Variable Rate Debt (% of Identifiable Total) Aerospace & Defense - Fixed Rate Debt (% of Identifiable Total)

CHART 44 | RETURN ON CAPITAL EMPLOYED

Aerospace & Defense - Return On Capital (%) 9 8 7 6 5 4 3 2 1 0 8.4

100% 80% 60% 40% 20% 0%

2001

2003

2005

2007

2009

2011

LTM

2002

2004

2006

2008

2010

2012

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

Note: The above charts refer to S&P's Non-Financial Corporate Rated Universe (public and private ratings) with the exception of 'Loan and Bond Issuance', which refers to all available data for this industry in Europe. 2013 data refer to last twelve months (LTM).

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Standard & Poor's Ratings Services | European Corporate Credit Outlook

AUTOS
We view credit quality in the global auto sector as moderately positive. Most light-vehicle manufacturers and their related suppliers have exited 2013 with generally healthy cash balances and earnings will likely improve modestly in 2014 due to the continued recovery in North America and stabilizing conditions in Europe. In Western Europe, we expect that the region will snap a six-year decline in light-vehicle sales and increase in the low-single digits in 2014--back toward 13 million units, which would still be quite low.
CHART 45 | RATINGS DISTRIBUTION
Autos

CHART 46 | OUTLOOK DISTRIBUTION

Negative 4% Positive 14% WatchNeg 0%

5 4 3 2 1
AAA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B BCCC+ CCC CCCCC C SD D

WatchPos 0%

Stable 82%

Source: S&P Ratings. Calculated as of end-March, 2014

Source: S&P Ratings. Calculated as of end-March, 2014

CHART 47 | REVENUE GROWTH

Autos - Sales Growth (YOY%) 30 20 10 0 -10 -20 2002 2004 2006 2008 2010 2012 1.5

CHART 48 | EBITDA MARGIN

Autos - EBITDA Margin (%) 14 12 10 8 6 4 2 0

10

2001

2003

2005

2007

2009

2011

LTM

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 49 | EBITDA / INTEREST EXPENSE

Autos - EBITDA/Interest Expense (x) 14 12 10 8 6 4 2 0 2001 2003 2005 2007 2009 2011 LTM 9

CHART 50 | CASH FLOW AND PRIMARY USES

Capex Net Acquisitions Operating CF Dividends Share Buybacks

Bn 80 60 40 20 0 -20

2002

2004

2006

2008

2010

2012

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

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Standard & Poor's Ratings Services | European Corporate Credit Outlook

CHART 51 | CASH & EQUIVALENTS / TOTAL ASSETS

Autos - Cash & Equivalents/Total Assets (%) 12 10 8 6 4 2 0 2001 2003 2005 2007 2009 2011 LTM 11

CHART 52 | TOTAL DEBT /TOTAL ASSETS

Autos - Total Debt / Total Assets (%) 45 40 35 30 25 20 15 10 5 0 2001 2003 2005 2007 2009 2011 LTM 36

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 53 | LOAN AND BOND ISSUANCE (GROSS)

bn 120 100 80 60 40 20 03 05 07 09 11 13 LTM Loans Bonds

CHART 54 | LT DEBT TERM STRUCTURE

LT Debt Due 1 Yr LT Debt Due 3 Yr LT Debt Due 5 Yr Nominal Due In 1 Yr 100% 80% 60% 40% 20% 0% LT Debt Due 2 Yr LT Debt Due 4 Yr LT Debt Due 5+ Yr 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 2001 2003 2005 2007 2009 2011 0

Source: Dealogic, S&P Ratings. LTM data to end of March 31, 2014

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 55 | FIXED VERSUS VARIABLE RATE EXPOSURE

Autos - Variable Rate Debt (% of Identifiable Total) Autos - Fixed Rate Debt (% of Identifiable Total) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

CHART 56 | RETURN ON CAPITAL EMPLOYED

Autos - Return On Capital (%) 6 5 4 3 2 1 4.3

2006 2007 2008 2009 2010 2011 2012 2013

2002

2004

2006

2008

2010

2012

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

Note: The above charts refer to S&P's Non-Financial Corporate Rated Universe (public and private ratings) with the exception of 'Loan and Bond Issuance', which refers to all available data for this industry in Europe. 2013 data refer to last twelve months (LTM).

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Standard & Poor's Ratings Services | European Corporate Credit Outlook

BUSINESS & CONSUMER SERVICES

The industry continues to demonstrate strong resilience and we expect this to continue in 2014. This is because issuers in this industry tend to offer an efficient, cost effective way of outsourcing services that is much in demand when budgets are under pressure. Margins should stay stable due to effective cost control, and with low capex needs and low working capital volatility, the ability to generate cash flow should underpin credit quality.
CHART 57 | RATINGS DISTRIBUTION
Business & Consumer Services

CHART 58 | OUTLOOK DISTRIBUTION

WatchPos 0% Positive Negative 4% 2% WatchNeg 0%

25 20 15 10 5
AAA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B BCCC+ CCC CCCCC C SD D

Stable 94%

Source: S&P Ratings. Calculated as of end-March, 2014

Source: S&P Ratings. Calculated as of end-March, 2014

CHART 59 | REVENUE GROWTH

Business & Consumer Services - Sales Growth (YOY%) 40 30 20 10 0 -10 -20 2002 2004 2006 2008 2010 2012 -1.1

CHART 60 | EBITDA MARGIN

Business & Consumer Services - EBITDA Margin (%) 10 8 6 4 2 0 2001 2003 2005 2007 2009 2011 LTM 7

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 61 | EBITDA / INTEREST EXPENSE

Business & Consumer Services - EBITDA/Interest Expense (x) 9 8 7 6 5 4 3 2 1 0 2001 2003 2005 2007 2009 2011 LTM 6

CHART 62 | CASH FLOW AND PRIMARY USES

Capex Net Acquisitions Operating CF Dividends Share Buybacks

Bn 8 7 6 5 4 3 2 1 0 -1 2002

2004

2006

2008

2010

2012

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

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CHART 63 | CASH & EQUIVALENTS / TOTAL ASSETS

Business & Consumer Services - Cash & Equivalents/Total Assets (%) 12 10 8 6 4 2 0 2001 2003 2005 2007 2009 2011 LTM 10

CHART 64 | TOTAL DEBT /TOTAL ASSETS

Business & Consumer Services - Total Debt / Total Assets (%) 40 35 30 25 20 15 10 5 0 2001 2003 2005 2007 2009 2011 LTM 34

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 65 | LOAN AND BOND ISSUANCE (GROSS)

bn 40 35 30 25 20 15 10 5 03 05 07 09 11 13 LTM Loans Bonds

CHART 66 | LT DEBT TERM STRUCTURE

LT Debt Due 1 Yr LT Debt Due 3 Yr LT Debt Due 5 Yr Nominal Due In 1 Yr 100% 80% 60% 40% 20% 0% LT Debt Due 2 Yr LT Debt Due 4 Yr LT Debt Due 5+ Yr 7,000 6,000 5,000 4,000 3,000 2,000 1,000 2001 2003 2005 2007 2009 2011 0

Source: Dealogic, S&P Ratings. LTM data to end of March 31, 2014

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 67 | FIXED VERSUS VARIABLE RATE EXPOSURE

Business & Consumer Services - Variable Rate Debt (% of Identifiable Total) Business & Consumer Services - Fixed Rate Debt (% of Identifiable Total) 100% 80% 60% 40% 20% 0% 2001 2003 2005 2007 2009 2011 LTM

CHART 68 | RETURN ON CAPITAL EMPLOYED

Business & Consumer Services - Return On Capital (%) 12 10 8 6 4 2 0 2002 2004 2006 2008 2010 2012 9.1

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

Note: The above charts refer to S&P's Non-Financial Corporate Rated Universe (public and private ratings) with the exception of 'Loan and Bond Issuance', which refers to all available data for this industry in Europe. 2013 data refer to last twelve months (LTM).

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Standard & Poor's Ratings Services | European Corporate Credit Outlook

CAPITAL GOODS
Global capital goods companies face another year of fragile but modestly improving economic growth in most regions, which should help business prospects overall, although lower capital investment in the mining and energy sectors will have some negative impact. As a result we believe the sector's credit quality will remain relatively stable this year, though an increasing potential for aggressive financial policy decisions poses a key risk to ratings.
CHART 69 | RATINGS DISTRIBUTION
Capital Goods

CHART 70 | OUTLOOK DISTRIBUTION

WatchPos Positive Negative 6% 9% 0%

Source: S&P Ratings. Calculated as of end-March, 2014

AAA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B BCCC+ CCC CCCCC C SD D

14 12 10 8 6 4 2 0

WatchNeg 0%

Stable 85%

Source: S&P Ratings. Calculated as of end-March, 2014

CHART 71 | REVENUE GROWTH

Capital Goods - Sales Growth (YOY%) 20 15 10 5 0 -5 -10 -15

CHART 72 | EBITDA MARGIN

Capital Goods - EBITDA Margin (%) 14 12 10 8 6 4 2 0 12

-1.3

2002

2004

2006

2008

2010

2012

2001

2003

2005

2007

2009

2011

LTM

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 73 | EBITDA / INTEREST EXPENSE

Capital Goods - EBITDA/Interest Expense (x) 12 10 8 6 4 2 0 2001 2003 2005 2007 2009 2011 LTM 9

CHART 74 | CASH FLOW AND PRIMARY USES

Capex Net Acquisitions Operating CF Dividends Share Buybacks

Bn 40 30 20 10 0 -10 -20 2002

2004

2006

2008

2010

2012

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

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CHART 75 | CASH & EQUIVALENTS / TOTAL ASSETS

Capital Goods - Cash & Equivalents/Total Assets (%) 18 16 14 12 10 8 6 4 2 0 2001 2003 2005 2007 2009 2011 LTM 13

CHART 76 | TOTAL DEBT /TOTAL ASSETS

Capital Goods - Total Debt / Total Assets (%) 30 25 20 15 10 5 0 2001 2003 2005 2007 2009 2011 LTM 24

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 77 | LOAN AND BOND ISSUANCE (GROSS)

bn 80 70 60 50 40 30 20 10 03 05 07 09 11 13 LTM Loans Bonds

CHART 78 | LT DEBT TERM STRUCTURE

LT Debt Due 1 Yr LT Debt Due 3 Yr LT Debt Due 5 Yr Nominal Due In 1 Yr 100% 80% 60% 40% 20% 0% LT Debt Due 2 Yr LT Debt Due 4 Yr LT Debt Due 5+ Yr 14,000 12,000 10,000 8,000 6,000 4,000 2,000 2001 2003 2005 2007 2009 2011 0

Source: Dealogic, S&P Ratings. LTM data to end of March 31, 2014

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 79 | FIXED VERSUS VARIABLE RATE EXPOSURE

Capital Goods - Variable Rate Debt (% of Identifiable Total) Capital Goods - Fixed Rate Debt (% of Identifiable Total) 100% 80% 60% 40% 20% 0% 2001 2003 2005 2007 2009 2011 LTM

CHART 80 | RETURN ON CAPITAL EMPLOYED

Capital Goods - Return On Capital (%) 12 10 8 6 4 2 0 2002 2004 2006 2008 2010 2012 7.7

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

Note: The above charts refer to S&P's Non-Financial Corporate Rated Universe (public and private ratings) with the exception of 'Loan and Bond Issuance', which refers to all available data for this industry in Europe. 2013 data refer to last twelve months (LTM).

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Standard & Poor's Ratings Services | European Corporate Credit Outlook

CHEMICALS
We anticipate some further modest volume growth for European producers in 2014 dependent on the strength of activity in the automobile and construction markets. However, the extent to which this translates through to earnings varies widely depending on degree of exposure to Europe's economy, geographic diversity of sales, and exposure to cyclical versus more defensive end-markets. Although we view the sector outlook as largely stable, ratings headroom has declined over the last year and intensifying competition from low-cost U.S. chemical companies remains a key concern.
CHART 81 | RATINGS DISTRIBUTION
Chemicals

CHART 82 | OUTLOOK DISTRIBUTION

Positive 4% WatchPos 0% Negative 11% WatchNeg 3%

5 4 3 2 1
AAA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B BCCC+ CCC CCCCC C SD D

Stable 82%

Source: S&P Ratings. Calculated as of end-March, 2014

Source: S&P Ratings. Calculated as of end-March, 2014

CHART 83 | REVENUE GROWTH

Chemicals - Sales Growth (YOY%) 30 20 10 0 -10 -20 -30 2002 2004 2006 2008 2010 2012 -1.1

CHART 84 | EBITDA MARGIN

Chemicals - EBITDA Margin (%) 20 15 10 5 0 2001 2003 2005 2007 2009 2011 LTM 14

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 85 | EBITDA / INTEREST EXPENSE

Chemicals - EBITDA/Interest Expense (x) 14 12 10 8 6 4 2 0 2001 2003 2005 2007 2009 2011 LTM 9

CHART 86 | CASH FLOW AND PRIMARY USES

Capex Net Acquisitions Operating CF Dividends Share Buybacks

Bn 40 35 30 25 20 15 10 5 0 -5 -10

2002

2004

2006

2008

2010

2012

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

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CHART 87 | CASH & EQUIVALENTS / TOTAL ASSETS

Chemicals - Cash & Equivalents/Total Assets (%) 12 10 8 6 4 2 0 2001 2003 2005 2007 2009 2011 LTM 7

CHART 88 | TOTAL DEBT /TOTAL ASSETS

Chemicals - Total Debt / Total Assets (%) 35 30 25 20 15 10 5 0 2001 2003 2005 2007 2009 2011 LTM 25

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 89 | LOAN AND BOND ISSUANCE (GROSS)

bn 80 70 60 50 40 30 20 10 03 05 07 09 11 13 LTM Loans Bonds

CHART 90 | LT DEBT TERM STRUCTURE

LT Debt Due 1 Yr LT Debt Due 3 Yr LT Debt Due 5 Yr Nominal Due In 1 Yr 100% 80% 60% 40% 20% 0% LT Debt Due 2 Yr LT Debt Due 4 Yr LT Debt Due 5+ Yr 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 2001 2003 2005 2007 2009 2011 0

Source: Dealogic, S&P Ratings. LTM data to end of March 31, 2014

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 91 | FIXED VERSUS VARIABLE RATE EXPOSURE

Chemicals - Variable Rate Debt (% of Identifiable Total) Chemicals - Fixed Rate Debt (% of Identifiable Total) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

CHART 92 | RETURN ON CAPITAL EMPLOYED

Chemicals - Return On Capital (%) 12 10 8 6 4 2 7.5

2001

2003

2005

2007

2009

2011

LTM

2002

2004

2006

2008

2010

2012

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

Note: The above charts refer to S&P's Non-Financial Corporate Rated Universe (public and private ratings) with the exception of 'Loan and Bond Issuance', which refers to all available data for this industry in Europe. 2013 data refer to last twelve months (LTM).

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Standard & Poor's Ratings Services | European Corporate Credit Outlook

CONSTRUCTION MATERIALS
Europe continues to be a difficult market for most issuers. Overall, we anticipate materials companies in the region, similar to 2013, will experience flat-to-slightly-negative volumes in 2014 with some limited pick-up in growth later in the year. Cost pass-through clauses should help maintain stable margins. We expect little support from public sector spending as austerity measures continue to depress large-scale infrastructure projects.
CHART 93 | RATINGS DISTRIBUTION
Construction Materials

CHART 94 | OUTLOOK DISTRIBUTION

WatchPos 0% Positive 9%

5 4 3 2 1
AAA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B BCCC+ CCC CCCCC C SD D

Negative 24%

WatchNeg 0%

Stable 67%

Source: S&P Ratings. Calculated as of end-March, 2014

Source: S&P Ratings. Calculated as of end-March, 2014

CHART 95 | REVENUE GROWTH

Construction Materials - Sales Growth (YOY%) 30 20 10 0 -10 -20 2002 2004 2006 2008 2010 2012 -3.4

CHART 96 | EBITDA MARGIN

Construction Materials - EBITDA Margin (%) 20 15 10 5 0 2001 2003 2005 2007 2009 2011 LTM 12

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 97 | EBITDA / INTEREST EXPENSE

Construction Materials - EBITDA/Interest Expense (x) 8 7 6 5 4 3 2 1 0 2001 2003 2005 2007 2009 2011 LTM 5

CHART 98 | CASH FLOW AND PRIMARY USES

Capex Net Acquisitions Operating CF Dividends Share Buybacks

Bn 35 30 25 20 15 10 5 0 -5 2002

2004

2006

2008

2010

2012

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

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CHART 99 | CASH & EQUIVALENTS / TOTAL ASSETS

Construction Materials - Cash & Equivalents/Total Assets (%) 10 9 8 7 6 5 4 3 2 1 0 9

CHART 100 | TOTAL DEBT /TOTAL ASSETS

Construction Materials - Total Debt / Total Assets (%) 45 40 35 30 25 20 15 10 5 0 29

2001

2003

2005

2007

2009

2011

LTM

2001

2003

2005

2007

2009

2011

LTM

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 101 | LOAN AND BOND ISSUANCE (GROSS)

bn 16 14 12 10 8 6 4 2 03 05 07 09 11 13 LTM Loans Bonds

CHART 102 | LT DEBT TERM STRUCTURE

LT Debt Due 1 Yr LT Debt Due 3 Yr LT Debt Due 5 Yr Nominal Due In 1 Yr 100% 80% 60% 40% 20% 0% LT Debt Due 2 Yr LT Debt Due 4 Yr LT Debt Due 5+ Yr 14,000 12,000 10,000 8,000 6,000 4,000 2,000 2001 2003 2005 2007 2009 2011 0

Source: Dealogic, S&P Ratings. LTM data to end of March 31, 2014

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 103 | FIXED VERSUS VARIABLE RATE EXPOSURE

Construction Materials - Variable Rate Debt (% of Identifiable Total) Construction Materials - Fixed Rate Debt (% of Identifiable Total)

CHART 104 | RETURN ON CAPITAL EMPLOYED

Construction Materials - Return On Capital (%) 10 9 8 7 6 5 4 3 2 1 0 4.8

100% 80% 60% 40% 20% 0%

2001

2003

2005

2007

2009

2011

LTM

2002

2004

2006

2008

2010

2012

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

Note: The above charts refer to S&P's Non-Financial Corporate Rated Universe (public and private ratings) with the exception of 'Loan and Bond Issuance', which refers to all available data for this industry in Europe. 2013 data refer to last twelve months (LTM).

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Standard & Poor's Ratings Services | European Corporate Credit Outlook

CONSUMER DURABLES
We are forecasting low- to mid-single-digit growth in revenues for most international consumer durable goods companies, factoring in persistent subpar growth in mature markets (Southern Europe in particular) and solid (though decelerating) growth coming from emerging markets. Improving product mix and lowering costs remains the key to better financial performance, especially to offset impact of weaker currencies in emerging markets.
CHART 105 | RATINGS DISTRIBUTION
Consumer Durables

CHART 106 | OUTLOOK DISTRIBUTION

3 2 1 0
WatchPos 0% Positive 22% Negative 22% WatchNeg 0%

Source: S&P Ratings. Calculated as of end-March, 2014

AAA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B BCCC+ CCC CCCCC C SD D

Stable 56%

Source: S&P Ratings. Calculated as of end-March, 2014

CHART 107 | REVENUE GROWTH

Consumer Durables - Sales Growth (YOY%) 15 10 5 0 -5 -10 -15 2002 2004 2006 2008 2010 2012 0.8

CHART 108 | EBITDA MARGIN

Consumer Durables - EBITDA Margin (%) 12 10 8 6 4 2 0 2001 2003 2005 2007 2009 2011 LTM 8

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 109 | EBITDA / INTEREST EXPENSE

Consumer Durables - EBITDA/Interest Expense (x) 16 14 12 10 8 6 4 2 0 2001 2003 2005 2007 2009 2011 LTM 9

CHART 110 | CASH FLOW AND PRIMARY USES

Capex Net Acquisitions Operating CF Dividends Share Buybacks

Bn 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 2002

2004

2006

2008

2010

2012

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

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CHART 111 | CASH & EQUIVALENTS / TOTAL ASSETS

Consumer Durables - Cash & Equivalents/Total Assets (%) 18 16 14 12 10 8 6 4 2 0 2001 2003 2005 2007 2009 2011 LTM 8

CHART 112 | TOTAL DEBT /TOTAL ASSETS

Consumer Durables - Total Debt / Total Assets (%) 25 20 15 10 5 0 20

2001

2003

2005

2007

2009

2011

LTM

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 113 | LOAN AND BOND ISSUANCE (GROSS)

bn 40 35 30 25 20 15 10 5 03 05 07 09 11 13 LTM Loans Bonds

CHART 114 | LT DEBT TERM STRUCTURE

LT Debt Due 1 Yr LT Debt Due 3 Yr LT Debt Due 5 Yr Nominal Due In 1 Yr 100% 80% 60% 40% 20% 0% LT Debt Due 2 Yr LT Debt Due 4 Yr LT Debt Due 5+ Yr 1,600 1,400 1,200 1,000 800 600 400 200 2001 2003 2005 2007 2009 2011 0

Source: Dealogic, S&P Ratings. LTM data to end of March 31, 2014

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 115 | FIXED VERSUS VARIABLE RATE EXPOSURE

Consumer Durables - Variable Rate Debt (% of Identifiable Total) Consumer Durables - Fixed Rate Debt (% of Identifiable Total) 100% 80% 60% 40% 20% 0% 2001 2003 2005 2007 2009 2011 LTM

CHART 116 | RETURN ON CAPITAL EMPLOYED

Consumer Durables - Return On Capital (%) 14 12 10 8 6 4 2 0 2002 2004 2006 2008 2010 2012 9.9

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

Note: The above charts refer to S&P's Non-Financial Corporate Rated Universe (public and private ratings) with the exception of 'Loan and Bond Issuance', which refers to all available data for this industry in Europe. 2013 data refer to last twelve months (LTM).

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Standard & Poor's Ratings Services | European Corporate Credit Outlook

CONSUMER NON-DURABLES
We expect mid-single-digit organic growth in global consumer demand in food and beverages in 2014 and 2015 supported by mounting demand for health and wellness products, improved economic conditions in mature markets, and slower, but still dynamic, emerging markets (despite managing the impact of FX volatility). EBITDA margins should remain fairly stable taking into account increased operating leverage, continued cost optimization, balanced by persistent volatility in raw material prices and continued investments in advertising and promotions.
CHART 117 | RATINGS DISTRIBUTION
Consumer Non Durables

CHART 118 | OUTLOOK DISTRIBUTION

Negative 9% WatchNeg 0% Positive 15%

Source: S&P Ratings. Calculated as of end-March, 2014

AAA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B BCCC+ CCC CCCCC C SD D

14 12 10 8 6 4 2 0

WatchPos 2%

Stable 74%

Source: S&P Ratings. Calculated as of end-March, 2014

CHART 119 | REVENUE GROWTH

Consumer Non Durables - Sales Growth (YOY%) 15 10 5 0 -5 -10 2002 2004 2006 2008 2010 2012 0.3

CHART 120 | EBITDA MARGIN

Consumer Non Durables - EBITDA Margin (%) 25 20 15 10 5 0 2001 2003 2005 2007 2009 2011 LTM 21

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 121 | EBITDA / INTEREST EXPENSE

Consumer Non Durables - EBITDA/Interest Expense (x) 12 10 8 6 4 2 0 2001 2003 2005 2007 2009 2011 LTM 10

CHART 122 | CASH FLOW AND PRIMARY USES

Capex Net Acquisitions Operating CF Dividends Share Buybacks

Bn 120 100 80 60 40 20 0 -20 2002

2004

2006

2008

2010

2012

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

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CHART 123 | CASH & EQUIVALENTS / TOTAL ASSETS

Consumer Non Durables - Cash & Equivalents/Total Assets (%) 12 10 8 6 4 2 0 2001 2003 2005 2007 2009 2011 LTM 7

CHART 124 | TOTAL DEBT /TOTAL ASSETS

Consumer Non Durables - Total Debt / Total Assets (%) 45 40 35 30 25 20 15 10 5 0 2001 2003 2005 2007 2009 2011 LTM 28

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 125 | LOAN AND BOND ISSUANCE (GROSS)

bn 120 100 80 60 40 20 03 05 07 09 11 13 LTM Loans Bonds

CHART 126 | LT DEBT TERM STRUCTURE

LT Debt Due 1 Yr LT Debt Due 3 Yr LT Debt Due 5 Yr Nominal Due In 1 Yr 100% 80% 60% 40% 20% 0% LT Debt Due 2 Yr LT Debt Due 4 Yr LT Debt Due 5+ Yr 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 2001 2003 2005 2007 2009 2011 0

Source: Dealogic, S&P Ratings. LTM data to end of March 31, 2014

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 127 | FIXED VERSUS VARIABLE RATE EXPOSURE

Consumer Non Durables - Variable Rate Debt (% of Identifiable Total) Consumer Non Durables - Fixed Rate Debt (% of Identifiable Total) 100% 80% 60% 40% 20% 0% 2001 2003 2005 2007 2009 2011 LTM

CHART 128 | RETURN ON CAPITAL EMPLOYED

Consumer Non Durables - Return On Capital (%) 12 10 8 6 4 2 0 2002 2004 2006 2008 2010 2012 10.1

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

Note: The above charts refer to S&P's Non-Financial Corporate Rated Universe (public and private ratings) with the exception of 'Loan and Bond Issuance', which refers to all available data for this industry in Europe. 2013 data refer to last twelve months (LTM).

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Standard & Poor's Ratings Services | European Corporate Credit Outlook

HEALTHCARE
We expect stable to slightly increasing sector revenues in pharma and healthcare services for 2014. This is due to an improving innovation-patent expiry balance in pharma and a positive underlying demand - ageing, lifestyle factors - coupled with positive consolidation trends for healthcare services. Our base-case also incorporates an improving trend following austerity and budget control measures adopted in Southern European countries during the last 4 years.
CHART 129 | RATINGS DISTRIBUTION
Healthcare

CHART 130 | OUTLOOK DISTRIBUTION

Positive Negative 3% 9% WatchPos 3% WatchNeg 0%

10 8 6 4 2
AAA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B BCCC+ CCC CCCCC C SD D

Stable 85%

Source: S&P Ratings. Calculated as of end-March, 2014

Source: S&P Ratings. Calculated as of end-March, 2014

CHART 131 | REVENUE GROWTH

Healthcare - Sales Growth (YOY%) 25 20 15 10 5 0 -5 -10

CHART 132 | EBITDA MARGIN

Healthcare - EBITDA Margin (%) 35 30 25 20 15 10 5 0 29

-1.1 2002 2004 2006 2008 2010 2012

2001

2003

2005

2007

2009

2011

LTM

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 133 | EBITDA / INTEREST EXPENSE

Healthcare - EBITDA/Interest Expense (x) 18 16 14 12 10 8 6 4 2 0 2001 2003 2005 2007 2009 2011 LTM 15

CHART 134 | CASH FLOW AND PRIMARY USES

Capex Net Acquisitions Operating CF Dividends Share Buybacks

Bn 70 60 50 40 30 20 10 0 -10 2002

2004

2006

2008

2010

2012

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

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Standard & Poor's Ratings Services | European Corporate Credit Outlook

CHART 135 | CASH & EQUIVALENTS / TOTAL ASSETS

Healthcare - Cash & Equivalents/Total Assets (%) 25 20 15 10 5 0 10

CHART 136 | TOTAL DEBT /TOTAL ASSETS

Healthcare - Total Debt / Total Assets (%) 30 25 20 15 10 5 22

2001

2003

2005

2007

2009

2011

LTM

2001

2003

2005

2007

2009

2011

LTM

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 137 | LOAN AND BOND ISSUANCE (GROSS)

bn 100 90 80 70 60 50 40 30 20 10 Loans Bonds

CHART 138 | LT DEBT TERM STRUCTURE

LT Debt Due 1 Yr LT Debt Due 3 Yr LT Debt Due 5 Yr Nominal Due In 1 Yr 100% 80% 60% 40% 20% 0% LT Debt Due 2 Yr LT Debt Due 4 Yr LT Debt Due 5+ Yr 25,000 20,000 15,000 10,000 5,000 0

03

05

07

09

11

13 LTM

2001

2003

2005

2007

2009

2011

Source: Dealogic, S&P Ratings. LTM data to end of March 31, 2014

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 139 | FIXED VERSUS VARIABLE RATE EXPOSURE

Healthcare - Variable Rate Debt (% of Identifiable Total) Healthcare - Fixed Rate Debt (% of Identifiable Total) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

CHART 140 | RETURN ON CAPITAL EMPLOYED

Healthcare - Return On Capital (%) 16 14 12 10 8 6 4 2 0 11.2

2001

2003

2005

2007

2009

2011

LTM

2002

2004

2006

2008

2010

2012

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

Note: The above charts refer to S&P's Non-Financial Corporate Rated Universe (public and private ratings) with the exception of 'Loan and Bond Issuance', which refers to all available data for this industry in Europe. 2013 data refer to last twelve months (LTM).

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Standard & Poor's Ratings Services | European Corporate Credit Outlook

HOTELS, RESTAURANTS & LEISURE

For 2014, overall we expect low-to-mid-single-digit top-line growth, moderate margin expansion translating into higher free operating cash flow. Lodging: moderately positive RevPAR growth, supported by a strong UK and improving S. European markets. Gaming: no material deleveraging as cash flow surpluses are mostly used to fund new investment. The impact of tighter regulation in UK mostly offset by growth in online gaming. Travel: yet another good year expected supported by improving consumer confidence in UK and Germany.
CHART 141 | RATINGS DISTRIBUTION
Hotels Restaurants & Leisure

CHART 142 | OUTLOOK DISTRIBUTION

WatchPos 3% Positive 3% Negative 7% WatchNeg 0%

10 8 6 4 2
AAA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B BCCC+ CCC CCCCC C SD D

Stable 87%

Source: S&P Ratings. Calculated as of end-March, 2014

Source: S&P Ratings. Calculated as of end-March, 2014

CHART 143 | REVENUE GROWTH

Hotels Restaurants & Leisure - Sales Growth (YOY%) 20 10 0 -10 -20 -30 -40 2002 2004 2006 2008 2010 2012 -0.2

CHART 144 | EBITDA MARGIN

Hotels Restaurants & Leisure - EBITDA Margin (%) 14 12 10 8 6 4 2 0 12

2001

2003

2005

2007

2009

2011

LTM

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 145 | EBITDA / INTEREST EXPENSE

Hotels Restaurants & Leisure - EBITDA/Interest Expense (x) 6 5 4 3 2 1 0 2001 2003 2005 2007 2009 2011 LTM 4

CHART 146 | CASH FLOW AND PRIMARY USES

Capex Net Acquisitions Operating CF Dividends Share Buybacks

Bn 15 10 5 0 -5 -10

2002

2004

2006

2008

2010

2012

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

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CHART 147 | CASH & EQUIVALENTS / TOTAL ASSETS

Hotels Restaurants & Leisure - Cash & Equivalents/Total Assets (%) 16 14 12 10 8 6 4 2 0 2001 2003 2005 2007 2009 2011 LTM 14

CHART 148 | TOTAL DEBT /TOTAL ASSETS

Hotels Restaurants & Leisure - Total Debt / Total Assets (%) 50 45 40 35 30 25 20 15 10 5 0 41

2001

2003

2005

2007

2009

2011

LTM

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 149 | LOAN AND BOND ISSUANCE (GROSS)

bn 50 45 40 35 30 25 20 15 10 5 Loans Bonds

CHART 150 | LT DEBT TERM STRUCTURE

LT Debt Due 1 Yr LT Debt Due 3 Yr LT Debt Due 5 Yr Nominal Due In 1 Yr 100% 80% 60% 40% 20% 0% LT Debt Due 2 Yr LT Debt Due 4 Yr LT Debt Due 5+ Yr 3,500 3,000 2,500 2,000 1,500 1,000 500 2001 2003 2005 2007 2009 2011 0

03

05

07

09

11

13 LTM

Source: Dealogic, S&P Ratings. LTM data to end of March 31, 2014

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 151 | FIXED VERSUS VARIABLE RATE EXPOSURE

Hotels Restaurants & Leisure - Variable Rate Debt (% of Identifiable Total) Hotels Restaurants & Leisure - Fixed Rate Debt (% of Identifiable Total) 100% 80% 60% 40% 20% 0% 2001 2003 2005 2007 2009 2011 LTM

CHART 152 | RETURN ON CAPITAL EMPLOYED

Hotels Restaurants & Leisure - Return On Capital (%) 9 8 7 6 5 4 3 2 1 0 2002 2004 2006 2008 2010 2012 7.4

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

Note: The above charts refer to S&P's Non-Financial Corporate Rated Universe (public and private ratings) with the exception of 'Loan and Bond Issuance', which refers to all available data for this industry in Europe. 2013 data refer to last twelve months (LTM).

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Standard & Poor's Ratings Services | European Corporate Credit Outlook

MEDIA
Our stable-to-negative credit outlook for the sector reflects our expectation of further contraction in advertising in southern Europe and stable to moderate growth in central and northern Europe. Overall, publishers should be able to demonstrate a resilient top-line and earnings profile in 2014, supported by exposure to faster growing geographic markets and usage growth of existing and new products. We anticipate some increase in M&A or dividend payments where headroom has accumulated at the current rating level.
CHART 153 | RATINGS DISTRIBUTION
Media

CHART 154 | OUTLOOK DISTRIBUTION

WatchPos 3% Positive Negative 0% 8% WatchNeg 0%

Source: S&P Ratings. Calculated as of end-March, 2014

AAA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B BCCC+ CCC CCCCC C SD D

12 10 8 6 4 2 0

Stable 89%

Source: S&P Ratings. Calculated as of end-March, 2014

CHART 155 | REVENUE GROWTH

Media - Sales Growth (YOY%) 10 8 6 4 2 0 -2 -4 -6

CHART 156 | EBITDA MARGIN

Media - EBITDA Margin (%) 20 15 17

1.5

10 5

2002

2004

2006

2008

2010

2012

2001

2003

2005

2007

2009

2011

LTM

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 157 | EBITDA / INTEREST EXPENSE

Media - EBITDA/Interest Expense (x) 7 6 5 4 3 2 1 0 2001 2003 2005 2007 2009 2011 LTM 6

CHART 158 | CASH FLOW AND PRIMARY USES

Capex Net Acquisitions Operating CF Dividends Share Buybacks

Bn 20 15 10 5 0 -5

2002

2004

2006

2008

2010

2012

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

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Standard & Poor's Ratings Services | European Corporate Credit Outlook

CHART 159 | CASH & EQUIVALENTS / TOTAL ASSETS

Media - Cash & Equivalents/Total Assets (%) 14 12 10 8 6 4 2 0 2001 2003 2005 2007 2009 2011 LTM 11

CHART 160 | TOTAL DEBT /TOTAL ASSETS

Media - Total Debt / Total Assets (%) 40 35 30 25 20 15 10 5 0 2001 2003 2005 2007 2009 2011 LTM 26

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 161 | LOAN AND BOND ISSUANCE (GROSS)

bn 80 70 60 50 40 30 20 10 03 05 07 09 11 13 LTM Loans Bonds

CHART 162 | LT DEBT TERM STRUCTURE

LT Debt Due 1 Yr LT Debt Due 3 Yr LT Debt Due 5 Yr Nominal Due In 1 Yr 100% 80% 60% 40% 20% 0% LT Debt Due 2 Yr LT Debt Due 4 Yr LT Debt Due 5+ Yr 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 2001 2003 2005 2007 2009 2011 0

Source: Dealogic, S&P Ratings. LTM data to end of March 31, 2014

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 163 | FIXED VERSUS VARIABLE RATE EXPOSURE

Media - Variable Rate Debt (% of Identifiable Total) Media - Fixed Rate Debt (% of Identifiable Total) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

CHART 164 | RETURN ON CAPITAL EMPLOYED

Media - Return On Capital (%) 10 9 8 7 6 5 4 3 2 1 0 9.0

2001

2003

2005

2007

2009

2011

LTM

2002

2004

2006

2008

2010

2012

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

Note: The above charts refer to S&P's Non-Financial Corporate Rated Universe (public and private ratings) with the exception of 'Loan and Bond Issuance', which refers to all available data for this industry in Europe. 2013 data refer to last twelve months (LTM).

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Standard & Poor's Ratings Services | European Corporate Credit Outlook

METALS & MINING

Despite a gradual return to growth in developed markets we expect miners to experience some further weakness in business conditions over the next 12 months as 2010-2011 projects are commissioned, exacerbating the supply-demand imbalance in certain commodities (e.g. aluminum, nickel, coal, gold). Devaluations in some commodity currencies and stronger cost cutting measures can partially mitigate the credit impact. A very moderate 1-2% pick-up in European steel demand in 2014 and a commensurate improvement in margins is not sufficient in our view to reduce overcapacity and improve steel producers pricing power. The ratings outlook remains stable-to-negative.
CHART 165 | RATINGS DISTRIBUTION
Metals & Mining

CHART 166 | OUTLOOK DISTRIBUTION

WatchPos 0% Positive 4%

AAA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B BCCC+ CCC CCCCC C SD D

6 5 4 3 2 1 0

Stable 50%

Negative 46%

WatchNeg 0%

Source: S&P Ratings. Calculated as of end-March, 2014

Source: S&P Ratings. Calculated as of end-March, 2014

CHART 167 | REVENUE GROWTH

Metals & Mining - Sales Growth (YOY%) 60 40 20 0 -20 -40 2002 2004 2006 2008 2010 2012 -2.4

CHART 168 | EBITDA MARGIN

Metals & Mining - EBITDA Margin (%) 25 20 15 10 5 0 2001 2003 2005 2007 2009 2011 LTM 9

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 169 | EBITDA / INTEREST EXPENSE

Metals & Mining - EBITDA/Interest Expense (x) 14 12 10 8 6 4 2 0 2001 2003 2005 2007 2009 2011 LTM 6

CHART 170 | CASH FLOW AND PRIMARY USES

Capex Net Acquisitions Operating CF Dividends Share Buybacks

Bn 80 70 60 50 40 30 20 10 0 -10 2002

2004

2006

2008

2010

2012

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

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CHART 171 | CASH & EQUIVALENTS / TOTAL ASSETS

Metals & Mining - Cash & Equivalents/Total Assets (%) 10 9 8 7 6 5 4 3 2 1 0 2001 2003 2005 2007 2009 2011 LTM 7

CHART 172 | TOTAL DEBT /TOTAL ASSETS

Metals & Mining - Total Debt / Total Assets (%) 35 30 25 20 15 10 5 0 2001 2003 2005 2007 2009 2011 LTM 27

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 173 | LOAN AND BOND ISSUANCE (GROSS)

bn 100 90 80 70 60 50 40 30 20 10 Loans Bonds

CHART 174 | LT DEBT TERM STRUCTURE

LT Debt Due 1 Yr LT Debt Due 3 Yr LT Debt Due 5 Yr Nominal Due In 1 Yr 100% 80% 60% 40% 20% 0% LT Debt Due 2 Yr LT Debt Due 4 Yr LT Debt Due 5+ Yr 25,000 20,000 15,000 10,000 5,000 0

03

05

07

09

11

13 LTM

2001

2003

2005

2007

2009

2011

Source: Dealogic, S&P Ratings. LTM data to end of March 31, 2014

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 175 | FIXED VERSUS VARIABLE RATE EXPOSURE

Metals & Mining - Variable Rate Debt (% of Identifiable Total) Metals & Mining - Fixed Rate Debt (% of Identifiable Total) 100% 80% 60% 40% 20% 0% 2001 2003 2005 2007 2009 2011 LTM

CHART 176 | RETURN ON CAPITAL EMPLOYED

Metals & Mining - Return On Capital (%) 16 14 12 10 8 6 4 2 0 2002 2004 2006 2008 2010 2012 3.6

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

Note: The above charts refer to S&P's Non-Financial Corporate Rated Universe (public and private ratings) with the exception of 'Loan and Bond Issuance', which refers to all available data for this industry in Europe. 2013 data refer to last twelve months (LTM).

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Standard & Poor's Ratings Services | European Corporate Credit Outlook

OIL & GAS

Gradually increasing global demand driven by the economic recovery in the US and Europe, and, with a non-negligible risk of supply disruptions in Russia, oil prices are likely to continue to be supported in the near-term. As a result we have a stable rating outlook currently for European companies engaged mostly in oil production. We continue to see the outlook as weak for European refiners given structural overcapacity, weak demand and relatively expensive (Brent linked) input crude in comparison with discounted crudes available to US refiners.
CHART 177 | RATINGS DISTRIBUTION
Oil & Gas

CHART 178 | OUTLOOK DISTRIBUTION

WatchPos 0% Positive Negative 9% 12% WatchNeg 0%

Source: S&P Ratings. Calculated as of end-March, 2014

AAA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B BCCC+ CCC CCCCC C SD D

6 5 4 3 2 1 0

Stable 79%

Source: S&P Ratings. Calculated as of end-March, 2014

CHART 179 | REVENUE GROWTH

Oil & Gas - Sales Growth (YOY%) 40 20 0 -20 -40 2002 2004 2006 2008 2010 2012 -7

CHART 180 | EBITDA MARGIN

Oil & Gas - EBITDA Margin (%) 20 15 10 5 0 2001 2003 2005 2007 2009 2011 LTM 14

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 181 | EBITDA / INTEREST EXPENSE

Oil & Gas - EBITDA/Interest Expense (x) 40 35 30 25 20 15 10 5 0 2001 2003 2005 2007 2009 2011 LTM 25

CHART 182 | CASH FLOW AND PRIMARY USES

Capex Net Acquisitions Operating CF Dividends Share Buybacks

Bn 200 150 100 50 0 -50

2002

2004

2006

2008

2010

2012

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

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CHART 183 | CASH & EQUIVALENTS / TOTAL ASSETS

Oil & Gas - Cash & Equivalents/Total Assets (%) 8 7 6 5 4 3 2 1 0 2001 2003 2005 2007 2009 2011 LTM 7

CHART 184 | TOTAL DEBT /TOTAL ASSETS

Oil & Gas - Total Debt / Total Assets (%) 25 20 15 10 5 0 19

2001

2003

2005

2007

2009

2011

LTM

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 185 | LOAN AND BOND ISSUANCE (GROSS)

bn 100 90 80 70 60 50 40 30 20 10 Loans Bonds

CHART 186 | LT DEBT TERM STRUCTURE

LT Debt Due 1 Yr LT Debt Due 3 Yr LT Debt Due 5 Yr Nominal Due In 1 Yr 100% 80% 60% 40% 20% 0% LT Debt Due 2 Yr LT Debt Due 4 Yr LT Debt Due 5+ Yr 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0

03

05

07

09

11

13 LTM

2001

2003

2005

2007

2009

2011

Source: Dealogic, S&P Ratings. LTM data to end of March 31, 2014

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 187 | FIXED VERSUS VARIABLE RATE EXPOSURE

Oil & Gas - Variable Rate Debt (% of Identifiable Total) Oil & Gas - Fixed Rate Debt (% of Identifiable Total) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

CHART 188 | RETURN ON CAPITAL EMPLOYED

Oil & Gas - Return On Capital (%) 25 20 15 10 5 0 8.1

2001

2003

2005

2007

2009

2011

LTM

2002

2004

2006

2008

2010

2012

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

Note: The above charts refer to S&P's Non-Financial Corporate Rated Universe (public and private ratings) with the exception of 'Loan and Bond Issuance', which refers to all available data for this industry in Europe. 2013 data refer to last twelve months (LTM).

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Standard & Poor's Ratings Services | European Corporate Credit Outlook

PAPER & PACKAGING

Ratings prospects for the sector appear more stable after downgrades in recent years and some recovery taking hold in the region. The publication paper segment remains challenging due to structurally declining demand (-4-6% expected in 2014) and recurring overcapacity, with many looking to diversify towards more attractive paper-based packaging or pulp production, and others towards specialty paper. We expect paper packaging demand to remain solid with 0%3% growth in Europe depending on grade with eastern Europe growing at a faster pace. Some price increases are likely where capacity reductions or market conditions permit. We expect companies to continue with a cautious approach toward M&A and retain strong balance sheets.
CHART 189 | RATINGS DISTRIBUTION
Paper & Packaging

CHART 190 | OUTLOOK DISTRIBUTION

WatchPos 0% Positive 5% Negative 10%WatchNeg 0%

Source: S&P Ratings. Calculated as of end-March, 2014

AAA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B BCCC+ CCC CCCCC C SD D

7 6 5 4 3 2 1 0

Stable 85%

Source: S&P Ratings. Calculated as of end-March, 2014

CHART 191 | REVENUE GROWTH

Paper & Packaging - Sales Growth (YOY%) 15 10 5 0 -5 -10 -15 2002 2004 2006 2008 2010 2012 -2.2

CHART 192 | EBITDA MARGIN

Paper & Packaging - EBITDA Margin (%) 20 15 10 5 0 2001 2003 2005 2007 2009 2011 LTM 11

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 193 | EBITDA / INTEREST EXPENSE

Paper & Packaging - EBITDA/Interest Expense (x) 7 6 5 4 3 2 1 0 2001 2003 2005 2007 2009 2011 LTM 4

CHART 194 | CASH FLOW AND PRIMARY USES

Capex Net Acquisitions Operating CF Dividends Share Buybacks

Bn 10 8 6 4 2 0 -2 2002

2004

2006

2008

2010

2012

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

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Standard & Poor's Ratings Services | European Corporate Credit Outlook

CHART 195 | CASH & EQUIVALENTS / TOTAL ASSETS

Paper & Packaging - Cash & Equivalents/Total Assets (%) 10 9 8 7 6 5 4 3 2 1 0 8

CHART 196 | TOTAL DEBT /TOTAL ASSETS

Paper & Packaging - Total Debt / Total Assets (%) 45 40 35 30 25 20 15 10 5 0 37

2001

2003

2005

2007

2009

2011

LTM

2001

2003

2005

2007

2009

2011

LTM

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 197 | LOAN AND BOND ISSUANCE (GROSS)

bn 20 18 16 14 12 10 8 6 4 2 Loans Bonds

CHART 198 | LT DEBT TERM STRUCTURE

LT Debt Due 1 Yr LT Debt Due 3 Yr LT Debt Due 5 Yr Nominal Due In 1 Yr 100% 80% 60% 40% 20% 0% LT Debt Due 2 Yr LT Debt Due 4 Yr LT Debt Due 5+ Yr 6,000 5,000 4,000 3,000 2,000 1,000 0

03

05

07

09

11

13 LTM

2001

2003

2005

2007

2009

2011

Source: Dealogic, S&P Ratings. LTM data to end of March 31, 2014

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 199 | FIXED VERSUS VARIABLE RATE EXPOSURE

Paper & Packaging - Variable Rate Debt (% of Identifiable Total) Paper & Packaging - Fixed Rate Debt (% of Identifiable Total) 100% 80% 60% 40% 20% 0% 2004 2006 2008 2010 2012

CHART 200 | RETURN ON CAPITAL EMPLOYED

Paper & Packaging - Return On Capital (%) 5 5 4 4 3 3 2 2 1 1 0 2002 2004 2006 2008 2010 2012 3.7

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

Note: The above charts refer to S&P's Non-Financial Corporate Rated Universe (public and private ratings) with the exception of 'Loan and Bond Issuance', which refers to all available data for this industry in Europe. 2013 data refer to last twelve months (LTM).

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Standard & Poor's Ratings Services | European Corporate Credit Outlook

REAL ESTATE
We consider that after two years of stabilization, operating conditions in real estate in Europe, the Middle East, and Africa are generally satisfactory. This is due to a combination of capacity rationalization and slowly improving demand, albeit skewed toward the higher quality end of the market. Key credit risks currently lie on the demand not the supply side. Weak economic growth in many European countries is, in our view, likely to result in flat-to-slightly-negative organic revenue growth rates for the majority of REITs partly offset by extra income from extension and refurbishment.
CHART 201 | RATINGS DISTRIBUTION
Real Estate

CHART 202 | OUTLOOK DISTRIBUTION

Positive 4% WatchPos 4% Negative 3% WatchNeg 0%

8 6 4 2
AAA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B BCCC+ CCC CCCCC C SD D

Stable 89%

Source: S&P Ratings. Calculated as of end-March, 2014

Source: S&P Ratings. Calculated as of end-March, 2014

CHART 203 | RENTAL REVENUE GROWTH

Real Estate - Rental Revenue Growth (YOY%) 60 50 40 30 20 10 0 -10

CHART 204 | NET INCOME MARGIN

Real Estate - Net Income Margin (%) 60 40 20 5.1 0 -20 -40 2001 2003 2005 2007 2009 2011 LTM 26

2002

2004

2006

2008

2010

2012

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 205 | DEBT / EBITDA

Real Estate - Debt/EBITDA (x) 11.0 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 2002 2004 2006 2008 2010 2012 9.0

CHART 206 | CASH FLOW AND PRIMARY USES

Dividends Net Sale/Acquistion Of Real Estate Asset Operating CF

Bn 8 6 4 2 0 -2

2002

2004

2006

2008

2010

2012

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

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CHART 207 | CASH & EQUIVALENTS / TOTAL ASSETS

Real Estate - Cash & Equivalents/Total Assets (%) 10 9 8 7 6 5 4 3 2 1 0 2001 2003 2005 2007 2009 2011 LTM 2

CHART 208 | TOTAL DEBT /TOTAL ASSETS

Real Estate - Total Debt / Total Assets (%) 60 50 40 30 20 10 0 2001 2003 2005 2007 2009 2011 LTM 44

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 209 | LOAN AND BOND ISSUANCE (GROSS)

bn 70 60 50 40 30 20 10 0 2003 2005 2007 2009 2011 2013 Loans Bonds

CHART 210 | LT DEBT TERM STRUCTURE

LT Debt Due 1 Yr LT Debt Due 3 Yr LT Debt Due 5 Yr Nominal Due In 1 Yr 100% 80% 60% 40% 20% 0% LT Debt Due 2 Yr LT Debt Due 4 Yr LT Debt Due 5+ Yr 7,000 6,000 5,000 4,000 3,000 2,000 1,000 2001 2003 2005 2007 2009 2011 0

Source: Dealogic, S&P Ratings. 2013 data to end of Q3, 2013

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 211 | FIXED VERSUS VARIABLE RATE EXPOSURE

Real Estate - Variable Rate Debt (% of Identifiable Total) Real Estate - Fixed Rate Debt (% of Identifiable Total) 100% 80% 60% 40% 20% 0% 2001 2003 2005 2007 2009 2011 LTM

CHART 212 | RETURN ON CAPITAL EMPLOYED

Real Estate - Return On Capital (%) 8.0 6.0 4.0 2.0 0.0 -2.0 -4.0 -6.0 2002 2004 2006 2008 2010 2012 2.1

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

Note: The above charts refer to S&P's Non-Financial Corporate Rated Universe (public and private ratings) with the exception of 'Loan and Bond Issuance', which refers to all available data for this industry in Europe. 2013 data refer to last twelve months (LTM).

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Standard & Poor's Ratings Services | European Corporate Credit Outlook

RETAILING
The sector rating outlook remains stable-to-negative reflecting the subpar level of growth expected in many European countries with the UK being notably stronger. This will continue to pressure top-line and earnings growth. A still-cautious consumer may help value players such as discount retailers, but apparel and electronics retailers remain vulnerable to ongoing weakness in European consumer discretionary spending. Contraction in the restaurant sector is likely to continue at a modest rate as taxes pressure disposable incomes and unemployment remains high. Larger players continue to focus on disposals to normalise capex spend and exit underperforming international operations.
CHART 213 | RATINGS DISTRIBUTION
Retailing

CHART 214 | OUTLOOK DISTRIBUTION

Positive 5% WatchPos 2% Negative 10% WatchNeg 0%

10 8 6 4 2
AAA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B BCCC+ CCC CCCCC C SD D

Stable 83%

Source: S&P Ratings. Calculated as of end-March, 2014

Source: S&P Ratings. Calculated as of end-March, 2014

CHART 215 | REVENUE GROWTH

Retailing - Sales Growth (YOY%) 8 6 4 2 0 -2 -4 2002 2004 2006 2008 2010 2012 1.1

CHART 216 | EBITDA MARGIN

Retailing - EBITDA Margin (%) 8 6 4 2 0 2001 2003 2005 2007 2009 2011 LTM 6

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 217 | EBITDA / INTEREST EXPENSE

Retailing - EBITDA/Interest Expense (x) 8 7 6 5 4 3 2 1 0 2001 2003 2005 2007 2009 2011 LTM 6

CHART 218 | CASH FLOW AND PRIMARY USES

Capex Net Acquisitions Operating CF Dividends Share Buybacks

Bn 30 25 20 15 10 5 0 -5 -10 2002

2004

2006

2008

2010

2012

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

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Standard & Poor's Ratings Services | European Corporate Credit Outlook

CHART 219 | CASH & EQUIVALENTS / TOTAL ASSETS

Retailing - Cash & Equivalents/Total Assets (%) 12 10 8 6 4 2 0 2001 2003 2005 2007 2009 2011 LTM 11

CHART 220 | TOTAL DEBT /TOTAL ASSETS

Retailing - Total Debt / Total Assets (%) 30 25 20 15 10 5 0 2001 2003 2005 2007 2009 2011 LTM 24

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 221 | LOAN AND BOND ISSUANCE (GROSS)

bn 80 70 60 50 40 30 20 10 03 05 07 09 11 13 LTM Loans Bonds

CHART 222 | LT DEBT TERM STRUCTURE

LT Debt Due 1 Yr LT Debt Due 3 Yr LT Debt Due 5 Yr Nominal Due In 1 Yr 100% 80% 60% 40% 20% 0% LT Debt Due 2 Yr LT Debt Due 4 Yr LT Debt Due 5+ Yr 25,000 20,000 15,000 10,000 5,000 0

2001

2003

2005

2007

2009

2011

Source: Dealogic, S&P Ratings. LTM data to end of March 31, 2014

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 223 | FIXED VERSUS VARIABLE RATE EXPOSURE

Retailing - Variable Rate Debt (% of Identifiable Total) Retailing - Fixed Rate Debt (% of Identifiable Total) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

CHART 224 | RETURN ON CAPITAL EMPLOYED

Retailing - Return On Capital (%) 9 8 7 6 5 4 3 2 1 0 5.7

2001

2003

2005

2007

2009

2011

LTM

2002

2004

2006

2008

2010

2012

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

Note: The above charts refer to S&P's Non-Financial Corporate Rated Universe (public and private ratings) with the exception of 'Loan and Bond Issuance', which refers to all available data for this industry in Europe. 2013 data refer to last twelve months (LTM).

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Standard & Poor's Ratings Services | European Corporate Credit Outlook

TECHNOLOGY
We see stable to slightly positive sector ratings trends as business conditions in the global economy strengthen. In semis, we expect mid-single digit revenue growth, with balanced growth across product lines. Wireless communications, especially in EM, and storage are main drivers, offsetting flat to declining personal computing revenues. We also expect low-singledigit organic revenue growth for telecom equipment makers on surging mobile data traffic. IT services may see low single digit revenue growth, with growth slightly stronger for software companies benefiting from the growth of cloud-based applications.
CHART 225 | RATINGS DISTRIBUTION
Technology

CHART 226 | OUTLOOK DISTRIBUTION

Negative 14% Positive 18% WatchPos 14% Stable 50% WatchNeg 4%

8 6 4 2
AAA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B BCCC+ CCC CCCCC C SD D

Source: S&P Ratings. Calculated as of end-March, 2014

Source: S&P Ratings. Calculated as of end-March, 2014

CHART 227 | REVENUE GROWTH

Technology - Sales Growth (YOY%) 30 20 10 0 -10 -20 -30 2002 2004 2006 2008 2010 -19.1 2012

CHART 228 | EBITDA MARGIN

Technology - EBITDA Margin (%) 20 15 10 5 0 2001 2003 2005 2007 2009 2011 LTM 12

Source: S&P Capital IQ, S&P Ratings Calculations. 2013 decline is affected by Nokia handset disposal with no restated figures available.

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 229 | EBITDA / INTEREST EXPENSE

Technology - EBITDA/Interest Expense (x) 25 20 15 10 5 0 8

CHART 230 | CASH FLOW AND PRIMARY USES

Capex Net Acquisitions Operating CF Dividends Share Buybacks

2001

2003

2005

2007

2009

2011

LTM

Bn 16 14 12 10 8 6 4 2 0 -2 -4

2002

2004

2006

2008

2010

2012

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

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Standard & Poor's Ratings Services | European Corporate Credit Outlook

CHART 231 | CASH & EQUIVALENTS / TOTAL ASSETS

Technology - Cash & Equivalents/Total Assets (%) 40 35 30 25 20 15 10 5 0 2001 2003 2005 2007 2009 2011 LTM 28

CHART 232 | TOTAL DEBT /TOTAL ASSETS

Technology - Total Debt / Total Assets (%) 25 20 15 10 5 0 19

2001

2003

2005

2007

2009

2011

LTM

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 233 | LOAN AND BOND ISSUANCE (GROSS)

bn 45 40 35 30 25 20 15 10 5 03 05 07 09 11 13 LTM Loans Bonds

CHART 234 | LT DEBT TERM STRUCTURE

LT Debt Due 1 Yr LT Debt Due 3 Yr LT Debt Due 5 Yr Nominal Due In 1 Yr 100% 80% 60% 40% 20% 0% LT Debt Due 2 Yr LT Debt Due 4 Yr LT Debt Due 5+ Yr 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 2001 2003 2005 2007 2009 2011 0

Source: Dealogic, S&P Ratings. LTM data to end of March 31, 2014

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 235 | FIXED VERSUS VARIABLE RATE EXPOSURE

Technology - Variable Rate Debt (% of Identifiable Total) Technology - Fixed Rate Debt (% of Identifiable Total) 100% 80% 60% 40% 20% 0% 2001 2003 2005 2007 2009 2011 LTM

CHART 236 | RETURN ON CAPITAL EMPLOYED

Technology - Return On Capital (%) 12 10 8 6 4 2 0 2002 2004 2006 2008 2010 2012 6.9

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

Note: The above charts refer to S&P's Non-Financial Corporate Rated Universe (public and private ratings) with the exception of 'Loan and Bond Issuance', which refers to all available data for this industry in Europe. 2013 data refer to last twelve months (LTM).

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Standard & Poor's Ratings Services | European Corporate Credit Outlook

TELECOMMUNICATIONS
Business conditions should be more benign in 2014 and 2015 given an uptick in the regional economy and a diminishing negative impact from regulation. For investment grade operators, while the competitive landscape will remain highly fragmented and pricing pressures will continue, we expect revenues to decline less than last year - likely by low-single-digit percent. From 2015, a potential gradual stabilization in top-line and EBITDA should help to solidify deleveraging efforts, which would contribute to credit stabilization. Current business conditions remain satisfactory for cable operators able to generate top-line growth from bundling strategies and stable subscriber bases.
CHART 237 | RATINGS DISTRIBUTION
Telecommunication Services

CHART 238 | OUTLOOK DISTRIBUTION

WatchPos 5% Positive 10% Negative 16% WatchNeg 7%

Source: S&P Ratings. Calculated as of end-March, 2014

AAA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B BCCC+ CCC CCCCC C SD D

14 12 10 8 6 4 2 0

Stable 62%

Source: S&P Ratings. Calculated as of end-March, 2014

CHART 239 | REVENUE GROWTH

Telecommunication Services - Sales Growth (YOY%) 15 10 5 0 -5 -10 2002 2004 2006 2008 2010 2012 -2.9

CHART 240 | EBITDA MARGIN

Telecommunication Services - EBITDA Margin (%) 40 30 20 10 0 2001 2003 2005 2007 2009 2011 LTM 30

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 241 | EBITDA / INTEREST EXPENSE

Telecommunication Services - EBITDA/Interest Expense (x) 8 7 6 5 4 3 2 1 0 2001 2003 2005 2007 2009 2011 LTM 6

CHART 242 | CASH FLOW AND PRIMARY USES

Capex Net Acquisitions Operating CF Dividends Share Buybacks

Bn 160 140 120 100 80 60 40 20 0 -20 -40

2002

2004

2006

2008

2010

2012

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

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CHART 243 | CASH & EQUIVALENTS / TOTAL ASSETS

Telecommunication Services - Cash & Equivalents/Total Assets (%) 8 7 6 5 4 3 2 1 0 2001 2003 2005 2007 2009 2011 LTM 8

CHART 244 | TOTAL DEBT /TOTAL ASSETS

Telecommunication Services - Total Debt / Total Assets (%) 50 45 40 35 30 25 20 15 10 5 0 44

2001

2003

2005

2007

2009

2011

LTM

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 245 | LOAN AND BOND ISSUANCE (GROSS)

bn 140 120 100 80 60 40 20 03 05 07 09 11 13 LTM Loans Bonds

CHART 246 | LT DEBT TERM STRUCTURE

LT Debt Due 1 Yr LT Debt Due 3 Yr LT Debt Due 5 Yr Nominal Due In 1 Yr 100% 80% 60% 40% 20% 0% LT Debt Due 2 Yr LT Debt Due 4 Yr LT Debt Due 5+ Yr 70,000 60,000 50,000 40,000 30,000 20,000 10,000 2001 2003 2005 2007 2009 2011 0

Source: Dealogic, S&P Ratings. LTM data to end of March 31, 2014

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 247 | FIXED VERSUS VARIABLE RATE EXPOSURE

Telecommunication Services - Variable Rate Debt (% of Identifiable Total) Telecommunication Services - Fixed Rate Debt (% of Identifiable Total) 100% 80% 60% 40% 20% 0% 2001 2003 2005 2007 2009 2011 LTM

CHART 248 | RETURN ON CAPITAL EMPLOYED

Telecommunication Services - Return On Capital (%) 8 7 6 5 4 3 2 1 0 2002 2004 2006 2008 2010 2012 5.2

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

Note: The above charts refer to S&P's Non-Financial Corporate Rated Universe (public and private ratings) with the exception of 'Loan and Bond Issuance', which refers to all available data for this industry in Europe. 2013 data refer to last twelve months (LTM).

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Standard & Poor's Ratings Services | European Corporate Credit Outlook

TRANSPORTATION
Credit prospects are showing signs of stabilizing across much of the transportation sector. Improving economic conditions, passenger traffic and capacity management should lead to greater profitability and a stable outlook for airlines. Similarly, low-single-digit passenger growth and inflation linked price increases will support airports. The rating outlook remains stable-to-negative for shipping reflecting a chronic oversupply of ships, low freight rates, distressed asset sales keeping vessel values low and scarce funding.
CHART 249 | RATINGS DISTRIBUTION
Transportation

CHART 250 | OUTLOOK DISTRIBUTION

WatchPos 0% Positive 4% Negative 18% WatchNeg 0%

10 8 6 4 2
AAA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B BCCC+ CCC CCCCC C SD D

Stable 78%

Source: S&P Ratings. Calculated as of end-March, 2014

Source: S&P Ratings. Calculated as of end-March, 2014

CHART 251 | REVENUE GROWTH

Transportation - Sales Growth (YOY%) 15 10 5 0 -5 -10 -15 2002 2004 2006 2008 2010 2012 2.0

CHART 252 | EBITDA MARGIN

Transportation - EBITDA Margin (%) 20 15 10 5 0 2001 2003 2005 2007 2009 2011 LTM 16

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 253 | EBITDA / INTEREST EXPENSE

Transportation - EBITDA/Interest Expense (x) 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2001 2003 2005 2007 2009 2011 LTM 4

CHART 254 | CASH FLOW AND PRIMARY USES

Capex Net Acquisitions Operating CF Dividends Share Buybacks

Bn 70 60 50 40 30 20 10 0 -10 -20 2002

2004

2006

2008

2010

2012

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

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Standard & Poor's Ratings Services | European Corporate Credit Outlook

CHART 255 | CASH & EQUIVALENTS / TOTAL ASSETS

Transportation - Cash & Equivalents/Total Assets (%) 12 10 8 6 4 2 0 2001 2003 2005 2007 2009 2011 LTM 10

CHART 256 | TOTAL DEBT /TOTAL ASSETS

Transportation - Total Debt / Total Assets (%) 50 45 40 35 30 25 20 15 10 5 0 2001 2003 2005 2007 2009 2011 LTM 40

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 257 | LOAN AND BOND ISSUANCE (GROSS)

bn 50 45 40 35 30 25 20 15 10 5 Loans Bonds

CHART 258 | LT DEBT TERM STRUCTURE

LT Debt Due 1 Yr LT Debt Due 3 Yr LT Debt Due 5 Yr Nominal Due In 1 Yr 100% 80% 60% 40% 20% 0% LT Debt Due 2 Yr LT Debt Due 4 Yr LT Debt Due 5+ Yr 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 2001 2003 2005 2007 2009 2011 0

03

05

07

09

11

13 LTM

Source: Dealogic, S&P Ratings. LTM data to end of March 31, 2014

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 259 | FIXED VERSUS VARIABLE RATE EXPOSURE

Transportation - Variable Rate Debt (% of Identifiable Total) Transportation - Fixed Rate Debt (% of Identifiable Total) 100% 80% 60% 40% 20% 0% 2001 2003 2005 2007 2009 2011 LTM

CHART 260 | RETURN ON CAPITAL EMPLOYED

Transportation - Return On Capital (%) 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2002 2004 2006 2008 2010 2012 4.2

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

Note: The above charts refer to S&P's Non-Financial Corporate Rated Universe (public and private ratings) with the exception of 'Loan and Bond Issuance', which refers to all available data for this industry in Europe. 2013 data refer to last twelve months (LTM).

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Standard & Poor's Ratings Services | European Corporate Credit Outlook

UTILITIES
Weak business conditions in the unregulated power and gas sector persist as a consequence of depressed power prices in most main markets and very weak profitability for thermal plants that have been displaced by renewable power and weak energy demand. Low interest costs, asset disposals, and much lower capex spending combine to support credit metrics however. Regulated utilities operating and financial performance remains relatively stable with the stable-to-negative rating outlook reflecting the potential for sovereign induced pressures in the periphery, political intervention in tariffs, and the high capex needs for the sector to upgrade energy and water infrastructure assets.
CHART 261 | RATINGS DISTRIBUTION
Utilities

CHART 262 | OUTLOOK DISTRIBUTION

WatchPos 0% Positive 2% WatchNeg 0%

20 15 10 5
AAA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B BCCC+ CCC CCCCC C SD D
Stable 82% Negative 16%

Source: S&P Ratings. Calculated as of end-March, 2014

Source: S&P Ratings. Calculated as of end-March, 2014

CHART 263 | REVENUE GROWTH

Utilities - Sales Growth (YOY%) 25 20 15 10 5 0 -5 -10

CHART 264 | EBITDA MARGIN

Utilities - EBITDA Margin (%) 30 25 20 15 10 5 0 2001 2003 2005 2007 2009 2011 LTM 18

-1.8 2002 2004 2006 2008 2010 2012

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 265 | EBITDA / INTEREST EXPENSE

Utilities - EBITDA/Interest Expense (x) 7 6 5 4 3 2 1 0 2001 2003 2005 2007 2009 2011 LTM 5

CHART 266 | CASH FLOW AND PRIMARY USES

Capex Net Acquisitions Operating CF Dividends Share Buybacks

Bn 200 150 100 50 0 -50

2002

2004

2006

2008

2010

2012

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

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Standard & Poor's Ratings Services | European Corporate Credit Outlook

CHART 267 | CASH & EQUIVALENTS / TOTAL ASSETS

Utilities - Cash & Equivalents/Total Assets (%) 9 8 7 6 5 4 3 2 1 0 2001 2003 2005 2007 2009 2011 LTM 6

CHART 268 | TOTAL DEBT /TOTAL ASSETS

Utilities - Total Debt / Total Assets (%) 35 30 25 20 15 10 5 0 2001 2003 2005 2007 2009 2011 LTM 31

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 269 | LOAN AND BOND ISSUANCE (GROSS)

bn 200 180 160 140 120 100 80 60 40 20 Loans Bonds

CHART 270 | LT DEBT TERM STRUCTURE

LT Debt Due 1 Yr LT Debt Due 3 Yr LT Debt Due 5 Yr Nominal Due In 1 Yr 100% 80% 60% 40% 20% 0% LT Debt Due 2 Yr LT Debt Due 4 Yr LT Debt Due 5+ Yr 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 2001 2003 2005 2007 2009 2011 0

03

05

07

09

11

13 LTM

Source: Dealogic, S&P Ratings. LTM data to end of March 31, 2014

Source: S&P Capital IQ, S&P Ratings Calculations

CHART 271 | FIXED VERSUS VARIABLE RATE EXPOSURE

Utilities - Variable Rate Debt (% of Identifiable Total) Utilities - Fixed Rate Debt (% of Identifiable Total) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

CHART 272 | RETURN ON CAPITAL EMPLOYED

Utilities - Return On Capital (%) 8 7 6 5 4 3 2 1 0 5.3

2001

2003

2005

2007

2009

2011

LTM

2002

2004

2006

2008

2010

2012

Source: S&P Capital IQ, S&P Ratings Calculations

Source: S&P Capital IQ, S&P Ratings Calculations

Note: The above charts refer to S&P's Non-Financial Corporate Rated Universe (public and private ratings) with the exception of 'Loan and Bond Issuance', which refers to all available data for this industry in Europe. 2013 data refer to last twelve months (LTM).

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Standard & Poor's Ratings Services | European Corporate Credit Outlook

KEY CONTACTS
REGIONAL PRACTICE LEADER Blaise Ganguin, Paris, +33 (0)1 4420 6698, [Link]@[Link] Managing Director, Regional Practice Leader LEAD ANALYTICAL MANAGERS Guy Deslondes, Milan, +39 (0)2 7211 1213, [Link]@[Link] Managing Director, Lead Analytical Manager, Heavy Industries Alexandra Dimitrijevic, London, +44 (0) 207 176 3128, [Link]@[Link] Managing Director, General Manager, Research, Leveraged Finance and Mid-Market Analytics Tobias Mock, Frankfurt, +49 (0)69 3399 9126, [Link]@[Link] Managing Director, Lead Analytical Manager, Light Industries Peter Tuving, Stockholm, +46 (0)8 440 5913, [Link]@[Link] Managing Director, Lead Analytical Manager, Utilities & Infrastructure ANALYTICAL MANAGERS Stuart Clements, London, +44 (0) 207 176 7012, [Link]@[Link] Senior Director, Analytical Manager, Transportation & Corporate Securitization Patrice Cochelin, Paris, +33 (0)1 4420 7325, [Link]@[Link] Senior Director, Analytical Manager, Telecom & Technology Sabine Gromer, London, +44 (0) 207 176 6010, [Link]@[Link] Senior Director, Analytical Manager, Oil & Gas/Fertilizers Andreas Kindahl, Stockholm, +46 (0)8 440 5907, [Link]@[Link] Managing Director, Analytical Manager, Utilities Karl Nietvelt, Paris, +33 (0)1 4420 6751, [Link]@[Link] Senior Director, Analytical Manager, Metals & Mining/Chemicals Anna Overton, London, +44 (0) 207 176 3642, [Link]@[Link] Senior Director, Analytical Manager, Real Estate/Consumer Durables EMEA Trevor Pritchard, London, +44 (0) 207 176 3737, [Link]@[Link] Managing Director, Analytical Manager, Materials, Services & Conglomerates EMEA Eric Tanguy, Frankfurt, +49 (0)69 3399 9131, [Link]@[Link] Senior Director, Analytical Manager, Auto, Manufacturing & Engineering Christian Wenk, London, +44 (0) 207 176 3511, [Link]@[Link] Senior Director, Analytical Manager, Consumer Non-Durables/Healthcare Leandro De Torres Zabala, Madrid, +34 (0)9 1389 6965, [Link]@[Link] Senior Director, Analytical Manager, Retail, Media & Leisure CORPORATE RESEARCH TEAM Paul Watters, London, +44 (0) 207 176 3542, [Link]@[Link] Senior Director, Head of Corporate Research Gareth Williams, London, +44 (0) 207 176 7226, [Link]@[Link] Director, Sector Economist Taron Wade, +44 (0) 207 176 3661, [Link]@[Link] Director, Corporate Research

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