General Criteria:

Methodology: Industry Risk

Global Criteria Officer, Corporates:
Mark Puccia, New York (1) 212-438-7233; [Link]@[Link]

Global Criteria Officer, U.S. Public Finance:

Cathy L Daicoff, New York (1) 212-438-6766; [Link]@[Link]

Global Criteria Officer, Sovereigns and International Public Finance:

Olga I Kalinina, CFA, New York (1) 212-438-7350; [Link]@[Link]

Secondary Contacts:
David P Wood, New York (1) 212-438-7409; [Link]@[Link]
David N Bodek, New York (1) 212-438-7969; [Link]@[Link]
Michael F Scerbo, New York (1) 212-438-7858; [Link]@[Link]

Table Of Contents

SCOPE OF THE CRITERIA

SUMMARY OF THE CRITERIA

IMPACT ON OUTSTANDING RATINGS

EFFECTIVE DATE AND TRANSITION

METHODOLOGY

A. Cyclicality

B. Competitive Risk And Growth

RELATED CRITERIA AND RESEARCH

APPENDIX I

APPENDIX II

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Table Of Contents (cont.)

APPENDIX III

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 General Criteria:
Methodology: Industry Risk
1. Standard & Poor's Ratings Services is updating its methodology for measuring and calibrating global industry risk. The
criteria will help market participants better understand our revised approach to evaluating industry risk for
nonfinancial corporate entities and U.S. public finance and international public finance enterprises. The criteria
supersede the industry risk segments of: "2008 Corporate Criteria: Analytical Methodology," published April 15, 2008,
"Public And Nonprofit Social Housing Providers: Methodology And Assumptions," published July 11, 2012, and "Bond
Insurance Rating Methodology And Assumptions," published Aug. 25, 2011.

2. The criteria constitute specific methodologies and assumptions under "Principles Of Credit Ratings," published Feb. 16,
2011.

SCOPE OF THE CRITERIA

3. The criteria apply to global corporate ratings (see "Corporate Methodology," published Nov. 19, 2013). The corporate
criteria framework incorporates an entity-level industry risk assessment as one of the three anchor
assessments--together with the country risk assessment and a competitive position assessment--that we would use to
derive the business risk profile assessment for the rated corporate entity.

4. We expect these criteria to apply to other sectors in the future upon publication of sector-specific criteria that describe
the use of the industry risk assessment for that sector.

SUMMARY OF THE CRITERIA

5. Our industry risk criteria enhance the comparability and transparency of ratings across sectors by comparing and
scoring interindustry risk. The methodology addresses the major industry risk factors that entities face.

6. The criteria use two factors for calculating a global industry risk assessment:

• Cyclicality, and
• Competitive risk and growth.

7. Each of the two factors receives an assessment from 1 (very low risk) to 6 (very high risk). The combination of these
assessments determines the global industry risk assessment, which uses the same 1 to 6 scale (see table 1).

8. We calibrate an industry's cyclicality assessment (see section A) using the hypothetical stress scenarios in
"Understanding Standard & Poor's Rating Definitions," published June 3, 2009, which we use to enhance ratings
comparability.

9. The analysis of a sector's overall competitive risk and growth environment (see section B) addresses on an
industry-aggregate level the:

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 General Criteria: Methodology: Industry Risk

• Effectiveness of industry barriers to entry;

• Level and trend of industry profit margins;
• Risk of secular change and substitution of products, services, and technologies; and
• Risk in growth trends.

10. The risks within different subsectors of an industry are captured within the analysis of a firm's competitive position.

IMPACT ON OUTSTANDING RATINGS

11. We do not expect these criteria, in and of themselves, to result in any rating changes.

EFFECTIVE DATE AND TRANSITION

12. These criteria are immediately effective upon publication.

METHODOLOGY
13. The industry risk criteria consider two factors in the calculation of a global industry risk assessment:

• Cyclicality, and
• Competitive risk and growth.

14. We assess each factor according to the following scale: very low risk (1), low risk (2), intermediate risk (3), moderately
high risk (4), high risk (5), and very high risk (6). These assessments are based on a series of quantitative and
qualitative considerations. Combined, they determine the global industry risk assessment (see table 1).

15. The criteria weight competitive risk and growth more heavily than cyclicality because competitive risk and growth is a
prospective analysis, and the cyclicality assessment is based on historical data.

Table 1
Determining A Global Industry Risk Assessment
--Competitive risk and growth assessment--

Very low risk Low risk Intermediate risk Moderately high risk High risk Very high risk

Cyclicality assessment
Very low risk 1 2 3 4 5 6
Low risk 1 2 3 4 5 6
Intermediate risk 2 2 3 4 5 6
Moderately high risk 3 3 3 4 5 6
High risk 3 4 4 5 5 6
Very high risk 4 4 5 5 6 6

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 General Criteria: Methodology: Industry Risk

A. Cyclicality
16. Cyclicality is the first factor in the global industry risk assessment under the criteria and has two subfactors: cyclicality
of industry revenue and cyclicality of industry profitability.

17. We generally consider the more cyclical an industry's level of profits, the more this factor will contribute to credit risk
for the entities operating in that industry. However, the overall effect of cyclicality on an industry's risk profile may be
mitigated or exacerbated by an industry's competitive risk and growth environment.

18. The criteria assign a heavier weighting to an industry's profitability cyclicality assessment than to its revenue
cyclicality assessment to calculate the industry cyclical risk assessment. The reason for this is the importance of an
entity maintaining adequate profitability to service its cash flow needs, including its working capital and debt service
requirements. Although a company's level and volatility of cash flows are often a better measure of its credit strength
than its profitability, we have used the cyclicality of an industry's level of profits in the criteria as a proxy for cash flows
due to the lack of globally consistent and comparable data. Profitability measures also exclude distortions to industry
cyclicality measurements that working capital movements (that are not reflective of credit risk) would have on cash
flow measurements.

19. We calibrate the cyclicality assessments with stress scenarios to enhance ratings comparability across sectors and
time. As part of our calibration, we calculated the peak-to-trough changes in U.S. sector revenues during the first leg of
the Great Depression (from August 1929 to March 1933). In the second phase of the cyclicality calibration, we focused
on analyzing industry revenue and EBITDA margin performance in recessions from 1950 to 2010 in the U.S. and from
1987 to 2010 in other major economies. The cyclicality assessments are calibrated against 'BBB' and 'BB'
stresses/recessions during this time period (see Appendix IV of "Understanding Standard & Poor's Rating Definitions,"
published June 3, 2009). To calibrate the cyclicality component of these criteria, we performed a peak-to-trough
analysis of industry revenues and profitability in these recessionary periods.

20. We consider cyclicality calibration as a key component of these criteria because of the importance of cyclicality in
determining an industry's and entity's level of credit risk. Historical research demonstrates that industries vary
significantly in their degree of revenue and profitability cyclicality (see Appendix I). Table 2 shows the methodology
we use to determine the rank ordering of the degree of cyclicality between industries, and Appendix I provides a
compendium of our rank ordering of industry revenue and profitability cyclicality.

21. The criteria divide the cyclical peak-to-trough declines in revenue and profitability into ranges and assign each an
assessment, from 1 to 6. The categories are: very low risk (1), low risk (2), intermediate risk (3), moderately high risk
(4), high risk (5), and very high risk (6).

22. The statistical technique we used to establish the buckets in table 2 is based on a k-means clustering methodology (see
Appendix II for an explanation).

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Table 2
Determining An Industry's Cyclical Risk Assessment
Profitability ratio Profitability ratio Profitability ratio Profitability ratio
either increases Profitability ratio declines between declines between declines between Profitability
or declines by up declines between 7% and up to 12% and up to 24% and up to ratio declines
to 3% during a 3% and up to 7% 12% during a 24% during a 72% during a more than 72%
cyclical during a cyclical cyclical cyclical cyclical during a cyclical
downturn downturn downturn downturn downturn downturn
Industry 1 2 3 4 5 6
revenues
either increase
or decline by
up to 4%
during a
cyclical
downturn
Industry 1 2 3 4 5 6
revenues
decline
between 4%
and up to 8%
during a
cyclical
downturn
Industry 1 2 3 4 5 6
revenues
decline
between 8%
and up to 13%
during a
cyclical
downturn
Industry 2 3 3 4 5 6
revenues
decline
between 13%
and up to 20%
during a
cyclical
downturn
Industry 2 3 4 4 5 6
revenues
decline
between 20%
and up to 32%
during a
cyclical
downturn
Industry 3 3 4 5 5 6
revenues
decline by
more than 32%
during a
cyclical
downturn

23. Sectors with higher cyclicality of profitability include mineral-based, metals, and building products industries (see
Appendix I). This is because demand for their products comes, to a great extent, from industries that produce
discretionary consumer and capital goods, which also tend to demonstrate greater cyclicality than many other sectors.

24. Overbuilding of production capacity in an industry will create more competitive and earnings pressure, especially in

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 General Criteria: Methodology: Industry Risk

the event of a cyclical downturn in demand.

25. Companies operating in cyclical industries need to be able to reduce their cost bases in a downturn as revenues
decline. Therefore, industry risk is greater for cyclical industries with high fixed costs, such as the auto industry.

B. Competitive Risk And Growth

26. The second factor under the criteria is competitive risk and growth. The criteria assess four subfactors as low, medium,
or high risk (see table 3). These subfactors are:

• Effectiveness of barriers to entry;

• Level and trend of industry profit margins;
• Risk of secular change and substitution of products, services, and technologies; and
• Risk in growth trends.

27. The criteria then combine these subfactor assessments to produce a competitive risk and growth assessment, from 1 to
6 (see table 4).

Table 3
Assessing The Competitive Risk And Growth Subfactors
Subfactor Low risk Medium risk High risk
a) Effectiveness of barriers Barriers to entry are high and Barriers to entry are limited but Barriers to entry are either very low or
to entry (see paragraph 28) are effective in limiting partially effective in excluding nonexistent.
competitive entrants. competitive entrants.
b) Level and trend of Industry participants Operating margins are under Material prospective or actual pressure on
industry profit margins (see demonstrate stable or moderate competitive pressure. operating margins. Alternatively, margins
paragraphs 29 and 30) increasing operating profit may be increasing unsustainably and
margins. creating the risk of a collapse in industry
profitability.
c) Risk of secular change No discernible substitution Limited likelihood of substitution High risk of prospective or actual
and substitution of risk from outside the industry. risk from outside the industry. substitution from outside the industry.
products, services, and
technologies (see
paragraph 31)
d) Risk in growth trends Established industry where Established industry where sales are Established industry where sales are either
(see paragraph 32) sales are rising over the rising between 1% and the rate of rising by less than 1%, or are declining, over
medium term at a rate equal nominal GDP growth over the the medium term. This category also
to or faster than nominal GDP medium term, given that nominal includes start-up industries, which may be
growth. GDP growth is greater than 1%. high growth, with unproven growth records.

Table 4
Determining The Industry Competitive Risk And Growth Assessment
Competitive risk and growth
assessments Combination of assessments from table 3
1. Very low risk All of the subfactors are low risk.
2. Low risk Three of the subfactors are low risk, and one subfactor is medium risk.
3. Intermediate risk (i) Three subfactors are medium risk and one is medium or low risk; (ii) Two subfactors are medium risk and
two are low risk; or (iii) One subfactor is high risk, and the other three are any combination of low and/or
medium risk.*
4. Moderately high risk Two of the subfactors are assessed as high risk, and the other two are medium or low risk.
5. High risk Three of the subfactors are high risk, and one is medium or low risk.

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 General Criteria: Methodology: Industry Risk

Table 4
Determining The Industry Competitive Risk And Growth Assessment (cont.)
6. Very high risk All four of the subfactors are high risk.

*If either barriers to entry or substitution risk is assessed as high risk, competitive risk and growth is assigned an assessment of '4' (moderately
high risk).

1. Competitive risk and growth subfactors

a) Effectiveness of barriers to entry
28. Industries that benefit from meaningful barriers to entry generally have materially lower competitive risk than those
that have low or no barriers. Barriers to entry include:

• Government-related factors such as regulation, licensing, approvals, tariffs, taxation, and government industry
ownership and controls. These elements may lower competition and stabilize EBITDA and cash flows. In some
instances, governments may grant monopolies or oligopolies in industries such as regulated utilities,
telecommunications, and airlines.
• Patents, research capabilities, and scientific and technological know-how. These can create substantial competitive
advantage for a period of time for established entities, as well as barriers against would-be entrants, in industries
such as pharmaceuticals, biotechnology, high technology, specialty chemicals, and aerospace.
• Capital intensity. Industries that require large capital outlays, especially those with a long-term return horizon,
present a major obstacle for entities attempting to break in because their access to debt and equity financing is often
weaker than that of industry incumbents. Industries where these characteristics are present include regulated
utilities, steel, autos, and aerospace.
• Industry structure that creates cost advantages for incumbents. For example, transportation and distribution
infrastructure and vertical integration of production can make it difficult for challengers to establish themselves
profitably. Industries where these characteristics are present include forest products, integrated oil, and mining.
• Industry consolidation and concentration. This can lead to limited competition and greater size and efficiency for
incumbents, including oligopolistic and monopolistic market positions in such sectors as steel, chemicals, branded
consumer products, and patented/branded pharmaceuticals.
• Brand power, such as established profitable brands that make it difficult and costly for entrants to build competitive
brands and gain customer recognition. Industries where strong brands can provide a real advantage include luxury
and big box retail, autos, consumer technology, and consumer staples.

b) Level and trend of industry profit margins

29. This subfactor evaluates the effect that an industry's competitive conditions, operating dynamics, and cost structure
and volatility have on margins--as opposed to the economic cyclicality of profit margins. The criteria evaluate both the
level and trends of an industry's margins. The methodology does not specifically measure and assess competitive and
operating risk and cost elements affecting industry operating margins because these are already captured in the cost
side of an industry's profit margin.

30. Some major industry competitive and operating cost considerations that we view as affecting industry operating
margins include:

• Level of competition in an industry, including the basis for/nature of its competition

• Production input costs and related volatility (such as energy, raw material, and component prices)
• Asset and commodity price bubble-and-bust risk
• Labor costs and practices risk

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• Customer and supplier concentrations and pricing power

• Asset quality costs, including property, plant, and equipment upkeep in capital-intensive industries
• Natural and manmade catastrophic event risk. Manmade catastrophes include nuclear, chemical plant, and oil
drilling accidents, and associated costs.
• Technological change in an industry and related costs and risk dynamics
• Legal risks and costs
• Government regulation, taxation, and ownership policies

c) Risk of secular changes and substitution of products, services, and technologies

31. This section of the criteria covers secular changes in an industry that can affect its internal competitive and risk profile.
In addition, competition from other industries or from an innovative company within the industry providing alternative
technologies or products can have a negative impact on industry revenues, margins, cash flows, and credit quality.
This form of substitution or competition can, in extreme cases, shutter an entire industry.

d) Risk in growth trends

32. A healthy growth outlook for a well-established industry can be a key positive factor in the industry's risk profile.
Conversely, a long-term trend of, or prospects for, declining revenues is a major industry risk. Very rapid industry
growth can also be a major generator of risk when an industry is young, growing from a low revenue base, or uses new
technology or a business model with unproven long-term commercial viability.

RELATED CRITERIA AND RESEARCH

• Corporate Methodology, Nov. 19, 2013
• Public And Nonprofit Social Housing Providers: Methodology And Assumptions, July 11, 2012
• Principles Of Credit Ratings, Feb. 16, 2011
• Understanding Standard & Poor's Rating Definitions, June 3, 2009

APPENDIX I
33. We based our global peak-to-trough (PTT) change analysis for industry EBITDA margins and revenues on Compustat
data for major recessions ('BBB' and 'BB' stress) mapped to specific industry sectors (see tables 5 and 6). The
Compustat data cover the U.S. and other major economies, including Canada, the eurozone, the U.K., and Australia.
The tables do not include data on China because its economy experienced no recessions for the period that Compustat
data were available. Empty cells in the table represent recessionary periods before sector data were available.
Compustat's non-U.S. industry data go back to 1987, versus its U.S. data, which go back to the 1950s, 1960s, or 1970s
for many industries. Because of this, the only major recessionary period ('BBB' stress) we analyzed for industries
outside the U.S. was the 2007-2009 downturn.

Computing industry revenues and profitability margins in a recession

34. In calculating an industry's sales, we determine the group of companies that report sales data for every year of a
particular recession in each industry. We use this group of companies to compute the average sales (after applying a
deflationary multiplier to account for inflation) for each year of that recession.

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35. For the profitability margin, we use the ratio of EBITDA to sales margins for each year in the data set. To compute
these profitability margins, we first selected the universe of companies in a given year and industry in which sales and
EBITDA are reported. The profitability margin for that year equals the sum of all companies' EBITDA divided by the
sum of all companies' sales.

Calculating industry peak-to-trough declines

36. For purposes of calculating the industry PTT change in sales and profitability, we begin by taking the relevant data for
the year before recession. For most industries, we calculate the PTT decline from the year before the recession to the
year the recession ends. However, some industries will lag the economic cycle. For these industries, we include any
decreases in sales and profitability in the year after the end of the economic downturn in the PTT calculation.

37. We measure an industry's PTT sales and profitability declines by determining the average percentage decline for each
'BBB' and 'BB' stress recession since 1950 on which Compustat has data. For a given recession, we determine the
maximum percentage decline in sales and profitability margin throughout the period but set this PTT decline to 0% if
the profitability margin strictly increases throughout the period.

Table 5
EBITDA Margin PTT Declines (%)
--PTT decline by recession--

Average
PTT
Industry decline 1952-1955 1956-1958 1959-1962 1968-1971 1972-1975 1979-1982 1989-1992 2000-2002 2007-2009
Transportation (59.1) (42.3) (93.4) (41.7)
cyclical
Auto OEM (38.0) (18.1) (22.8) (4.6) (34.1) (49.5) (79.5) (39.9) (27.9) (65.4)
Metals and mining (30.8) 0.0 (7.0) (13.2) (25.2) (24.0) (56.3) (52.4) (27.3) (71.4)
downstream
Metals and mining (30.0) (9.9) (29.9) (7.0) (16.1) (8.6) (64.3) (40.3) (37.7) (55.8)
upstream
Homebuilders and (26.0) 0.0 (2.4) (52.9) (34.8) (36.6) 0.0 (55.4)
developers
Oil and gas refining (22.1) (5.9) (15.9) (2.8) (30.3) (25.7) (36.8) (20.3) (11.3) (50.0)
and marketing
Forest and paper (19.6) (3.8) (9.5) (20.0) (23.8) (13.4) (41.5) (33.8) (18.1) (12.4)
products
Building materials (16.1) 0.0 (15.7) (18.4) (18.6) (7.0) (32.1) (30.6) (7.3) (15.5)
Oil and gas (15.5) (6.2) (17.4) (2.9) (4.4) (19.0) (27.5) (22.2) (12.2) (27.4)
integrated,
exploration and
production
Agribusiness and (15.3) (4.5) (7.6) (4.2) (12.5) (1.0) (25.4) (31.4) 0.0 (50.9)
commodity foods
Leisure and sports (14.9) (16.2) (9.8) (28.7) (30.4) (15.7) (14.1) (8.4) 0.0 (10.6)
Commodity (14.8) (7.2) (9.9) (10.2) (15.8) (7.5) (16.4) (27.5) (27.4) (11.0)
chemicals
Auto suppliers (13.5) (6.5) (6.2) (12.5) (17.9) (20.2) (11.9) (10.0) (18.8) (17.5)
Aerospace and (12.9) (7.2) (16.4) (25.6) (11.7) (12.1) (13.1) (6.3) (9.6) (13.9)
defense

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Table 5
EBITDA Margin PTT Declines (%) (cont.)
Technology (12.8) (8.0) (2.4) (3.3) (12.0) (4.9) (7.7) (18.7) (42.3) (16.3)
hardware and
semiconductors
Specialty chemicals (11.5) 0.0 (9.3) (12.6) (11.1) (21.2) (19.0) 0.0 (14.0) (15.9)
Capital goods (11.1) (13.1) 0.0 (17.7) (8.4) (3.1) (20.3) (5.5) (10.3) (21.8)
Engineering and (10.9) (12.0) (7.5) (10.6) (29.8) (12.5) (6.5) 0.0 (16.6) (2.5)
construction
Real estate (10.8) (15.4) (33.3) (2.9) (9.1) (3.9) 0.0
investment trusts
(REITs)
Railroads and (10.6) (8.6) (8.3) (14.8)
package express
Business and (10.2) (50.0) (9.2) 0.0 (6.6) (9.6) (10.7) (1.9) 0.0 (4.0)
consumer services
Midstream energy (10.0) 0.0 (4.8) (12.0) (12.2) (13.2) (19.2) (9.5) (8.8)
Technology software (9.4) (13.3) 0.0 (4.4) (28.8) (24.6) (3.1) 0.0 0.0 (10.5)
and services
Consumer durables (9.9) (1.0) (7.9) (10.7) (12.1) (18.4) (7.3) (2.3) (11.6) (18.1)
Containers and (8.8) 0.0 (0.8) (8.9) (15.9) (6.3) (24.2) (10.6) (6.3) (6.5)
packaging
Media and (8.1) 0.0 0.0 (17.4) (19.4) (7.2) (8.0) (6.3) (7.5) (6.9)
entertainment
Oil and gas drilling, (7.7) 0.0 (5.8) (8.5) (21.6) (0.4) (4.6) (5.6) (13.5) (9.0)
equipment and
services
Retail and (7.1) (1.9) (6.2) (9.5) (9.0) (13.1) (7.1) (9.9) (1.1) (5.6)
restaurants
Health care services (6.2) (5.7) (16.6) (1.6) (6.8) (2.5) (3.8)
Transportation (6.1) (6.1)
infrastructure
Environmental (6.0) (4.9) (10.9) (6.7) 0.0 (8.4) (1.3) (9.9)
services
Regulated utilities (5.3) 0.0 0.0 (5.3) (11.2) (16.6) (8.4) (1.9) 0.0 (4.3)
Unregulated power (5.3) 0.0 0.0 (5.3) (11.2) (16.6) (8.4) (1.9) 0.0 (4.3)
and gas
Pharmaceuticals (4.0) 0.0 (5.4) (3.1) (9.0) (7.4) (3.7) (1.7) (3.5) (1.8)
Transportation (3.7) (8.2) 0.0 0.0 (7.6) (3.9) (4.7) (3.8) 0.0 (5.2)
leasing
Telecommunications (3.3) (5.3) (2.6) (0.4) (5.1)
and cable
Health care (3.3) (8.5) 0.0 0.0 (11.1) (3.4) (4.5) 0.0 0.0 (1.8)
equipment
Branded (3.2) 0.0 0.0 (2.6) (4.6) (9.8) (0.3) (3.6) (2.2) (5.4)
nondurables

Note: Empty cells in the table refer to recessionary periods before sector data were available.

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Table 6
Revenue PTT Declines (%)
--PTT decline by recession--

Average
PTT
Industry decline 1952-1955 1956-1958 1959-1962 1968-1971 1972-1975 1979-1982 1989-1992 2000-2002 2007-2009
Homebuilders and (20.1) 0.0 (31.1) (26.4) (18.8) 0.0 (44.5)
developers
Metals and mining (17.4) (16.1) (21.1) (8.1) (6.1) (16.0) (24.2) (24.2) (6.5) (34.3)
downstream
Auto OEM (16.5) (10.3) (24.0) (5.8) (16.9) (15.7) (30.0) (8.2) (6.9) (30.7)
Midstream energy (15.3) (0.4) (3.4) 0.0 (2.6) (12.1) (59.3) (29.2)
Metals and mining (12.6) (1.4) (27.4) (1.3) (8.2) (7.3) (25.9) (15.5) (5.7) (20.6)
upstream
Oil and gas refining (11.7) (15.2) (18.0) (2.4) 0.0 (2.1) (11.5) (15.4) (9.5) (31.4)
and marketing
Transportation (10.7) (0.2) (14.7) (17.3)
cyclical
Auto suppliers (9.5) (10.4) (8.1) (6.7) (5.4) (6.1) (20.3) (5.2) (4.9) (18.9)
Building materials (8.0) (1.8) (6.3) (2.2) 0.0 (8.4) (23.6) (11.5) (1.5) (16.9)
Oil and gas (7.9) (0.2) (7.3) 0.0 0.0 (0.7) (12.0) (14.2) (3.9) (33.2)
integrated,
exploration and
production
Oil and gas drilling, (7.7) (1.0) (17.7) 0.0 0.0 0.0 (9.7) (10.2) (9.4) (21.5)
equipment and
services
Capital goods (7.7) (7.0) (9.1) (0.2) 0.0 (1.4) (14.7) (10.0) (5.3) (21.8)
Transportation (7.7) (17.5) (23.5) (0.9) 0.0 0.0 (5.0) (3.0) (6.3) (12.6)
leasing
Real estate (7.4) 0.0 (11.7) (8.8) (11.5) 0.0 (12.1)
investment trusts
(REITs)
Commodity (7.3) (1.6) (6.8) 0.0 (4.8) (2.1) (2.4) (13.1) (12.1) (22.9)
chemicals
Railroads and (6.6) (2.5) (3.7) (13.5)
package express
Regulated utilities (6.1) 0.0 0.0 0.0 0.0 0.0 0.0 (6.1) (42.6) (6.2)
Unregulated power (6.1) 0.0 0.0 0.0 0.0 0.0 0.0 (6.1) (42.6) (6.2)
and gas
Technology software (5.9) (17.8) 0.0 (2.3) (11.9) (9.0) 0.0 0.0 0.0 (11.8)
and services
Forest and paper (5.6) 0.0 0.0 0.0 (2.6) (8.8) (16.1) (9.3) (2.5) (11.4)
products
Consumer durables (7.4) (8.1) (5.6) 0.0 (3.7) (7.8) (15.3) (2.0) (5.9) (18.5)
Engineering and (4.8) (12.6) (4.7) (4.5) 0.0 0.0 0.0 (8.1) (0.6) (12.3)
construction
Business and (4.4) 0.0 (23.0) 0.0 0.0 (2.6) (3.0) 0.0 (2.1) (9.3)
consumer services
Aerospace and (4.4) (4.1) (4.5) 0.0 (15.3) (0.4) (2.9) (8.2) 0.0 (4.0)
defense

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 General Criteria: Methodology: Industry Risk

Table 6
Revenue PTT Declines (%) (cont.)
Technology (4.4) 0.0 0.0 0.0 (1.0) 0.0 0.0 (1.5) (19.4) (17.6)
hardware and
semiconductors
Specialty chemicals (3.8) 0.0 0.0 0.0 0.0 (4.2) (9.7) (2.0) (0.3) (18.3)
Agribusiness and (3.7) (10.8) (5.1) (6.9) 0.0 0.0 (3.3) 0.0 0.0 (6.7)
commodity foods
Containers and (3.5) (0.4) (1.2) (1.9) 0.0 (1.7) (20.2) 0.0 (1.1) (5.0)
packaging
Telecommunications (3.0) (0.9) (0.6) (5.6) (5.0)
and cable
Environmental (2.3) 0.0 (1.5) (0.9) 0.0 (6.9) (4.5)
services
Leisure and sports (1.6) 0.0 0.0 0.0 0.0 (3.1) 0.0 (2.8) (0.8) (7.3)
Branded (1.1) 0.0 0.0 0.0 0.0 0.0 (1.4) 0.0 (4.4) (3.8)
nondurables
Health care (0.8) (5.3) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (1.5)
equipment
Media and (0.6) 0.0 (0.4) 0.0 (1.8) 0.0 0.0 0.0 0.0 (3.3)
entertainment
Retail and (0.6) (0.5) 0.0 0.0 0.0 (1.4) 0.0 0.0 0.0 (3.4)
restaurants
Transportation (0.4) (0.4)
infrastructure
Pharmaceuticals (0.2) 0.0 0.0 0.0 0.0 0.0 (1.2) 0.0 0.0 (0.4)
Health care services 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Note: Empty cells in the table refer to recessionary periods before sector data were available.

APPENDIX II
Technique used to establish the cyclical scoring ranges in table 2
38. To establish the cyclical scoring ranges in table 2, we used a statistical technique known as k-means clustering. This is
a method of cluster analysis that partitions data observations into k clusters (referred to as groups or buckets),
maximizing the distance between cluster means, and by which each observation belongs to the cluster with the nearest
mean. In this case, k, the number of scoring groups, is six.

39. The criteria use the k-means clustering technique for both the historical sector revenue and EBITDA margin PTT data.
However, because the EBITDA margin PTT assessments were positively skewed, a log transform methodology was
first applied to control the influence of more extreme PTT assessments on the resulting ranges. A log transform was
not applied to the revenue PTT data, which were much less skewed.

APPENDIX III
40. The public finance sectors and their associated industry corollaries are:

• Not-for-profit health systems, not-for-profit hospitals, and not-for-profit mental health: Health care services industry

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 General Criteria: Methodology: Industry Risk

• Airports, transit systems, toll roads, parking, and ports: Transportation infrastructure industry
• State housing finance agencies and public authorities, and senior living: REIT industry
• Solid waste: Environmental services industry
• Public power utilities, electric cooperative utilities, and water and sewer utilities: Regulated utilities industry

41. These criteria represent the specific application of fundamental principles that define credit risk and ratings opinions.
Their use is determined by issuer- or issue-specific attributes as well as Standard & Poor's Ratings Services' assessment
of the credit and, if applicable, structural risks for a given issuer or issue rating. Methodology and assumptions may
change from time to time as a result of market and economic conditions, issuer- or issue-specific factors, or new
empirical evidence that would affect our credit judgment.

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