Standard & Poor's Mid-Market Evaluations Explained

Credit FAQ:Standard & Poor's Mid-MarketEvaluations ExplainedPrimary Credit Analyst:Alexandra Krief, Paris (33) 1-4420-7308; alexandra.krief@standardandpoors.comSecondary Contacts:Alexandra Dimitrijevic, Paris (33) 1-4420-6663; alexandra.dimitrijevic@standardandpoors.comTrevor N Pritchard, London (44) 20-7176-3737; trevor.pritchard@standardandpoors.comDavid W Gillmor, London (44) 20-7176-3673; david.gillmor@standardandpoors.comTobias Mock, CFA, Frankfurt (49) 69-33-999-126; tobias.mock@standardandpoors.comOzlem Kosar, Paris (33) 1-4420-6789; ozlem.kosar@standardandpoors.comTable Of ContentsFrequently Asked QuestionsAppendix: Information Standard & Poor's Uses In Its Mid-MarketEvaluationsRelated Criteria And ResearchWWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 24, 2013 11151208 | 301945678

Credit FAQ: Standard & Poor's Mid-Market Evaluations ExplainedWhat methodology do you use to assess recovery evaluations for mid-market companies, and whatdo the '+' and '–' identifiers mean?Our methodology in this area is derived from Standard & Poor's methodology for assigning recovery ratings oncorporate debt (see "Criteria Guidelines For Recovery Ratings On Global Industrials Issuers' Speculative-Grade Debt,”published Aug., 10, 2009). However, we use a simplified approach in applying this methodology, which results in threebroad categories for MMEs: high, medium, or low recoveries, as compared to a more granular scale for ratings.Furthermore, the jurisdiction-specific adjustments that Standard & Poor's applies to its recovery and issue ratings donot apply to our MMEs. If we expect a mid-market debt instrument to be secured and to have a particularly highrecovery in the event of a default--typically above 70%--we attribute a '+' to it. If we expect an instrument to have aparticularly low recovery in the event of default--typically below 30%--we attribute a '-' to it. If we expect a recovery ofbetween 30% and 70% we do not apply a modifier.We believe these identifiers are a particularly useful tool to enable market participants to benchmark recoveryexpectations (or loss given default) on specific instruments. (For further details see "Mid-Market Evaluation: DefinitionAnd Scale," published June 24, 2013).Is the MME analysis as forward-looking as a rating analysis?Our MME analysis is forward-looking, but not to the same extent as our rating analysis. Our MME analysis puts moreweight on historical financial results to emphasize a company's track record of generating and maintaining profit in aneconomic cycle. We would typically include at least one projected financial year in our MME analysis. Given thesimplified analytical methodology and process for MMEs, our intention is to understand how a company managed itsoperations through an economic cycle to anticipate future expected performance.Is there a mapping between the mid-market scale and Standard & Poor's global rating scale?Yes, to a certain extent. The purpose of the MME scale is to give an indication of the creditworthiness of a mid-marketcompany relative to other mid-market companies. In reference to our global rating scale, we expect that thecreditworthiness of mid-market companies will largely fall between the 'BBB' and 'B' categories. Our expectation isbased upon: our testing of data from mid-market companies in Europe; our analysis of small and midsize enterprises(SMEs) in European collateralized loan obligations (for further details see: "European SME CLO Methodology AndAssumptions," published Jan. 10, 2013); and the current public ratings of similarly sized companies in the U.S. We havecalibrated our mid-market scale on this basis, by mapping each MME against a corresponding spectrum of ratings onStandard & Poor's global rating scale and the historical cumulative default rate associated with the global rating scale.Chart 1 gives an illustration of the relative ranking under the mid-market scale.WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 24, 2013 51151208 | 301945678

Credit FAQ: Standard & Poor's Mid-Market Evaluations ExplainedChart 1Chart 1 is for indicative purposes only. Past default rates are no assurance of the future performance of companiesunder the global rating scale. We note, also, that as a general matter default rates vary significantly throughouteconomic cycles (see chart 2). Moreover, the historical performance appearing in chart 1 reflects industries globally,while the MME is intended to cover only mid-market companies in a limited number of countries and sectors initially.Furthermore, the MME criteria use a simplified approach in applying the corporate rating methodology and a slightlydifferent definition of default regarding timing. These factors could, in our view, potentially lead to significantdifferences in default and transition behavior for companies on the mid-market scale in comparison with the globalratings scale.Over time, as we build a series of historical data on the mid-market scale, we will be able to produce default andtransition statistics specific to it.WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 24, 2013 61151208 | 301945678

Credit FAQ: Standard & Poor's Mid-Market Evaluations ExplainedChart 2Appendix: Information Standard & Poor's Uses In Its Mid-Market EvaluationsFor both our initial analysis and periodic monitoring, we review information the mid-market company provides.The minimum information we require for new evaluations is:• Three years of historical consolidated audited financial statements, including balance sheet, income statement,statement of cash flows, and footnotes. If a company has recently undergone a change in structure, we may accepttwo years of pro forma accounts on a case-by-case basis. The latest audited financial statements should be receivedwithin 270 days of year-end, or to coincide with the deadline set under relevant accounting rules. In between thereceipt of audited accounts, we expect to receive latest unaudited financial statements that are less than six monthsold.• The latest interim financial statements, (if produced) within 120 days after the end of the interim period, or sooner ifrequired under relevant accounting rules.In addition, the standard information we expect for new evaluations is:• The most recent organizational structure in terms of both ownership and subsidiary structure.• A questionnaire completed by the management on key credit factors regarding markets, competitive position,WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 24, 2013 71151208 | 301945678

Credit FAQ: Standard & Poor's Mid-Market Evaluations Explainedstrategies, financial policies, and sector-specific operating statistics.• A liquidity report, including a debt amortization schedule and details of credit facilities.• Management projections for the current and the next year, including underlying assumptions and sensitivities, ifproduced.Further information that we may request in certain specific situations:• All existing debt documentation, including full disclosure of credit agreements for senior secured debt (such asrevolving credit facilities and term debt), second-lien and mezzanine debt, intercreditor agreements or descriptionsof the notes or indenture;• Security agreements;• Latest covenant compliance certificates, including ratio calculations, if applicable;• Event-related information, such as changes to financial structure, material corporate actions, market events, andpayment defaults;• Pro forma financial statements where an enterprise is undergoing transformative events; or• Consolidated annual financial statements where an enterprise has a corporate parent;The minimum information we require for periodic monitoring includes an update of the information above andespecially a quarterly survey of the liquidity situation.Related Criteria And Research• Mid-Market Evaluation: Definition And Scale, June 24, 2013• Underwriting The Recovery: Europe's Mid-Market Seeks New Ways To Fund Growth, April 22, 2013• European SME CLO Methodology And Assumptions, Jan. 10, 2013• Criteria Guidelines For Recovery Ratings On Global Industrials Issuers' Speculative-Grade Debt, Aug., 10, 2009)Additional Contacts:Werner Staeblein, Frankfurt (49) 69-33-999-130; werner.staeblein@standardandpoors.comJames A Parchment, New York (1) 212-438-4445; james.parchment@standardandpoors.comGuy Deslondes, Milan (39) 02-72111-213; guy.deslondes@standardandpoors.comWWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 24, 2013 81151208 | 301945678

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