CONVERTIBLE BOND & CREDIT STRATEGY RESEARCH

1 July 2011

COCOCOS CONVERTIBLE CONTINGENT CONVERTIBLES An alluring evolution

Convertible contingent convertibles, or CoCoCos, offer a potentially compelling new structure for investors, in our view: 1) by allowing investors to convert into shares, they offer positive asymmetric risk-return profiles via their upside conversion options; 2) they would pay higher coupons than equivalent non-contingent convertibles; and 3) they meet demand for new issues to grow the convertible market. We believe CoCoCos may also appeal to issuers, because they: 1) are likely to satisfy regulatory requirements for loss-absorbing Tier 1/Tier 2 capital; 2) pay lower coupons than equivalent non-convertible CoCos, or equivalently, provisionally sell equity at a premium; and 3) tap the convertible bonds market, which could provide a natural investor base for contingent capital securities. Notably, recent announcements from the Basel Committee requiring SIFI buffers to be met with common equity Tier 1 capital potentially reduce the amount of noncommon equity Tier 1 (including CoCos/CoCoCos) needed in bank capital structures under Basel III. That said, we continue to expect contingent capital to be an important component of regulatory capital. We value CoCoCos using an integrated credit-equity hybrid model, of the type used for valuing conventional convertibles. We extend this model to reflect the contingent conversion feature on the downside and present a scenario analysis for the key unknown namely, the share price level at which conversion is assumed to be triggered. Figure 1: Valuation curve as a function of the assumed triggering share price level
Bond PV 130 125 120 115 110 105 100 0 5 10 15 20 25 30 35 40 S* - share price at downside conversion ($)
Note: Conversion price for a trigger event is $20, spot share price is $41.4. Source: Barclays Capital

CB InsightTM
https://live.barcap.com/keyword/CBINSIGHT Our online convertibles portal, providing interactive analytical tools, market data and research CONVERTIBLES RESEARCH Luke Olsen +44 (0) 20 7773 8310 luke.olsen@barcap.com Barclays Capital, London Angus Allison +44 (0) 20 7773 5379 angus.allison@barcap.com Barclays Capital, London Heather Beattie, CFA +44 (0) 20 7773 5859 heather.beattie@barcap.com Barclays Capital, London EUROPEAN CREDIT STRATEGY Dominik Winnicki +44 (0) 20 3134 9716 dominik.winnicki@barcap.com www.barcap.com

CoCoCo PV impact of the upside conversion

CoCo

Barclays Capital does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. This research report has been prepared in whole or in part by research analysts based outside the US who are not registered/qualified as research analysts with FINRA. FOR ANALYST CERTIFICATION(S), PLEASE SEE PAGE 11. FOR IMPORTANT FIXED INCOME RESEARCH DISCLOSURES, PLEASE SEE PAGE 11. FOR IMPORTANT EQUITY RESEARCH DISCLOSURES, PLEASE SEE PAGE 12.

Barclays Capital | CoCoCos Convertible Contingent Convertibles

Convertibles research: CoCoCos an alluring evolution

Convertibles Research Luke Olsen +44 (0) 20 7773 8310 luke.olsen@barcap.com Barclays Capital, London

Convertible contingent capital securities, or convertible contingent convertibles (CoCoCos), are a natural and potentially alluring evolution of contingent capital securities or contingent convertibles (CoCos), in our view. CoCos are fixed income securities that convert into equity or undergo some other specified mechanism to confer Core Tier 1 (CT1) equity capital, contingent on specific triggers, such as the issuers capital ratio falling below a set threshold. Since Lloyds TSB issued the first CoCos via exchange offers for existing hybrids in late-2009, only Rabobank and Credit Suisse have subsequently issued CoCos. More details can be found in the Barclays Capital Research key publications on CoCos in Q1 11 section below. CoCoCos are similar, except that the holder also has the option to convert into shares, like a conventional convertible security. To our knowledge, only one issuer Bank of Cyprus has thus far issued a CoCoCo. We believe CoCoCos could provide impetus to the growth of the CoCo asset class, given the investor/issuer rationale, as well as the still unanswered question, is there a natural home for CoCos?. While CoCoCos tick many boxes, we opine they too face hurdles, such as modelling/valuation and market capacity.

In our view, the rationale of CoCoCos for investors and issuers is compelling, but challenges remain

Investor rationale: Attractive yield with equity upside

We see several compelling reasons for convertible investors to hold CoCoCos:
Higher yield than equivalent, conventional convertibles

A CoCoCo should pay a higher coupon than an equivalent conventional convertible without the contingent conversion feature if the capital ratio falls below the trigger. See the Extending the model to value CoCoCos section below. There are existing convertibles with exposure to bank credit. However, very few offer direct exposure to bank equity and still fewer have a positive asymmetric equity risk profile. In our view, the potential attractiveness to investors of CoCoCos is enhanced to the extent that they embed a multi-year upside option on the bank issuers equity. In general, convertibles with novel, unhedgeable or difficult-to-value features trade at discounted levels compared to vanilla structures. The valuation challenges of CoCoCos make it difficult to quantify this concession. Still, we expect it to be significant, particularly while the product remains in its infancy. There is currently a scarcity of new convertible issuance in EMEA, particularly of larger, more liquid securities. H1 2011 convertible new issuance in EMEA was 6.6bn versus existing bond redemptions of 6.0bn, so net supply was approximately flat. 2010 also saw flat net supply, with c.14bn of issuance and redemptions. Convertibles are also seeing demand from fixed income and multi-strategy investors, who are attracted to the equity upside kicker given the meagre yields on all but the riskiest of fixed-income securities.

Multi-year equity upside option

Valuation concession

Supply scarcity plus strong demand

We acknowledge the contribution of our Quantitative Analytics colleagues to modelling CoCos/CoCoCos

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Barclays Capital | CoCoCos Convertible Contingent Convertibles

Issuer rationale: Loss-absorbing capital with reduced coupon

We also see several compelling reasons for issuing CoCoCos:
Lower coupon than straight nonconvertible CoCos by monetising volatility Provisional sale of equity at a premium, with structuring flexibility Convertible market provides a natural investor base for CoCoCos, unlike CoCos

As with all convertible bonds, the coupon at issuance may be substantially lower than on an equivalent straight bond because the conversion option that the issuer sells to investors subsidises the coupon. This means the issuer is effectively monetising its own equity volatility. The conversion price for the holders option to convert into equity is usually at a premium to the share price at issuance (eg, 30%). Also, many convertibles become callable after the first few years, if the share price exceeds a specified percentage of the conversion price (eg, 150%). This effectively forces conversion into equity at that point. A key appeal to an issuer of CoCoCos is that they have, in our view, a natural, definable and established investor base, namely convertible bond investors. Not all may hold CoCoCos, but we believe that many would, subject to name, structure, pricing, ratings, index membership, etc (these are also key factors for CoCos). While CoCos are still defining their natural investor base, CoCoCos should, in our view, naturally form part of the convertible market. More broadly, the role of the contingent capital within the emerging regulatory capital requirements framework will be among the key considerations for the issuers. Contingent capital including CoCoCos is likely to satisfy regulatory requirements for additional loss-absorbing Tier 1 and Tier 2 capital above and beyond the minimum common equity Tier 1 thresholds being established under Basel III. Notably, on 25 June, the oversight body of Basel Committee agreed on a consultative document setting out the measures for global systemically important financial institutions (SIFIs). In particular, the document recommends that the so-called SIFI buffer (an additional capital buffer for the largest banks) should be met with common equity and not with a mix of equity and contingent capital as was widely expected before the announcement. This development materially reduces the potential size of the market for CoCos and CoCoCos. For context, in Figure 2, we highlight our understanding of the Basel III capital guidelines as proposed. We believe CoCos and/or CoCoCos will likely fill a significant portion of the noncommon equity Tier 1 capital requirements. Including the potential SIFI buffer, this could have amounted to a large portion of up to 4% of risk-weighted assets (the 2.5% SIFI buffer plus the 1.5% of Tier 1 capital requirements above the minimum common equity requirements). Given the weekend headlines, we expect that the potential market for contingent capital has likely reverted to a significant portion of the 1.5% of Tier 1 above and beyond the minimum common equity requirements as a baseline. In addition, we believe that contingent capital also has potential to become an instrument of choice for additional capital buffers that some national regulators may require on top of the Basel III minimum capital requirements, as has been the case in Switzerland recently. Figure 2: Estimated Basel III capital guidelines
Common Equity Tier 1 Tier 1 Capital Total Tier 1 Tier 2 Capital Total Capital 8.0% +2.5% 10.5% +2.5% 13.0%

The role of contingent capital within the regulatory capital framework will be among the key considerations for issuers

Minimum requirement 4.5% +1.5% 6.0% +2.0% Capital conservation buffer +2.5% +2.5% Minimum + conservation buffer 7.0% +1.5% 8.5% +2.0% SIFI (top tier) +2.5% +2.5% Min + conservation buffer + SIFI 9.5% +1.5% 11.0% +2.0% Countercyclical buffers 0-2.5% Additional requirements to be set by national regulators
Source: BIS, Barclays Capital

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Barclays Capital | CoCoCos Convertible Contingent Convertibles

The convertible market: A natural home, but with limitations

As mentioned, we see the convertible market as a natural home for the CoCoCo product. However, there may be some limitations and hurdles to overcome: Market absorption capacity: The EMEA convertible universe market value is currently approximately 85bn, with average new issuance over the past five years of 19bn pa. The existing bank Tier 1 and Tier 2 market in Europe is estimated at 170bn and 290bn, respectively. This suggests that CoCoCos issuance could only replace a small part of the T1/T2 market. Sector credit concentration: Heavy and sustained CoCoCo issuance could potentially result in an excessive concentration of subordinated bank credit exposure in the convertible market. However, this scenario appears a long way off currently. Valuation challenges: Until valuation models for the downside conversion feature become more widespread and homogenised, traction may prove slow to build. Conventional issuance: One reason why CoCoCos could be well received currently is the scarcity of conventional convertible issuance. We do expect convertible issuance to pick up, however, as and when there is a sustained rise in: a) average funding (interest) rates in particular; b) equity valuations; c) corporate activity (eg, M&A); and/or d) secondary convertible valuations.

1 July 2011

Barclays Capital | CoCoCos Convertible Contingent Convertibles

Credit strategy research: CoCo valuation model

European Credit Strategy Dominik Winnicki +44 (0) 20 3134 9716 dominik.winnicki@barcap.com

This section is an edited extract from our note, CoCos: Solving the (Co)conundrum, 13 May 2011. Please see that publication for further detail. In this section, we present a formal integrated credit-equity pricing framework for contingent capital notes. Based on the specifications of the recent Lloyds and Credit Suisse contingent capital issues, a generic Lower Tier 2 CoCo security has the following payoff structure: The bond pays coupons and principal at maturity as long as there is no conversion or default event. In case of a conversion event, the bond converts into stock according to a pre-set rule. Effectively, the cash payoff is determined by the share price at conversion. In case of a default (before conversion event), the bond pays recovery in line with other LT2 bonds. The pricing of the default component is straightforward, since the recovery at default can be valued against the issuers CDS or other LT2 securities. The difficulty in pricing CoCos arises in the conversion scenario, triggered by the issuers Core Tier 1 ratio falling below a specified trigger level, or upon a regulatory viability trigger. In that scenario, the bond stops paying the coupons and converts into stock, with the value of the final payoff linked to the share price at conversion. Here, the key uncertainties are the timing of a conversion event and the prevailing share price at the trigger event. Direct modelling of the CT1 ratio is difficult, as it is an accounting variable not directly linked to any traded securities. Linking CT1 ratios and equity is also difficult. Although conceptually equity valuations would likely fall as CT1 ratios decline, the magnitude of the sensitivity is unknown. The recent relationship between CT1 ratios and equity prices is clouded by the losses banks experienced during the credit crisis and the amount of capital they raised in response. In addition, the regulatory environment has shifted and thus, the market response to changes in CT1 is likely to be different now than was the case pre-crisis.

Figure 3: CT1 ratio vs share price history: Lloyds

CT1 ratio 14% 12% 10% 8% 6% 4% 2% 0% 0 50 100 150 200 250 300 5%

Figure 4: CT1 ratio vs share price history: Credit Suisse

CT1 ratio 14% Current

59.2 Current

20

12% 10% 8% 6% 4% 2% 0% 0 20 40 Stock price ()

Source: Bloomberg, Barclays Capital

7%

Stock price ( pence)

Source: Bloomberg, Barclays Capital

60

80

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Barclays Capital | CoCoCos Convertible Contingent Convertibles

To illustrate, we show CT1 ratios and corresponding share prices for Lloyds and Credit Suisse since 2004 in Figure 3 and Figure 4. We overlay the CT1 ratio trigger thresholds (5% for Lloyds, 7% for CS) and equity conversion strikes (59.2p for Lloyds and $20 for CS). The current data points reflect generically high CT1 and low equity valuations a consequence of the credit crisis. Further, there is no clear relationship between the two variables based on historical data. Although this may change as we get more post-crisis data, the direct modelling of CT1 is likely to be of limited use at this time.
Instead of modelling CT1 ratio directly, we can deterministically take a view on where we expect the share price to trade in the event of a conversion

That said, as highlighted above, for a security resembling the CS CoCo we believe the CT1 ratio is less likely to trigger conversion and expect that viability may be a more likely driver. In this case, we can instead deterministically take a view on where we expect the share price to trade in the event of a conversion. In effect, we allow the share price dynamics to simultaneously determine the timing of the trigger event and the payoff at conversion. This allows us to think about the likelihood of the conversion event in terms of the share price dynamics, which can be implied from the equity options market. Again, this is a more appropriate assumption for securities with a viability trigger where the share price would be the primary determinant of a conversion, in our view. However, it is also informative about securities structured like the Lloyds ECNs, as we discuss below.

Pricing model specification

Our credit-equity valuation framework allows us to calculate a fair value for a CoCo based on an assumed equity price at conversion. This framework is based on a standard model that Barclays Capital and many market participants use to value convertible bonds. These are often referred to as jump-to-default, or jump-diffusion models. We compute fair value across a wide range of potential conversion prices, and then focus on a more narrow range that we believe is most likely given the structure of the security and the state of the institution. The share price follows a standard geometric Brownian motion. The volatility of the process is linked to implied volatility observed in the market for an option, with the strike equal to the assumed share-price conversion threshold and expiry set at the bonds maturity (or the first call date). The conversion takes place as soon as the share price falls to the assumed trigger level. We will refer to this assumed trigger level S*. Additionally, an ordinary instantaneous default may occur, in which case the share price is assumed to jump to zero. The hazard rate of the default process is derived from the prevailing sub-CDS spread under the standard recovery assumption of 20%. We assume that the bond recovers 0% in a default event (prior to conversion). The securities are technically LT2, which would imply a recovery of ~20%. However, to be conservative we assume that the securitys conversion feature is triggered before a default, and thus has a recovery similar to that of equity. We perform the valuation on a next-call basis with the coupons based on the relevant forward swap rates. For callable securities (eg, the CS note) we will need to address that optionality separately.

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Barclays Capital | CoCoCos Convertible Contingent Convertibles

Figure 5: Valuing the CS CoCo for different assumed share price trigger thresholds
Bond PV 120 115 110 105 100 95 0 5 10 15 20 25 30 35 40
Sectio n III Sectio n II Sectio n I Co nversio n price Co nverging to zero -reco very bullet bo nd Equity spo t

Co nverging to par + accrued

S* - stock price at downside conversion ($) Model-implied bond present value Current market price

Note: Conversion price is $20. Current market price of the CoCo and the equity spot price are as of 11 May 2011. Source: Bloomberg, Barclays Capital

Figure 5 shows the current theoretical present value of the CS CoCo under various share price trigger (S*) threshold assumptions. We discuss the scenarios shown in the chart in more detail: When the trigger level S* is assumed to equal the current share price (equity spot in Figure 5), the model-implied present value of the CoCo equals par + accrued interest, as the conversion is triggered immediately. The present value is higher if S* is assumed to be lower than the current share price level but higher than the conversion strike (Section I in Figure 5), because the likelihood of early conversion into par + accrued interest in that case is lower and the bond keeps paying a relatively large coupon. The present value decreases if S* is assumed to be below the conversion strike (Section II), because despite the falling likelihood of triggering the conversion, the equity received at conversion (payoff) is worth less than par ie, the CoCo suffers a principal loss. If S* is closer to zero (Section III), the present value of the bond increases again. This appears somewhat counterintuitive, because the loss in the event of a triggered conversion increases. However, the probability of conversion falls, which eventually would outweigh the increased loss severity. Put another way, the main difference between the CoCo and a straight LT2 note is the equity conversion feature. As equity conversion becomes less likely, the value of the CoCo must converge to that of a LT2 note (adjusted for the lower recovery of the CoCo). Alternatively, if conversion happens only at very low equity prices, the market price for LT2 is likely to be very low as well, whereas this may not be the case if conversion happens at higher prices. Thus, at low conversion prices, both securities are likely taking losses and thus, there is less differentiation between them.

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Barclays Capital | CoCoCos Convertible Contingent Convertibles

Extending the model to value CoCoCos

CoCoCos have both a triggered downside conversion feature and an upside conversion option for bondholders

The credit-equity valuation framework for CoCos discussed above is readily extendable to valuing CoCoCos. The CoCoCo has two conversion features with conversion occurring at relatively low share price levels in case of a downside CT1-ratio driven trigger, or upside conversion at the bondholders option at higher share prices. Given that typically the equity volatility surface is skewed (low-strike implied volatilities trade above the high-strike volatilities), the flat volatility assumption used in the previous section could overestimate the value of the upside conversion option relative to the downside conversion feature, in effect overestimating the value of the CoCoCo. To fairly value both features simultaneously, we extend the CoCo pricing model to incorporate an equity volatility surface as an input. In Figure 6, we show a snapshot of the CS equity volatility surface at selected option expiries.

Figure 6: CS equity volatility surface (versus strike price)

45% 40% 35% 30% 25% 20% 15% 20 25 30 1 year
Source: Barclays Capital

Figure 7: CoCoCo valuation curve

130 125 120 115 110 105 100 PV of the upside option falls to zero as S* approaches spot Bond PV PV impact off the upside conversion CoCoCo CoCo

Implied Volatility

35

40 3 years

45

50 5 years

55

10

15

20

25

30

35

40

S* - share price at downside conversion ($)

Source: Barclays Capital

In Figure 7, we show the valuation curve for a stylised CoCoCo example based on the existing CS CoCo, compared with the CS CoCo itself. We assumed that the CoCoCo has all of the features of the CS CoCo (maturity and call schedule, coupon, CT1-linked downside conversion), but also has a conversion option for bondholders that is struck 30% out-of-the-money. The shape of the valuation curve for the CoCoCo is similar to that of the CoCo, but the curve is shifted upwards to reflect the value of the upside conversion option for bondholders. The difference between the present values of the bonds, which can be interpreted as the value of the upside conversion option, is not constant and depends on the assumed share price at which the downside conversion is triggered (S*). If the expected share price at the time when CT1 ratio falls below the downside conversion trigger (or viability event trigger occurs) is close to the current share price (S* close to the spot price), then the value of the upside option will be low, because the downside conversion is much more likely than the upside conversion. Conversely, the value of the upside call is higher for lower S* levels, given that the likelihood of downside conversion is lower (the distance from spot to the upside strike is in that case smaller compared with the distance to the downside strike S*). In particular, the maximum value of the upside conversion option occurs when S* is assumed to be 0 (ie, if downside conversion can happen only on or just before default). In this limiting case, the valuation differential between a CoCoCo and a CoCo should equal the differential between an equivalent standard convertible bond and a straight bond.
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Barclays Capital | CoCoCos Convertible Contingent Convertibles

As demonstrated in the example, the additional upside conversion option in the CoCoCo can significantly increase the PV of the bond. In our view, one key advantage of the CoCoCo structure is that this PV premium can be translated into a materially lower coupon at issuance. In the example above, the upside conversion is worth ~10pts (for S* below $20), which amounts to up to 200bp in spread terms for a duration of at least 5y. This illustrates the hypothetical reduction in the coupon that the issuer could achieve by adding an upside conversion option to the original CoCo. Figure 8: Valuation with 40% flat volatility
140 135 130 125 120 115 110 105 100 0 5 10 15 20 25 30 35 40 S* - stock price at downside conversion ($)
Source: Barclays Capital

Figure 9: Valuation with 20% flat volatility

CoCo CoCoCo
140 135 130 125 Upside option value ~6pt Bond PV CoCo CoCoCo

Bond PV

Upside option value ~19pt

120 115 110 105 100 0 5 10 15 20 25 30 35 40 S* - share price at downside conversion ($)
Source: Barclays Capital

Valuing CoCoCos conservatively using flat volatilities

Although the ideal valuation uses a full volatility surface, as in Figure 7, some market participants may prefer to use single, flat volatilities, in their models. For this, the following approach would often give a conservative valuation, in our view: 1. Look at the highest and lowest volatilities at the relevant points in the volatility surface, for the downside and upside conversion features. From Figure 6, for example, we might choose 40% and 20%, respectively. 2. Value the equivalent CoCo using 40% volatility, the dark line in Figure 8. 3. Value the CoCoCo and the CoCo using 20% volatility, as in Figure 9, and take the differential between them, to isolate the value of the upside conversion option. 4. Add this differential to the value of the CoCo derived in step 2 above. In summary: CoCoCo = CoCo (higher vol) + CoCoCo (lower vol) CoCo (lower vol) We emphasise that this valuation is very conservative, as it uses the highest volatility to value the downside option that holders are short and the lowest volatility to value the upside option that holders are long.

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Barclays Capital | CoCoCos Convertible Contingent Convertibles

BARCLAYS CAPITAL RESEARCH KEY PUBLICATIONS ON COCOS IN Q1 11

Below we provide summaries of and web links (left margin) to Barclays Capital publications in 2011 to date on contingent capital securities, or CoCos. These include reports from our Banks Equity Research, High Grade Financials Credit and Index Products Research teams.
European Banks: Are Cocos A Go Go?: The role of contingent convertible capital, 7 February 2011 (Equity Research) Credit Suisse CoCos: Positive read-across, 17 February 2011 (Credit Research)

How much? Our bottom-up analysis suggests that the CoCo market could be huge, totalling over EUR500bn for the entire European banking industry based on its current size, or perhaps nearer EUR700bn by 2018. Once important regulatory, investor and issuer interests are reconciled, CoCos could become a key part of capital management for many banks. We view the markets supportive reaction to Credit Suisses T2 CoCo issue as a positive development for both Credit Suisse and the nascent CoCo market as a whole. Although still in very early stages, the deal provides additional visibility on future investor appetite and market capacity for this new asset class. The success of the deal also highlights underlying value in Lloyds Banking Groups Enhanced Capital Notes, in our view. The market reaction to Credit Suisses CoCo issuance is a positive development for the evolution of the CoCo market and provides further visibility on what the instruments may look like, as well as what they could cost. Overall, whilst the Credit Suisse CoCos are a little cheaper than we expected it does not materially change what we think CoCos will cost the sector. Our estimate for the overall net impact on the sectors 2013e earnings is now an 8.0% reduction (versus 9.4% previously). Though there may be an emerging market for CoCos issued by European banks, we believe the issuance by U.S. banks will be limited. We see three primary reasons for this: 1) U.S. banks will likely be allowed to satisfy their Basel III capital requirements with cheaper, lesscomplex capital instruments such as preferred stock and subordinated debt; 2) interest payments on CoCos are unlikely to be tax deductable for issuers under U.S. tax laws; and 3) the breadth of the investor base remains uncertain. Contingent convertible capital securities (sometimes referred to as CoCos) that convert into equity based solely on capital ratio/viability triggers are not eligible for Barclays Capital Convertibles Indices. In particular, we are making a clear delineation between such securities and other contingent convertibles that convert based on price or other nonregulatory triggers, which are currently index-eligible. We introduce an integrated credit-equity modelling framework for pricing contingent convertible bonds, based on a standard model that Barclays Capital and many market participants use to value convertible bonds. We combine the model-based valuation with our fundamental views in a discussion of relative value in Credit Suisse (CS) and Lloyds Banking Group CoCos. In our view, Credit Suisse CoCos appear cheap relative to straight subordinated debt and equity volatility levels.

CoCos What have we learned, 17 February 2011 (Equity Research)

U.S. Banks: Limited CoCo Issuance Expected, 11 March 2011 (Credit Research)

Benchmark Convertibles Index eligibility of contingent convertible capital securities, 4 March 2011 (Index Products)

CoCos: Solving the (Co)conundrum, 13 May 2011 (European Credit Strategy)

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Barclays Capital | CoCoCos Convertible Contingent Convertibles Analyst Certification(s) With respect to our respective sections, we, Angus Allison, Luke Olsen and Heather Beattie, and Dominik Winnicki, hereby certify (1) that the views expressed in this research report accurately reflect our personal views about any or all of the subject securities or issuers referred to in this research report and (2) no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this research report.

IMPORTANT DISCLOSURES: FIXED INCOME RESEARCH

For current important disclosures regarding companies that are the subject of this research report, please send a written request to: Barclays Capital Research Compliance, 745 Seventh Avenue, 17th Floor, New York, NY 10019 or refer to https://ecommerce.barcap.com/research/cgibin/all/disclosuresSearch.pl or call 212-526-1072. Barclays Capital does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that Barclays Capital may have a conflict of interest that could affect the objectivity of this report. Any reference to Barclays Capital includes its affiliates. Barclays Capital and/or an affiliate thereof (the "firm") regularly trades, generally deals as principal and generally provides liquidity (as market maker or otherwise) in the debt securities that are the subject of this research report (and related derivatives thereof). The firm's proprietary trading accounts may have either a long and / or short position in such securities and / or derivative instruments, which may pose a conflict with the interests of investing customers. Where permitted and subject to appropriate information barrier restrictions, the firm's fixed income research analysts regularly interact with its trading desk personnel to determine current prices of fixed income securities. The firm's fixed income research analyst(s) receive compensation based on various factors including, but not limited to, the quality of their work, the overall performance of the firm (including the profitability of the investment banking department), the profitability and revenues of the Fixed Income Division and the outstanding principal amount and trading value of, the profitability of, and the potential interest of the firms investing clients in research with respect to, the asset class covered by the analyst. To the extent that any historical pricing information was obtained from Barclays Capital trading desks, the firm makes no representation that it is accurate or complete. All levels, prices and spreads are historical and do not represent current market levels, prices or spreads, some or all of which may have changed since the publication of this document. Barclays Capital produces a variety of research products including, but not limited to, fundamental analysis, equity-linked analysis, quantitative analysis, and trade ideas. Recommendations contained in one type of research product may differ from recommendations contained in other types of research products, whether as a result of differing time horizons, methodologies, or otherwise.

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Barclays Capital | CoCoCos Convertible Contingent Convertibles

IMPORTANT DISCLOSURES: EQUITY RESEARCH

For current important disclosures regarding companies that are the subject of this research report, please send a written request to: Barclays Capital Research Compliance, 745 Seventh Avenue, 17th Floor, New York, NY 10019 or refer to https://ecommerce.barcap.com/research/cgibin/all/disclosuresSearch.pl or call 1-212-526-1072. The analysts responsible for preparing this research report have received compensation based upon various factors including the firms total revenues, a portion of which is generated by investment banking activities. Research analysts employed outside the US by affiliates of Barclays Capital Inc. are not registered/qualified as research analysts with FINRA. These analysts may not be associated persons of the member firm and therefore may not be subject to NASD Rule 2711 and incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analysts account. Barclays Capital produces a variety of research products including, but not limited to, fundamental analysis, equity-linked analysis, quantitative analysis, and trade ideas. Recommendations contained in one type of research product may differ from recommendations contained in other types of research products, whether as a result of differing time horizons, methodologies, or otherwise. Risk Disclosure(s) The convertible valuations are based on Barclays Capital proprietary convertible valuation model, under which key assumptions relate to credit spread and equity volatility metrics. Material changes in any of these variables can have a significant impact on valuation. Upside/downside analysis takes into consideration likely future valuation and expected trading patterns, among others. It is based on a total return participation of the convertible relative to a +/ 25% (unless otherwise specified) change in the common stocks price over a oneyear investment horizon. A material change in the companys financial situation can significantly alter this assessment. Barclays Capital offices involved in the production of equity research: London Barclays Capital, the investment banking division of Barclays Bank PLC (Barclays Capital, London) New York Barclays Capital Inc. (BCI, New York) Tokyo Barclays Capital Japan Limited (BCJL, Tokyo) So Paulo Banco Barclays S.A. (BBSA, So Paulo) Hong Kong Barclays Bank PLC, Hong Kong branch (Barclays Bank, Hong Kong) Toronto Barclays Capital Canada Inc. (BCC, Toronto) Johannesburg Absa Capital, a division of Absa Bank Limited (Absa Capital, Johannesburg) Mexico City Barclays Bank Mexico, S.A. (BBMX, Mexico City)

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