50/50 (BDC And MREIT) Update, New Stock-Tracking Tool Update POT2.0

Portfolio Concept Design…

The premise for my 50/50 portfolio design is based on the concept that BDC (Business Development Companies) outperform when the markets are flat or going up and mREIT (mortgage Real Estate Trusts) outperform when the markets are flat or going down. This concept implies that BDCs performance rely on company loans in their portfolio having the ability to repay their loans in good times, but go non-accrual or default during economic downturns. Agency mREITs on the other hand are leveraged securities that are backed by the US government. During bad economic times investors begin to invest in treasuries and MBS securities that are backed by the US government to protect against the loss of principle; and the result for the underlying securities is strong performance.

In essence, Im always hedging my bet with the tug-of-war between bull and bear markets while collecting over 10% yield on my portfolio. Im not in the camp that always tries to trade in the direction of the market; Ill leave that excitement to traders. I would rather try to select companies that fit in just two sections of the economy. This simple method lets me SWAN just fine, since this seems to be a concern for most investors.



Click to enlarge

Introduction…

Since my last portfolio update I added a few shares of three companies to bring my income allocation value to 72.5% of my gross employment income. My goal for the end of this year is 75% and Im on track to achieve this benchmark. For convenience I have normalized the portfolio balance to about $500,000 as of May 19, 2016. The very next day Friday when I nailed down this article the portfolio jumped once again by almost 1% and sits at about $505, 000 with a projected income of $63,700 and a yield of 12.6%. My previous article introduced you to POT1.0, 50/50 Portfolio Update, And Introducing A Brand-New Stock-Tracking Tool. I have since made incremental enhancements and decided this was a major update and have named the revision to POT2.0. The Excel 2010 application downloads Yahoo data and I have manipulated the data to display the information in graphical bar-chart form so investments can be compared on a relative basis. The changes are described below and the download link is in the conclusion section. Please see important disclaimers at the end of this article.

Wedbush Advises Investors To Tread Clear Of Alphabet Inc (GOOGL) And Twitter Inc (TWTR) Among Others

Wedbush tech team published a report of itsrecent findings regarding the top technology stocks. The list includes high profile stocks that have shown deteriorating fundamentals and are likely headed towards a slump.

Alphabet Inc. (NASDAQ:GOOGL) has reached a point of saturation, such is the beliefof Wedbushs tech team. According to the analysts, the risk associated with the stock, especiallyduring the 2H will be at its peak as the companys search monetization hits the peak. In the long term, the risk is largely associated with newly employed marketing strategies that may push consumers to look for alternatives. The positives for the stock is monetization improvement and ad growth on YouTube. However, concerns remain regarding emerging competition for YouTube from social media video platforms and TV networks going online.

Twitter Inc. (NYSE:TWTR) has been struggling for a while, and given its presence on the list, it most likely will continue to do so. The growth in advertisement remains nonexistent and part of it can be attributed to the degree of difficulty consumers face while using the service. The companys progress is sluggish and advertiser circles remainunconvinced.

Square Inc. (NYSE:SQ) is heading down a road that possibly ends from where it began. The company is working to establish a business that might never provide profitability. In addition, the SMB loan broker business remains a risky bet. There are some regulatory concerns on the horizon regarding the companys loans.

Workday Inc. (NYSE:WDAY) is on its way down thanks to a major deal that was broken in its core HCM business. The companys business model remains successful but the problem lies in fast fading number of consumers which may in part be due to Oracles aggressive selling tactics.

Groupon Inc. (NASDAQ:GRPN) is going to struggle in near term as it has gone under a process of restructuring and it will prevent growth for the next few quarters. The restructuring is likely to help in growth but near term prospects remain dull despite the fact that it is one of the top channels for brick and mortar stores to acquire traffic.

The analysts cautioninvestors to tread carefully when trading with above tickers as the risk associated outweighs rewards.

DBS Indonesia Sets Strategy to Push Fee-Based Income

“We are targeting a 50:50 portion between net interest income and fee-based income for the next three years,” Peter said.

DBS Indonesia now earns three quarters of its income from interests charged to debtors. The lenders net-interest income was recorded at Rp 603 billion in March this year, up 14 percent from Rp 529 billion in the corresponding period last year.

The banks fee-based income was at Rp 376 billion in March this year, up 13 percent from Rp 333 billion in the same period last year.

DBS Indonesias outstanding loans now stand at Rp 39.7 trillion, relatively unchanged from last year as demand for company loans has yet to recover.

The lender disbursed 80 percent of its loans to companies in the plantation, automotive, pharmaceuticals amp; chemicals, fast-moving consumer goods, food and beverage, and infrastructure sectors. The remaining portion of the loans are channeled to consumer business companies.

Appeals Court Denies Tilton’s Challenge to SEC Case

A federal appeals court in New York refused Wednesday to stand in the way of a fraud case that the US Securities and Exchange Commission brought against former distressed-company financier Lynn Tilton.

Ms. Tilton sought to raise a constitutional challenge to the SEC administrative securities fraud action, which focuses on the $2.5 billion collection of distressed company loans she controlled until recently.

The Second…

Woodhouse may force multinationals to talk about tax

Multinationals may be forced to disclose more information about their tax affairs, amid concerns they are too often bending the rules.

Revenue Minister Michael Woodhouse said he was disappointed major multinationals had been deafeningly silent in the wake of allegations that some of them had been shirking their fair share of the tax burden.

That was apart from saying they were satisfied they complied with New Zealand laws, he said.

The Australian government is trying to make multinationals open up about their tax affairs and New Zealand might follow suit, Woodhouse said.

READ MORE:
* Victory at hand in multinational tax battle but NZ may not get the spoils
* Big US firms hold $2.1 trillion overseas to avoid taxes: study
* OECD forecasts company tax rates will fall as rorts stamped out

The question Australia is asking is should they give a better explanation of the difference between their accounting profit and their taxable profit and how that is channeled away.

Any additional disclosure obligations could force multinationals to be more open on matters such as how they used transfer pricing to charge their local subsidiaries for services and the interest they charged them on intra-company loans, he said.

While a discussion paper on Australias proposed tax transparency code envisaged it would be voluntary, Woodhouse hinted at a tougher approach saying the question here was the degree to which companies should or should be required to release more information.

However, Woodhouse indicated he would be reluctant to remove a legal muzzle on Inland Revenue discussing the tax affairs of individual businesses – even in cases where the department believed that might be helpful in maintaining trust and confidence in the tax system.

Woodhouse said the rule had prevented Inland Revenue discussing the tax affairs of the Pfizers and the Googles or the Shells even with him, and that had felt very black box.

Australia’s NAB looks to boost small company loans, offset mortgage slowdown

By Swati Pandey

SYDNEY, June 1 (Reuters) – National Australia Bank plans to tap surging demand for corporate credit by becoming the first major bank in Australia to offer small companies unsecured loans online.

Australias big four banks already supply a variety of unsecured loans to small businesses, but NAB is betting that its online service will be popular due to its convenience.

The move comes as NAB and rivals Commonwealth Bank, Westpac and ANZ Banking battle to offset a slowdown in home loans, which have typically been a core part of their businesses.

The overall size of loans extended to businesses in Australia grew at its fastest pace in April since 2008, according to a report this week by analysts at UBS.

This (increase in corporate loans) is net positive for banks. If anything this is where the growth should be, said Bell Potter analyst TS Lim.

Australian banks have been grappling with slowing earnings after years of record profits.

NAB said on Wednesday that its QuickBiz Loan would launch in early June, with customers able to apply for up to A$50,000 ($36,400) in funding online. Annual interest will be charged at 13.85 percent, compared with nearly 5 percent for home loans and an official cash rate of 1.75 percent.

Commonwealth Bank and Westpac have entered into referral tie-ups with separate online lending companies for business loans, mainly targetting small businesses.

The increase in business lending in April was driven by CBA, which chalked up 29-percent growth in the space month-on-month, according to the latest regulatory data.

Nearly two thirds of Australian banks balance sheets are exposed to mortgages, where growth has been consistently slowing following a series of regulatory steps to contain rocketing house prices in Sydney and Melbourne.

Bank shares are among the worst performers on the benchmark Samp;P/ASX index this year, down between 8.5 percent and 10 percent. The benchmark is largely unchanged. ($1 = 1.3731 Australian dollars) (Reporting by Swati Pandey; Editing by Joseph Radford)

Fitch Downgrades Southern Co. to ‘A-‘; Outlook Stable

NEW YORK–(BUSINESS WIRE)–Fitch Ratings has downgraded the Long-Term Issuer Default Rating (IDR)
of Southern Company to A-/Stable from A. The ratings are removed
from Rating Watch Negative where they were placed on Aug. 5, 2015
following the announcement of an agreement to acquire AGL Resources Inc.
(AGL; BBB+/Stable) in an all-cash transaction. The downgrade reflects
the expected degradation in Southern Companys credit metrics following
the closing of the predominantly debt-financed AGL acquisition. Fitch
expects the acquisition to close in the second half of 2016 (2H16). In
addition, Fitch has affirmed the Short-Term IDR for Southern Company at
F1.

Fitch has downgraded the Long-Term IDR of Mississippi Power Company to
BBB from BBB+, which maintains the two-notch differential with the
parent companys long-term IDR, and Short-Term IDR to F3 from F2.
Fitch has also revised the Rating Outlook for Mississippi Power to
Stable from Negative. We acknowledge that the risks surrounding the
Kemper Integrated Gasification Combined Cycle (IGCC) project still
remain elevated, and include the execution risk associated with the
completion of the project within currently estimated costs and schedule.
The timing of the implementation of permanent rates for the remainder of
the IGCC plant also remains uncertain. However, the strong rating
linkages with the parent company are limiting further negative rating
actions for Mississippi Power at this time. Southern Company has
demonstrated tangible financial support for Mississippi Power during the
construction of the Kemper project and Fitch expects this support to
continue.

Fitch has affirmed the IDRs for Southern Companys other subsidiaries as
follows: Alabama Power Company at A/F1; Georgia Power Company at
A/F1; Gulf Power Company at A-/F1; Southern Power Company at
BBB+/F2, and Southern Electric Generating Company (SEGCO) at A. The
Rating Outlook for these entities is Stable. Fitch has also affirmed the
F1 commercial paper (CP) rating for Southern Company Funding
Corporation. A full list of rating actions follows at the end of this
release.

KEY RATING DRIVERS FOR SOUTHERN COMPANY

Meaningful Increase in Leverage: The proposed $8 billion cash
acquisition of AGL, which is largely funded by debt, results in a
meaningful increase in consolidated leverage compared to Southern
Companys current and projected stand-alone financial condition. The
company has issued $1.4 billion in equity and is expected to issue $8
billion in debt to finance the acquisition and meet other capital needs.
The combination of acquisition debt and the assumption of existing AGL
consolidated debt ($4.3 billion at March 31, 2016) will cause
consolidated FFO adjusted leverage and FFO fixed charge coverage of the
combined entity to meaningfully weaken in the short- to medium-term.
Excluding benefits of any potential synergies, Fitch forecasts pro forma
adjusted FFO leverage to jump to 5.1x in 2017 and gradually improve to
4.7x by 2019. Pro forma FFO fixed charge coverage is expected to be in
the 4.5x – 5.0x range over 2016 – 2019. Fitch would like to see the FFO
adjusted leverage improve and sustain below the 4.5x level before
considering any upward migration of ratings.

Improved Business Profile: The acquisition of AGL meaningfully improves
Southern Companys risk profile, in Fitchs view. Fitch generally views
gas distribution businesses as low risk and AGLs utilities are
generally well managed with numerous supportive regulatory mechanisms in
place. AGLs rising investments in inter-state pipelines carry
moderately higher competitive market risks, but these are offset to a
large extent by long-term offtake agreements with credit-worthy
counterparties. While the non-regulated retail and wholesale businesses
of AGL are volatile, the exposure is somewhat contained given these will
be a small part of the combined company. Southern Company gains
tremendous scale and geographic diversity with this acquisition and its
inaugural pursuit of natural gas businesses can smooth out earnings and
cash flow of its predominantly summer-peaking electric utilities. The
combination also lowers the contribution of its non-regulated, albeit
conservatively managed, Southern Power Company in the overall business
mix as well as that of Mississippi Power, which is undergoing
significant stress related to the construction cost overrun for the
Kemper IGCC project.

Execution Risk of Two Large Construction Projects: Fitchs rating
concerns for Southern Company include significant construction and
regulatory risks associated with the two large baseload projects under
construction, namely the 2,200 MW Vogtle nuclear units 3 and 4 and the
580 megawatt (MW) Kemper IGCC plant. The risks related to Vogtle 3 and 4
nuclear units have abated somewhat with the October resolution of the
pending litigation between Vogtle owners and the EPC contractors,
changes in the EPC agreement, and the contractor changes. The modified
EPC agreement confirmed the in-service dates as June 30, 2019 for Unit 3
and June 30, 2020 for Unit 4. Ongoing proceedings with the Georgia
Public Service Commission (GPSC) Staff could result in a favorable
outcome that provides more certainty regarding the recovery of costs
currently not included in the existing $6.1 billion cost certification
and would be credit positive.

The construction costs and expected commercial operations date (COD) for
the Kemper IGCC plant continue to show modest escalation as the project
enters its critical start-up phase. While the 3-0 PSC vote on the $126
million permanent rate increase order in December 2015 for the
in-service portion of the Kemper plant is encouraging, significant
regulatory uncertainties remain for the recovery of the remainder of the
project costs in rates. We believe the plant may need to demonstrate a
successful start-up and sustained operating performance before
Mississippi Power can file for the next rate proceeding.

Significant Growth at Southern Power: Fitch views Southern Powers
fast-growing renewable business as neutral to ratings at this time. The
extension of bonus depreciation and federal subsidies for wind and solar
projects and a strong interest from both utility and non-traditional
offtakers is expected to result in a significant growth of renewable
power generation in the US Southern Power has made several project
acquisitions in recent months and, combined with a placeholder capex,
could potentially invest approximately $5 billion over 2016 – 2018.
Long-term contracts with creditworthy counterparties, a balanced mix of
debt and equity to finance the growth capex and managements current
intent to limit the earnings contribution from Southern Power to
approximately 10% of the combined entity mitigate any rating pressure at
this time.

KEY RATING DRIVERS FOR ALABAMA POWER

Strong Regulatory Mechanisms: The ratings and Stable Outlook for Alabama
Power reflect Fitchs view that the utility will continue to generate
strong credit metrics over the next three years driven by a gradual
improvement in industrial sales and potential rate increases under the
environmental cost recovery clauses. Falling fuel prices create headroom
for Alabama Power to increase RSE rates. Cost-of-service recovery
mechanisms provide timely recovery of all prudent costs through various
rates/cost trackers, such as those incurred for fuel, purchased power,
storm costs, environmental expenditures and new generation facilities.

Robust Credit Metrics: For the last 12 months (LTM), Alabama Powers FFO
adjusted leverage was 3.1x. Fitch expects this metric to remain in the
3.1x – 3.3x range over 2016-18. Year-end (YE) 2015 adjusted
debt-to-EBITDAR was 3x and we expect this metric to sustain at these
levels until 2018. FFO fixed charged cover is expected to average
approximately 6x – 6.8x over the same period.

High Reliance on Industrial Sales: Rating concerns for Alabama Power
include a high reliance on the industrial sector, which makes up for
approximately 42% of its total retail MWH sales and 28% of total
revenues. The dominant industrial customers in its service territory
comprise chemicals, primary metals, pulp and paper, and transportation.
Industrial sales were weak in 2015 and lacklustre customer usage trends
continue to be a concern. However, Fitch sees enough room in the credit
metrics to absorb a prolonged period of stagnant sales.

High Proportion of Coal in Fuel Mix: Other rating concerns include
Alabama Powers large coal mix (approximately 53% of total generation),
which leaves the utility exposed to potential higher environmental
expenditures such as those related to coal ash. The utility will also
have to transform its generation fleet to a cleaner mix as carbon
compliance rules eventually get implemented. While Alabama Power has
both an environmental clause that allows for recovery of all prudent and
federally mandated expenditures and new generation clause, the upward
pressure on retail rates would have to be managed to preserve a
constructive regulatory compact.

KEY RATING DRIVERS FOR GEORGIA POWER

Moderation in Vogtle Construction Risk: While still elevated, Fitch
views the execution risk associated with the construction of Vogtle 3
and 4 nuclear units as having moderated somewhat over the last few
months. This has been primarily driven by the October resolution of the
pending litigation between Vogtle owners and the EPC contractors,
changes in the EPC agreement, and the contractor changes. Favorable
amendments to the original EPC agreement significantly limit the
circumstances that the contractors could claim as material changes to
the nuclear regulatory law, thereby reducing the likelihood of future
disputes. Now that Westinghouse has assumed the role of the primary
contractor, Fitchs concerns regarding inter-contractor disputes have
diminished.

The Vogtle units have been recovering the financing costs on
construction work in progress (CWIP) through a tracker since 2011. The
GPSC has approved $3.1 billion in costs incurred through June 30, 2015
as part of the semi-annual Vogtle Construction Monitoring (VCM)
proceedings. Ongoing discussions between Georgia Power and the PSC Staff
to ascertain reasonableness and prudency of the revised capital costs
and schedule estimates could result in a settlement that provides more
certainty regarding the recovery of costs currently not included in the
existing $6.1 billion certified costs. The ratings and Stable Outlook
for Georgia Power reflect Fitchs expectation that any adjustments to
the current certified project costs will be deemed prudent and
recoverable by the PSC. Georgia Power sees no change to its assessment
of a 6%-8% impact on customer rates as a result of the construction
delay and this should minimize the regulatory risk, in Fitchs opinion.

Deteriorating Credit Profile of Toshiba: Fitch is concerned with the
weakening credit profile of Toshiba Corporation (not rated by Fitch),
which is the majority owner of Westinghouse and has guaranteed certain
Westinghouse obligations. Toshibas credit rating has been lowered to
well below investment grade by the other rating agencies. Per the terms
of the EPC contract, Westinghouse has posted approximately $920 million
in letters of credit, which partly mitigates Fitchs concern.

Cost Control Key to Maintaining ROE: Georgia Power agreed to a
three-year stay-out for base rate increases in Georgia as part of the
AGL merger approval proceedings. Continued strong sales growth in its
service territory, extension of bonus depreciation and absence of
sizeable environmental projects over the next three years had diminished
the need for a large base rate increase in 2017. By controlling costs,
Georgia Power can continue to earn its above average authorized return
on equity (ROE) of 10.95%. The utility will file its next rate case in
July 2019 for new rates effective January 2020. Anticipating a modest
deterioration in Georgia Powers credit metrics, Fitch estimates
adjusted debt-to-EBITDAR and FFO adjusted leverage to be approximately
3.4x and 4.0x, respectively, by 2018.

KEY RATING DRIVERS FOR GULF POWER

Constructive Regulation: Fitch has a favorable view of the current
regulatory environment in Florida. Gulf Power enjoys several rate riders
that provide timely recovery of all prudent costs related to fuel,
purchased power costs, energy conservation, and environmental
expenditures. While Gulf Power is dependent on coal-fired generation
capacity that must comply with stringent emissions standards, the fuel
and environmental recovery clauses promote timely recovery of associated
costs. Gulf Powers current base rates are based on authorized ROE of
10.25% and it may not request a base rate increase to be effective until
after June 2017 unless the retail ROE falls below the authorized ROE
range and the $62.5 million depreciation credit allowed in the last rate
case is exhausted.

Improvement in Retail Sales: Gulf Powers service territory continues to
see slow but steady improvement in the local economy with economic
indicators such as housing starts, unemployment and income growth all
showing positive trends. However, customer usage trends continue to be
challenging.

Credit Metrics: Fitch forecasts Gulf Powers adjusted debt-to-EBITDAR
and FFO adjusted leverage to be approximately 3.3x and 3.6x,
respectively, in 2018, which is in line with its rating level.

KEY RATING DRIVERS FOR MISSISSIPPI POWER

Financial Support by Parent: Southern Companys tangible financial
support to Mississippi Power in the form of direct equity infusion and
inter-company loans to meet a portion of the Kemper construction costs
has been a key factor in assessing Mississippi Powers creditworthiness.

Construction and Operational Risk at Kemper: As the project enters its
critical phase of gasifier start-up and integration with the combined
cycle turbines, Fitch continues to be concerned with the possibility of
a further delay in schedule and the resultant cost creep. The project is
now expected to cost approximately $6.6 billion, of which Mississippi
Power does not intend to seek rate recovery for $2.47 billion of costs
incurred above the $2.88 billion cost cap and has taken an equivalent
charge to income through its first quarter 2016 (1Q16) financial
results. The project spend is approximately 95% complete with $6.24
billion of actual costs incurred through the end of March 2016. Any
extension of the in-service date beyond Sept. 30, 2016 is currently
estimated to result in additional base costs of approximately $25
million to $35 million per month, AFUDC costs of approximately $14
million per month, as well as carrying costs and operating expenses on
Kemper IGCC assets placed in service and consulting and legal fees of
approximately $2 million per month. However, additional costs may be
required for remediation of any further equipment and/or design issues
identified.

Permanent Rate Recovery Approved: Despite the heightened Kemper-related
focus in the PSC elections last fall, the year-to-date decisions of the
Mississippi Public Service Commission (MPSC) regarding Kemper appear to
be constructive. In a 3-0 vote, the MPSC approved the permanent rate
recovery for the in-service and related assets (primarily the combined
cycle portion of the plant). In January 2016, the MPSC denied two
requests for rehearing regarding the permanent rate increase. However,
significant regulatory challenges could yet lie ahead when Mississippi
Power files for a rate increase for the remainder of the Kemper plant.
Per the last rate order, dated Dec. 3, 2015, Mississippi Power is
required to file a rate case within 18 months. Fitch believes the rate
case timing will be contingent upon a successful and sustained
commercial operation of the IGCC plant.

Stress on Credit Metrics: The delay in recovery of financing costs has
already put significant stress on Mississippi Powers credit metrics.
For the year ending 2015, FFO adjusted leverage increased to 7.5x. Fitch
expects this metric to decline to 5.3x in 2018 based on the assumption
that the project becomes operational within the currently projected
capital costs and schedule and Mississippi Power is able to secure a
permanent rate increase once the balance of the plant becomes
operational. Fitchs financial forecasts also reflect the proposed
securitization of approximately $1 billion in proceeds in 2017.

KEY RATING DRIVERS FOR SOUTHERN POWER

Conservative Contracting Strategy: Southern Powers ratings are
underpinned by its conservative contracting strategy. The company sells
power primarily under long-term power sales agreements with
investment-grade counterparties. As of March 31, 2016, the company had
an average investment coverage ratio of 91% for the next five years and
90% for the next 10 years. Southern Power is generally able to pass
through fuel costs to its customers under power sales contracts for its
natural gas generation assets, although it retains margin exposure to
the operating efficiency of its plants. For the renewable generation
projects, Southern Power retains volumetric risks associated with
resource variability.

Significant Expansion in Renewable Generation: Fitch views the companys
foray into solar and wind as largely neutral to its credit profile at
this time. These projects benefit from long-term power purchase
agreements (PPAs) with creditworthy offtakers. The long PPA contractual
term on renewable projects is offsetting the decline in contract
coverage on the natural gas portfolio. Fitch views the technological,
completion and operational risks of the solar and wind projects as
manageable.

Elevated Near-Term Credit Metrics: Fitch expects Southern Powers
leverage-based credit metrics to be elevated in the near term primarily
influenced by the delay in using the investment tax credits (ITC). Bonus
depreciation has reduced the tax appetite of the company and deferred
the recognition of ITCs. For year-end 2015, Southern Powers FFO
adjusted leverage jumped to 5.2x. Fitch expects this measure to moderate
to 2.7x by 2018. FFO fixed charge coverage is expected to average around
7.4x over the forecast period. These estimates include a capex estimate
of $5 billion over 2016-2018.

KEY RATING DRIVERS FOR SOUTHERN ELECTRIC GENERATING COMPANY

SEGCOs ratings are supported by joint ownership by Georgia Power and
Alabama Power. SEGCOs debt is fully and unconditionally guaranteed by
Alabama Power, which, in turn, has an indemnification from Georgia Power
to cover 50% of SEGCOs debt repayment in case of a default by SEGCO.

KEY ASSUMPTIONS

Fitchs key assumptions within our rating case are as follows:

Alabama Power

–Modest increases in Rate Stabilization amp; Equalization (RSE) rates over
2016 – 2018

–No increases under CNP C (environmental) rates over 2016 – 2018

–0.5% increase in electricity sales over 2016 – 2018

Georgia Power

–1% increase in electricity sales over 2016 – 2018

–$140 million rate increase effective Jan. 1, 2016 that reflects base
rate increase of $49 million, Environmental Compliance Cost Recovery
(ECCR) tariff increase of $75 million, Demand Side Management (DSM)
tariff increase of $3 million and other tariff increase of $13 million

–Nuclear Construction Cost Recovery (NCCR) tariff increases of 0.5% –
1% over 2016 – 2018

–Vogtle 3 amp; 4 in-service in 2019 and 2020

Gulf Power

–Sales growth of 0.5% in 2016 and 1% in 2017 and 2018

–Rate increases per the last rate order

Mississippi Power

–ROE of 9.87% for 2016 – 2018, 9.2% for Kemper rates from 2016 – 2020

–100% ownership of Kemper IGCC with 85% recovered through regulated
rates

–Securitization of $1 billion million in 2H17

–Kemper IGCC COD by September 2016 and additional Kemper rates before
the end of 2017

–Modest Performance Evaluation Plan (PEP) and Environmental Compliance
Overview (ECO) rate increase over 2016 – 2018

–1% electricity sales growth over 2016 – 2018

Southern Power

–Growth projects as announced

–Funding of growth capex at approximately 55% debt

–2016 – 2018 FFO ratios include ITCs for the solar projects during
construction

Southern Company

–AGL acquisition closes in 2H 2016

–No material retention of synergies from the AGL acquisition

–Future capital needs funded in a balanced manner

RATING SENSITIVITIES

RATING SENSITIVITIES FOR SOUTHERN COMPANY

Positive: Future developments that may, individually or collectively,
lead to a positive rating action include:

–Enhanced pace of deleveraging such that FFO adjusted leverage sustains
at or below 4x;

–Commercial operations at Kemper without any further material
escalation in capital costs followed by satisfactory operational
performance;

–No material cost and/or schedule escalation for Vogtle units and any
adjustments to the overall project costs deemed recoverable by the
Georgia PSC.

Negative: Future developments that may, individually or collectively,
lead to a negative rating action include:

–Significant time/cost overrun at the Vogtle and/or Kemper projects
that are primarily debt-financed and negative regulatory actions on the
recovery of those costs;

–Primarily debt-financed growth strategy at Southern Power;

–Failure to bring down the FFO adjusted leverage to below 4.7x by 2019.

RATING SENSITIVITIES FOR ALABAMA POWER

Positive: Future developments that may, individually or collectively,
lead to a positive rating action include:

–An upgrade is not likely in the next 12-18 months given the high
concentration of coal in the fuel mix. While Alabama Power has a tracker
to recover environmental compliance expenditures, rate increases being
borne by customers could limit the utilitys flexibility to seek other
rate increases.

Negative: Future developments that may, individually or collectively,
lead to a negative rating action include:

–A sharp and prolonged industrial slowdown in Alabama Powers service
territory that depresses margins as well as curtails its flexibility to
continue to earn attractive ROEs;

–FFO adjusted leverage weakens to 4.0x on a sustainable basis.

RATING SENSITIVITIES FOR GEORGIA POWER

Positive: Future developments that may, individually or collectively,
lead to a positive rating action include:

–An upgrade is not likely in the next 12 – 18 months given the ongoing
construction of the Vogtle nuclear units and the associated risks of
material costs and schedule overruns.

Negative: Future developments that may, individually or collectively,
lead to a negative rating action include:

–Material cost and/or schedule escalation for Vogtle units and any
adjustments to the overall project costs not deemed recoverable by the
Georgia PSC;

–Adverse regulatory outcomes in Georgia regarding the VCM filings and
pending cost review;

–FFO adjusted leverage weakens to 4.25x or higher on a sustained basis.

RATING SENSITIVITIES FOR GULF POWER

Positive: Future developments that may, individually or collectively,
lead to a positive rating action include:

–An upgrade is not likely in the next 12 – 18 months

Negative: Future developments that may, individually or collectively,
lead to a negative rating action include:

–Unexpected negative regulatory developments in Florida;

–Extended weakness in Florida economy and lower than expected sales;

–Sustained FFO adjusted leverage weaker than 4x.

RATING SENSITIVITIES FOR MISSISSIPPI POWER

Positive: Future developments that may, individually or collectively,
lead to a positive rating action include:

–Commercial operations at Kemper without any further material
escalation in currently projected capital costs followed by satisfactory
operational performance;

–Constructive regulatory treatment in next rate proceedings;

–Continuation of tangible financial support from Southern Company.

Negative: Future developments that may, individually or collectively,
lead to a negative rating action include:

–Withdrawal of explicit financial support from Southern Company.

RATING SENSITIVITIES FOR SOUTHERN POWER

Positive Rating Action: Positive action is not anticipated at this time,
since Fitch typically caps the IDR of a non-regulated power generation
company at BBB+.

Negative Rating Action: Future developments that may, individually or
collectively, lead to a downgrade include:

–Significant deterioration in power demand, which could negatively
affect re-contracting of natural gas-fired power generation output once
existing contracts mature;

–Aggressive investment strategies, such as buying or building merchant
generation assets or taking on major construction or completion risks on
unconventional technologies;

–Debt-funded acquisitions or new development activities.

RATING SENSITIVITIES FOR SEGCO

Positive: Given that an upgrade is not likely in the next 12 – 18 months
for Alabama Power, there are no expectations for positive rating actions
for SEGCO at this time.

Negative: Future deterioration in the credit quality of Alabama Power or
Georgia Power could have negative rating implications for SEGCO.

LIQUIDITY

At March 31, 2016, Southern and its subsidiaries had approximately $0.8
billion in cash and cash equivalents and approximately $6.4 billion of
unused committed credit arrangements with banks. This excludes the $8.1
billion bridge loan entered into in September 2015 as a backstop for AGL
acquisition financing. A portion of unused credit with banks is
allocated to provide liquidity support to the utility subsidiaries
variable rate pollution control bonds and CP programs. The amount of
variable rate pollution control revenue bonds outstanding requiring
liquidity support as of March 31, 2016 was approximately $1.8 billion.
Approximately $782 million of CP borrowings were outstanding as of March
31, 2016.

Southern Company Funding Corp (SCFC) issues CP on behalf of the utility
subsidiaries, ie Alabama Power, Gulf Power, Georgia Power and
Mississippi Power. The obligation of each utility subsidiary is several
and not joint. The financial services agreement entered between
Mississippi Power and SCFC removes Mississippi Power as an eligible
Southern Company Affiliate if any two of the three rating agencies
lower its short-term rating below that of SCFC.

FULL LIST OF RATING ACTIONS

Fitch downgrades the following ratings with a Stable Outlook:

Southern Company

–Long-term IDR to A- from A;

–Senior unsecured notes to A- from A;

–Junior Subordinated Notes to BBB from BBB+.

Mississippi Power Company

–Long-term IDR to BBB from BBB+;

–Short-term IDR and CP to F3 from F2;

–Senior unsecured notes to BBB+ from A-;

–Pollution control revenue bonds to BBB+/F3 from A-/F2;

–Preferred securities to BBB- from BBB.

Fitch affirms the following ratings with a Stable Outlook:

Southern Company

–Short-term IDR at F1;

–Commercial paper at F1;

Southern Company Funding Corp.

–Commercial paper at F1.

Alabama Power Company

–Long-term IDR at A;

–Short-term IDR and commercial paper at F1;

–Senior unsecured notes at A+;

–Pollution control revenue bonds at A+/F1;

–Preferred securities at A-.

Alabama Power Company Capital Trust V

–Trust preferred stock at A-.

Georgia Power Company

–Long-term IDR at A;

–Short-term IDR and commercial paper at F1;

–Senior unsecured notes at A+/F1;

–Pollution control revenue bonds at A+/F1;

–Preferred securities at A-.

Gulf Power Company

–Long-term IDR at A-;

–Short-term IDR and commercial paper at F1;

–Senior unsecured notes at A;

–Pollution control revenue bonds at A/F1;

–Preferred securities at BBB+.

Southern Power Company

–Long-term IDR at BBB+;

–Short-term IDR at F2;

–Senior unsecured debt at BBB+.

Additional information is available on www.fitchratings.com

Applicable Criteria

Corporate Rating Methodology – Including Short-Term Ratings and Parent
and Subsidiary Linkage (pub. 17 Aug 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1004424

Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1004424

Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2amp;detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCYS PUBLIC WEBSITE WWW.FITCHRATINGS.COM.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCHS CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF
THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE
RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR
RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY
CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
WEBSITE.

LendingClub in Discussion with Citigroup for Loan Financing

LendingClub Corporation (LC – Snapshot Report) is said to be in discussion with Citigroup Inc. (C – Analyst Report) to get financing for its future loans. The news about this prospective deal was first reported by the Wall Street Journal.

According to a person with knowledge of the matter, Citigroup may arrange more funding for the debts that LendingClub provides either by buying loans or providing financing for others to do so.

We are productively engaged with LendingClub on a number of fronts, a spokeswoman for Citigroup said in an e-mailed statement.

If the deal comes through, it will help LendingClub to restore investor confidence, which was shaken after the surprise resignation of the companys founder and chief executive officer, Renaud Laplanche. This subsequently led buyers of the companys loans to pull out causing further damage to investor confidence.

Troubles started for the online loan platform after the forced resignation of Laplanche following an internal review that revealed a violation of the companys business practices.

The internal investigation was into sales of $22 million in near-prime loans to a single investor. The company said it made the sale in a fashion that went against the investors instructions. Some debts were misdated and Laplanche failed to properly disclose an investment.

The resignation came after LendingClubs board discovered that employees had falsified data on some loans sold to an investment bank, Jefferies. In its quarterly filing, LendingClub revealed that several large investors are reluctant to invest and have paused their investments in loans in the wake of Laplanches resignation. This could have a material effect on the companys performance.

Last year, Citigroup and LendingClub had entered in a separate tie-up to facilitate up to $150 million in loans designed to provide more affordable credit to underserved borrowers and communities.

According to a Wall Street Journal report earlier this month, The Goldman Sachs Group, Inc. (GS – Analyst Report) had been working with LendingClub to help it determine the best way to access capital markets.

Currently, LendingClub holds a Zacks Rank #4 (Sell). A better-ranked firm in the same space isEuronet Worldwide, Inc. (EEFT – Snapshot Report) with a Zacks Rank #2 (Buy).

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Managing director quits council as company closed owing £2.5m

The third comprised its distribution division for American-built airport x-ray equipment. It was put into voluntary liquidation in March.

Mr Hymers’ resignation came after the magazine ran an article about the liquidation saying this was done with the company owing some £2.5m, including almost £400,000 to HM Revenue and Customs (HMRC).

Mr Hymers said: “Nothing has been illegal, nothing has been hidden and nothing has been like a phoenix company.”

He said he planned to sell the x-ray operation to an American company last year, which was delayed and led to the liquidation. Mr Hymers confirmed, though, that the American firm was still due to take it over.

He said he was one of the creditors and much of the debt comprised inter-company loans, along with the American manufacturers, and that any money owed to HMRC was “recoverable”.

He resigned from his council positions on Wednesday and said he had discussed the matter with both officers and members of the authority.

“I definitely regret it, I think the achievements we have made over the last year have met with universal praise for the office,” he said. “I thought the honourable thing to do was to resign.”

Mr Hymers added: “I feel my integrity and honesty have been brought into question, not specifically by the Private Eye article but that was the catalyst.”

He said most people on the council had not had experience of running a company which had the size and complexity of Totalpost. In addition, Mr Hymers said he had received several supportive messages from officers and members, and that in the company’s lifetime it had paid £5m in tax to HMRC.

Mr Hymers, who is a former winner of Businessperson of the year in the CN Group Business Awards, said he was unlikely to take legal action against Private Eye on cost grounds.