Salomon MOODYS Page 7
Legal and Structural Risks
Swapco's ability to withstand market and credit risk is complemented by its legal and
structural protections. Critically, Swapco is organized as a legally independent sub-
sidiary of SBHC. Should SBHC fail, Swapco's assets, including capital, collateral and
receivables, will be isolated from its parent's creditors. Neither trustees in bankruptcy,
debtors in possession, nor any creditor of an insolvent party will have access to
Swapco's assets. Swapco's legal organization is also structured to mitigate the likeli-
hood of claims of equitable consolidation of Swapco into the parent company's bank-
ruptcy estate in the event of the parent's future insolvency.
Moody's has reviewed the operative documents and Swapco's articles of incorpora-
tion, as well as legal opinions from Swapco's counsel, and has determined that the
risks presented therein are consistent with its Aaa counterparty rating. It is Moody's
opinion that in the event a proceeding is instituted involving Salomon Inc, SBHC, or
any of its affiliates under the Bankruptcy Code, a court would recognize that Swapco
exists separately from Salomon Inc, SBHC, or any of its affiliates, and that the relied-
upon assets will be available to Swapco for the purposes required under its docu-
ments.
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