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Credit Outlook Summary

Core Content

This document provides a summary of credit implications from various current events, including corporate acquisitions, sovereign and sub-sovereign developments, and regulatory changes. It highlights both credit positive and negative impacts on different entities, with a focus on financial metrics, market dynamics, and operational risks.

Main Views and Key Information

Corporates

• St. Jude's Thoratec Deal: Credit negative due to increased leverage (debt/EBITDA rising to 4.1x) and minimal EBITDA growth. The acquisition will not diversify St. Jude's product line significantly, and the product's safety issues could pose risks.

• Home Depot's Acquisition of Interline Brands: Credit positive as it enhances Home Depot's distribution capabilities and broadens its professional customer relationships. The deal does not significantly affect its debt/EBITDA ratio.

• Technicolor's Acquisition of Cisco's Connected Devices: Credit positive as it strengthens Technicolor's position in the Connected Home division and improves EBITDA margins. However, it increases debt and execution risks.

• Youngor's Equity Investment in CITIC Limited: Credit positive as it lowers CITIC's leverage and improves liquidity. The investment helps meet regulatory requirements and reduces the need for new financing.

• Marubeni's Additional Investment in Gavilon: Credit negative due to increased execution and operational risks, as well as potential earnings volatility. This could lead to three consecutive years of negative cash flow and higher net debt.

Infrastructure

• Delay of PJM Transition Capacity Auctions: Credit negative for merchant generators as the delay may result in lower auction prices due to reduced participation from demand response and energy efficiency resources. Despite this, we estimate the decline may not be as severe as initially thought due to the limited availability and reliability of DR resources.

Banks

• Greece's Bank Resolution Legislation: Credit negative for unsecured creditors, including bondholders and uninsured depositors. The law introduces burden-sharing for unsecured creditors starting in 2016, reducing recovery rates for wholesale depositors.

• LME Clear's Trade-Compression Service: Credit positive for Hong Kong Exchanges & Clearing as it reduces capital requirements, operational risks, and increases fee income.

• French Banks and Livret A Rate Cut: Credit positive as the rate cut is expected to improve financial performance and credit metrics.

• Belarus' Economic Deterioration: Credit negative for its banks due to worsening economic conditions.

• Korean Policy Banks and Shipbuilders: Credit negative for all banks due to rising exposure to shipbuilders.

• Korea's New Mortgage Underwriting Measures: Credit positive for Korean banks as it strengthens mortgage underwriting and reduces risk.

Insurers

• IASB's Temporary Accounting Fix: Credit positive for insurers as it provides clarity and benefits credit analysis.

• Genworth's Sale to AXA: Credit positive for both buyer and seller, as it allows Genworth to focus on core businesses and AXA to expand its offerings.

• Brazil's New Reinsurance Regulation: Credit positive for multinational reinsurers and credit negative for domestic reinsurers due to increased regulatory scrutiny and compliance costs.

Sovereigns

• Ukraine's Interest Payment: Does not eliminate the risk of a payment moratorium, indicating ongoing credit concerns.

• Croatia's Debt Metrics: Continue to deteriorate despite the end of a six-year recession, signaling persistent financial challenges.

• Fuel Subsidy Reform in UAE and Abu Dhabi: Credit positive as it improves fiscal sustainability and reduces government spending.

Sub-Sovereigns

• Toluca, Mexico: Credit positive due to electricity savings initiatives that improve local financial conditions.

Structured Credit

• SEC's Decision on CLOs: Credit positive as the SEC will not enforce risk-retention on most pre-2015 CLOs, reducing regulatory burden and improving market confidence.

Rating Changes

• Moody's downgraded eBay, Bank Technique, Credins Bank, Asurion, and Cunningham Lindsey.
• Moody's upgraded Aramark Services, Michaels FinCo Holdings, Mapfre Global Risks, Mapfre Assistance, and nine Santander Drive Auto Receivables Trust 2014 ABS.

Research Highlights

• Reports published on various sectors include:
  • Thai carmakers
  • EMEA investment grade corporates
  • Crossover companies
  • North American oil and gas
  • US multiemployer pension plans
  • China's regional integration
  • US capital goods manufacturers
  • US supermarkets
  • Global private debt issuance
  • Chinese property developers
  • US electric utilities
  • French banks
  • Hong Kong banks
  • Chinese securities firms
  • Spanish banks
  • US private mortgage insurers
  • Large US banks
  • China, Kazakhstan, Iceland, Vietnam
  • English housing associations
  • Chinese subsovereigns
  • Oaxaca, Mexico
  • Pennsylvania schools
  • Hungarian, Belgian, Dutch, French, and German covered bonds
  • US CMBS and RMBS
  • US tobacco bonds
  • US ABS and CLOs

Summary

The document outlines the credit implications of recent corporate acquisitions, regulatory changes, and economic developments across various sectors. It emphasizes the importance of financial metrics such as leverage and EBITDA in assessing credit risk and highlights both positive and negative impacts based on market conditions, operational performance, and regulatory actions.