20130826-穆迪服务-Credit_Outlook_Credit_Implications_of_Current_Event_38页_1mb

Credit Outlook Summary - 26 August 2013

Core Content

This document provides an overview of credit implications of current events, focusing on corporate and banking sectors. It includes rating changes, research highlights, and analysis of specific events affecting creditworthiness.

Main Points

Corporate Sector

• Sears Holdings Corp. (B3 stable)

  • Reported weak second-quarter earnings with EBITDA loss of $55 million, compared to $116 million in the same period last year.
  • Comparable-store sales declined by 0.8% at Sears Domestic and 2.1% at Kmart.
  • Earnings are credit negative due to continued erosion in core business fundamentals.
  • Despite challenges, Sears has made progress in reducing selling and general administration expenses, aiming for $200 million in cost savings.
  • The "Shop Your Way" program shows early signs of success with over 65% of sales coming from members.
  • Strong liquidity remains a key support for its ratings, with $1.5 billion in domestic liquidity.
  • No significant debt maturities before 2018.

• Polymer Group, Inc. (B1 stable)

  • Received a takeover offer from Fiberweb plc (unrated) valued at $260–$270 million.
  • If funded primarily with debt, the acquisition would be credit negative, increasing Polymer's adjusted leverage to near 6x.
  • The acquisition could provide scale and improve operating profits through synergies.
  • Polymer's profit margins have been under pressure due to soft pricing in the nonwoven hygiene industry.

• Thai Beverage Public Company Limited (ThaiBev, Baa3 stable)

  • Used proceeds from F&N's capital reduction to reduce debt, improving its adjusted debt to EBITDA ratio to 2.8x.
  • Expected to keep leverage below 3.0x and avoid material debt-funded acquisitions for the next 12–18 months.
  • Weak first-half earnings due to declining sales volume across all product categories.
  • Sales decline in alcohol segment linked to increased excise taxes in Thailand.
  • Soft drink sales dropped due to termination of a bottling contract with PepsiCo in Thailand.
  • EBITDA declined by 18% year-on-year, impacted by lower sales, higher marketing expenses, and increased wages.

• China Railway Construction Corp Ltd (CRCC, A3 stable)

  • Benefiting from accelerated railway development in China, as per the State Council's new guideline.
  • Estimated to have around 50% market share in railway construction, part of a duopoly.
  • Expected revenue growth from increased railway fixed-asset investment.
  • Government increased 2013 railway investment target to RMB660 billion.
  • The new policy aims to diversify funding methods and encourage private investment in railways.

Banking Sector

• US Banks

  • The Federal Reserve's appeal against court-ordered swipe fee cuts is credit positive, as it prevents a significant reduction in interchange fees.
  • Debit card interchange fees are expected to remain at ~24 cents per swipe.
  • The appeal is credit negative for Discover Financial Services (Ba1 stable), as it may open the signature debit market to more competition.
  • Ally Financial's plan to sell shares and buy back preferred securities is credit positive, as it improves capital quality and reduces cost of capital.
  • The transactions would increase Ally's Tier 1 common capital ratio to 9.3% from 8.0%, and reduce total cost of capital.
  • Ally expects to repay $12.1 billion to the US Treasury, which provided $17.2 billion in TARP funding.

• Bolivian Banks

  • New financial law signed by President Evo Morales is credit negative, as it compresses net interest margins and mandates lending to riskier sectors.
  • The law introduces lending-rate ceilings, deposit-rate floors, and mandatory lending to productive sectors.
  • Bolivian banks' profitability and net interest margins have declined since 2012 due to increased competition and higher taxes.
  • Capital ratios are expected to drop to around 10% by 2014, reducing their ability to absorb unexpected losses.

• UK Banks

  • The UK's Financial Conduct Authority (FCA) fine of £1.3 billion for mis-selling credit card and identity theft protection insurance is credit negative.
  • The fine will impact profitability in 2014 and could lead to a review for downgrade for some banks.
  • Affected banks include Bank of Scotland, Barclays, Clydesdale, HSBC, Nationwide, Santander UK, and RBS.

Key Information

• Rating Changes

  • Upgraded: CDW Corporation, CenterPoint Energy, Empresa Electrica de Guatemala, Mortgage Guaranty Insurance.
  • Downgraded: Italcementi, Nokia Oyj, Peabody Energy, Weight Watchers International, Elwood Energy, EquiPower Resources, Teplarna Strakonice, Prominvest Bank, Bridgeport Connecticut.

• Research Highlights

  • Reports on US telecommunications towers, Indian oil companies, European building materials, Asian Pacific oil and gas, Canadian wireless, systemically important US banks, Taiwanese banks, US life insurers, US P&C insurers, Canadian life insurers, European money market funds, Oman, Eastern Caribbean Currency Union, Georgia, Cambodia, North Carolina, US local governments, US states, Japanese CMBS, European CLOs, New Zealand RMBS, and US CMBS delinquency tracker.

• Other Highlights

  • Gold Fields Limited (Ba1 negative) acquired Barrick's Yilgarn South Mines for $300 million, which is credit positive due to increased scale and lower production costs.
  • Lloyds Banking Group improved its capital ratio through the sale of Heidelberger Lebensversicherung, a credit positive move.
  • Higher GDP Growth is not credit positive for German banks.
  • Spanish Banks face credit negative implications with a nonperforming loan ratio rising to 11.6%.
  • Turkey's proposed stricter regulations on credit card loans is credit positive.

Summary of Credit Implications

Conclusion

The document outlines a mix of credit positive and negative implications across the corporate and banking sectors. Key factors influencing creditworthiness include earnings performance, debt levels, regulatory changes, and market conditions. While some companies like Thai Beverage and Ally Financial are showing improvement, others such as Sears and Polymer face challenges due to declining earnings and increased leverage. In the banking sector, the impact of regulatory actions and market dynamics plays a significant role in shaping credit outlooks.