20170501-穆迪服务-CreditOutlook_25页_997kb

Credit Outlook Summary

Core Content

This document provides an analysis of credit implications of various current events across different sectors, including Corporates, Infrastructure, Banks, Insurers, Sub-sovereigns, and US Public Finance. It highlights how these events affect the creditworthiness of companies and entities, with a focus on financial leverage, profitability, regulatory changes, and market conditions.

Main Points by Sector

Corporates

• PPG Industries' Acquisition of AkzoNobel

  • PPG made a third, higher bid for AkzoNobel, increasing its debt/EBITDA ratio to over 4x on a pro forma basis.
  • The deal is credit negative due to the high cost and potential increase in financing costs, even though it may not cost PPG its investment-grade status.
  • PPG's outlook was revised to negative in March, and the company has signaled a willingness to sacrifice its A rating for the acquisition.

• Becton's Acquisition of Bard

  • The $25.7 billion deal will double Becton's gross debt and increase its pro forma leverage to about 5.2x.
  • This is credit negative as it delays Becton's deleveraging plans and introduces uncertainty from Bard's litigation.
  • The deal marks a shift in Becton's financial policy, increasing its tolerance for debt and expanding into new, high-tech product lines.

Insurers

• Ameriprise's Acquisition of Investment Professionals

  • This acquisition is credit positive, as it enhances Ameriprise's capabilities and supports long-term growth.

• Accelerating Car Thefts in Mexico

  • The increase in car thefts threatens auto insurers' profitability due to higher claims and potential losses.

Sub-sovereigns

• Moscow's Increased Capital Spending
  • The rise in capital spending is credit negative, as it may lead to higher debt levels and financial strain.

US Public Finance

• States Raising Gas Taxes

  • This is credit positive, as it helps address infrastructure needs and supports long-term economic development.

• South Carolina's Pension Reforms

  • The measures to improve pension funding are credit positive, indicating a commitment to financial stability and long-term obligations.

Infrastructure

• EDB's Participation in Brazil's Electricity Transmission Expansion
  • EDB's recent wins in power transmission licenses are credit positive, providing long-term, stable cash flows through regulated contracts with 30-year terms.
  • The four concessions are expected to generate BRL473 million in incremental annual revenues and have an internal rate of return of 12%-14%.
  • EDB plans to finance the projects with a mix of equity and long-term debt, and its leverage is expected to peak at around 2.5x during construction before stabilizing.

Banks

• Tax Reform Impact on Fannie Mae and Freddie Mac

  • A reduction in corporate tax rates would be credit negative for Fannie Mae and Freddie Mac due to impairment of deferred tax assets and reduced capital availability.
  • The companies would need to draw capital from the US Treasury, which would reduce their capital base and increase credit risk.

• Financial CHOICE Act Passage

  • The passage of the Financial CHOICE Act would be credit negative for US banks due to reduced regulatory oversight and increased risk-taking.
  • The repeal of Title II of Dodd-Frank and the removal of the Volcker Rule could lead to higher asset risk and lower capital resilience.
  • The act may increase the likelihood of government bailouts for systemically important banks if not replaced by a credible resolution framework.

• Alawwal Bank and Saudi British Bank Merger

  • The merger is credit positive for Alawwal, as it would strengthen and diversify the bank's business.
  • It would create the third-largest bank in Saudi Arabia with a pro forma market share of 13.1%.
  • The merger is credit neutral for SABB due to the absorption of Alawwal's problem loans.

Key Information

• PPG Industries is facing credit negative implications due to its aggressive acquisition strategy and increased financial leverage.
• Becton's acquisition of Bard is expected to increase its leverage and delay deleveraging, with potential risks from litigation and new product lines.
• Odebrecht Engenharia e Construcao benefits from the sale of Odebrecht Ambiental, improving its liquidity and reducing the need for intercompany loans.
• EDB's infrastructure projects in Brazil are credit positive, offering stable cash flows and growth opportunities.
• Fannie Mae and Freddie Mac are negatively impacted by potential tax reform, leading to capital impairment and reduced creditworthiness.
• The Financial CHOICE Act poses credit risks for US banks due to reduced regulation and increased risk-taking.
• Alawwal Bank would benefit from a merger with SABB, despite the credit neutrality for SABB due to problem loans.

Conclusion

The document outlines a range of credit implications, emphasizing the negative effects of increased debt, regulatory changes, and legal disputes, while also highlighting credit-positive developments such as infrastructure investments, asset sales, and strategic acquisitions. The analysis underscores the importance of financial leverage, regulatory environment, and market conditions in assessing credit risk.