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CreditOutlook Summary

Core Content

This document provides an overview of credit implications arising from recent events across various sectors, including Corporates, Infrastructure, Banks, Asset Managers, and Sovereigns. It outlines the potential credit impacts, both positive and negative, based on Moody's Analytics analysis.

Main Points and Key Information

Corporates

• Alitalia's Filing for Extraordinary Administration: This is a credit negative event for Aeroporti di Roma (ADR), as it could lead to reduced traffic at Rome Fiumicino airport. However, ADR's rating and outlook remain unchanged due to its liquidity and flexibility in capital expenditures.
• Impact of Alitalia's Services: ADR's financial position is supported by the potential for alternative airlines to absorb some of Alitalia's traffic. ADR's debt/EBITDA ratio is expected to improve due to the ability to adjust tariffs if traffic falls below forecasts.
• Recovery Prospects: Alitalia's assets are now part of its bankruptcy estate, making recovery uncertain. However, ADR has sufficient liquidity to manage the impact.

Infrastructure

• NGPL's Debt Reduction: NGPL received a credit positive impact from a $400 million equity infusion and debt repayment, which improved its debt/EBITDA ratio to 5.7x and FFO/debt to 10%.
• Funding Sources: The redemption of $549 million in senior notes was funded by equity contributions from Kinder Morgan and Brookfield, as well as cash on hand and short-term borrowings.
• Financial Strength: NGPL's improved financial profile supports its long-term goal of achieving investment-grade ratings and expanding operations in Mexico and the Gulf of Mexico.

Banks

• Mexico's Increased Remittances: A credit positive for Mexican banks, especially those with exposure to low- and middle-income borrowers. Remittances rose to $2.5 billion in March 2017, a 15% increase from the previous year.
• Impact on Asset Quality: The increase in remittances supports asset quality and fee income. However, rising interest rates, inflation, and economic slowdown continue to affect borrowers' repayment capacity.
• Loan Growth and NPLs: Total consumer NPLs increased to 4.3% in January 2017, with a higher write-off ratio compared to total loans. Banks have strong coverage ratios, with the latest reported in the 78%–150% range.
• Key Banks: Cetelem Bank, Rusfinance Bank, and Toyota Bank are expected to benefit from the growth in auto loans, which are a significant portion of their retail loan portfolios.

Asset Managers

• Invesco's Acquisition of Source: This credit positive transaction enhances Invesco's ETP offerings and distribution capabilities in the EMEA region. It complements Invesco's existing PowerShares family and supports growth in passive strategies.
• Source's ETP Portfolio: Source manages $18 billion in AUM and offers a diversified range of ETPs, including ETFs and ETCs. Its top 10 ETPs account for 65% of its AUM.
• Strategic Benefits: The acquisition provides Invesco with a platform to expand into the EMEA market, where it already has a significant client base. Passive AUM in the EMEA region grew by $9.9 billion over the past 10 quarters.

Sovereigns

• Greek Debt Relief Agreement: A credit positive for Greece's private-sector debt, as the agreement with European creditors increases the likelihood of further official-sector debt relief.
• Funding and Repayment Obligations: The agreement is a prerequisite for releasing €8 billion in funds, helping Greece meet July repayment obligations. The current support program ends in August 2018.
• Debt Composition: Greece owes around 66% of its debt to euro-area creditors, with the EFSF and ESM providing €130.9 billion and €31.7 billion respectively. Additional debt is owed to the IMF and private bondholders.
• Fiscal Targets and Growth Outlook: The Greek government is expected to achieve primary surpluses of 2.5% of GDP in 2017 and 2018, leading to an overall budgetary shortfall of 0.5%–1.0% of GDP. Real GDP growth is forecasted at 1.5% in 2017, lower than the European Commission's 2.7%.
• Legislative Requirements: Greece must implement further austerity measures, including pension cuts and tax reforms, which may impact public sentiment and market access.

Summary of Credit Impacts

Conclusion

The document highlights a mix of credit positive and negative developments across different sectors. While the Italian airline Alitalia's filing is a concern for Aeroporti di Roma, the financial improvements at NGPL and the increased remittances in Mexico provide significant support to their respective credit profiles. Invesco's acquisition of Source strengthens its ETP offerings and market position, while the Greek debt relief agreement offers a positive outlook for private-sector debt despite ongoing fiscal challenges. Overall, the credit implications reflect a balance between risks and opportunities in the current economic landscape.