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Credit Outlook Summary - 13 October 2014

Core Content

This document provides a summary of credit implications from various current events affecting corporations, banks, insurers, sovereigns, and sub-sovereigns. It includes rating changes, research highlights, and analysis of specific corporate actions and market conditions.

Main Viewpoints and Key Information

Corporates

• Symantec's Spin-off

  • Symantec plans to spin off its information management unit, which will reduce its diversification and lead to a credit negative impact.
  • The remaining company will focus on security businesses, which are facing revenue declines and competitive pressures.
  • The transaction could lead to a downgrade, as the remaining company may have weaker cash flow and debt-servicing capabilities.
  • Two possible debt-allocation scenarios are presented, with the second scenario showing improved financial metrics.
  • Symantec's strong balance sheet and liquidity support the transaction's execution.

• Carlisle's Acquisition of Graco's Liquid Finishing Business

  • The acquisition is credit positive, increasing EBITDA and cash flow.
  • It will lower pro forma leverage from 1.7x to 1.5x.
  • The deal is expected to be completed in late 2014 or early 2015, with no need for external funding.
  • The new segment will contribute 8% of annual revenue but only 5% of EBITDA.
  • The company's strong returns on capital and historical performance support the credit positive outlook.

• Verbund's Sale of French Gas Turbine Plants

  • The sale is credit positive, eliminating ongoing losses and reducing net debt.
  • The plants were underperforming due to unfavorable market conditions and have been impaired.
  • The transaction is expected to improve FFO/net debt and RCF/net debt by 50-70 and 30-50 basis points, respectively.
  • This is a significant step in Verbund's refocusing on core markets in Austria and Germany.

• Evergrande's Solar Energy Investments

  • The investments are credit negative, as they will consume cash and raise refinancing risk.
  • Evergrande's liquidity is already weak, with cash to short-term debt ratio declining.
  • The company's non-property businesses are still in early stages and unlikely to generate meaningful cash flows soon.
  • Debt leverage is expected to rise, leading to weaker interest coverage and credit quality.

• Macau's Declining Gaming Revenues

  • A sharp decline in gaming revenues is credit negative for Macau's casinos.
  • VIP gaming revenue is the main driver of the decline, with a 6% drop in the second quarter.
  • The VIP segment's share of gross gaming revenues fell from 67% to 60% year-over-year.
  • Increased competition and a slowing Chinese economy are contributing factors.
  • Studio City Finance is particularly vulnerable due to its reliance on debt financing and the added capacity from new gaming tables.

Banks

• Brazil's Covered Bonds Regulation
  • Credit positive for banks, as it provides a more stable funding source.
• Bolivia's Collateral Funds Proposal
  • Credit positive for banks, as it reduces credit risk.
• UK Ring-Fencing Reforms
  • Credit negative for bank bondholders, as it increases risk and complexity.
• Swedish Banks and Covered Bonds
  • Credit positive due to potential benefits from mortgage loan amortisation recommendations.
• Armenian Remittance Slowdown
  • Credit negative for banks, as it reduces liquidity.
• Malaysian Bank Merger
  • Credit positive for RHB Bank but poses risks for CIMB Islamic Bank.

Insurers

• Canada's Pooled Registered Pension Plans
  • Credit positive, as five insurers have been named to provide these plans.

Sovereigns

• Belgium's New Government
  • Credit positive for policy credibility and predictability.
• South Korea's Talks With North Korea
  • Credit positive for defusing tensions.

Sub-sovereigns

• English Housing Association's Liquidity Issues
  • Credit negative for the sector.

US Public Finance

• State Supervision of Newark, New Jersey
  • Credit positive for the financially troubled city.

Rating Changes

• Downgraded Entities: Avon Products, Campbell Soup, Crown Holdings, Talisman Energy, AeroStar Airport Holdings, Metropistas, OTP Bank (Russia), and two notes from GE Business Loan Trust securitizations.
• Upgraded Entities: Associated Electric Cooperative, Intercontinental Exchange, Nomura Holdings, Springleaf Holdings, and certain US CMBS and US subprime RMBS.

Research Highlights

• Reports were published on a wide range of sectors including: US homebuilders, US chemical, Latin American telecom, North American and EMEA chemical, US telecom, US wireless, US coal, US packaging, global gas and oil, US medical products, US apparel, North American solid waste, European retailers, global shipping, Asian corporate liquidity, North American manufacturing, Asian corporate covenants, European truck manufacturers, US public power electric companies, Dominion Resources, and various banks and insurers in different regions.

Recently in Credit Outlook

• Articles from the previous Thursday's Credit Outlook were referenced.
• The document also included links to previous editions for further reading.

Summary

The document outlines the credit implications of various corporate and market developments, highlighting both positive and negative impacts. It emphasizes the importance of liquidity, debt structure, and operational performance in assessing credit risk. Rating changes and research reports further support the analysis of financial health and market trends across different sectors and regions.