20160815-穆迪服务-Credit_Outlook__Credit_Implications_Of_Current_Events_28页_1mb

CreditOutlook Summary

Core Content

This document provides an analysis of credit implications related to current events across various sectors including Corporates, Infrastructure, Banks, Insurers, and Sovereigns. The focus is on how recent developments impact the creditworthiness of specific entities, with both positive and negative outlooks discussed.

Main Points by Sector

Corporates

• Perrigo Company plc (Baa3 negative):

  • Lower 2016 guidance signals delayed deleveraging and increased event risk.
  • The company's operating profit guidance midpoint dropped by 15% from May and 22% from February.
  • The acquisition of Omega Pharma NV in 2015 significantly increased debt, and integration efforts alongside a hostile takeover bid from Mylan have affected performance.
  • Despite these challenges, Perrigo aims to reduce leverage to around 3.5x by the end of 2017 through debt repayment and operational improvements.
  • Event risk is elevated due to shareholder pressure and potential strategic actions like divesting royalties or other businesses.

• Macy's, Inc. (Baa2 negative):

  • The closure of 100 full-line stores in early 2017 is a credit-positive move to improve resource allocation and competitive position.
  • The closures are expected to reduce sales by about $1 billion but provide cost savings and the opportunity to reduce debt.
  • Macy's is supported by good liquidity and clear balance sheet targets (adjusted leverage ratio of 2.5x-2.8x).

• SM Energy Company (B2 stable):

  • The acquisition of Rock Oil Holdings LLC is credit positive, broadening its portfolio in the Permian Basin.
  • The deal increases drilling inventory and oil production, despite a temporary increase in leverage.
  • SM Energy plans to add one more rig in Q4 2016 and has raised its Permian capital budget by $15–20 million.

• Hoover's Group Inc. (B3 stable):

  • A merger with Ferguson Group and CHEP Catalyst & Chemical Containers (CCC) is credit positive, doubling its size and reducing leverage.
  • The merged entity, Hoover Ferguson Group (HFG), is expected to have adjusted debt/EBITDA of about 5x.
  • Synergy realization and long-term earnings stability are critical for any potential rating upgrade.

• LSR Group PISC (B1 stable):

  • The revival in mortgage volume in Russia is credit positive for the property developer, especially LSR Group.
  • Mortgage-based sales accounted for 34% of LSR's contract sales, with a significant portion coming from Moscow and St. Petersburg.
  • The Russian government's extension of the mortgage subsidy program and reduced interest rates have contributed to this growth.

Infrastructure

• CELESC D (Ba3 negative):

  • Will recognize a BRL256 million extraordinary loss in 2016 due to ANEEL's ruling against a tariff increase.
  • The loss is 80% of the company's funds from operations (FFO) for the 12 months ended 31 March 2016.
  • The loss will be reimbursed to consumers over the next 12 months through a tariff reduction.
  • The company's 30-year concession to distribute electricity expires in 2045.

• Dalrymple Bay Coal Terminal (DBCT, unrated):

  • Likely to experience more volatile cash flow due to Peabody Energy's restructuring and potential reduction in take-or-pay agreements.
  • Peabody plans to halve its Australian metallurgical coal production over five years.
  • DBCT's regulated tariffs are set to decline due to lower risk-free interest rates.
  • Security from certain counterparties provides some liquidity support in case of termination.

Banks

• Germany's Bail-in Guidance:

  • BaFin clarified the treatment of structured notes and money-market instruments under new bank insolvency laws.
  • Structured notes with uncertain cash flows are treated as senior debt, while those with certain cash flows are not.
  • The distinction between short-term and long-term instruments affects their ranking in debt bail-in scenarios.
  • This guidance removes uncertainty in the German senior unsecured bank debt market.

• SpareBank 1 SR (unrated):

  • Increased problem loans and impairments indicate credit-negative risks related to oil-related exposures.
  • This highlights the vulnerability of the bank's balance sheet to sector-specific downturns.

• European Bank Regulators:

  • Recommended EU reciprocity of Estonia's risk buffer, which is credit positive for the region.
  • This move is seen as a step toward more consistent regulatory practices across the EU.

• Bank Hapoalim (unrated):

  • Acquired credit insurance against guarantees, a credit-positive action that enhances its risk management.

Insurers

• Aegon (unrated):
  • Weak US results offset the credit-positive impact of acquiring Cofunds.
  • The acquisition is expected to provide some diversification and growth potential, but US underperformance remains a concern.

Sovereigns

• Russia-Ukraine Tensions:

  • Flaring tensions threaten Russia's incipient recovery, a credit-negative development for the country.

• South Africa:

  • Sanctioning five banks to curb money laundering is a credit-positive move for the sovereign, as it enhances financial system integrity.

• Tanzania:

  • Will benefit from a railway link connecting it with land-locked Eastern African countries, improving trade and economic prospects.

Key Information

• Credit Ratings and Outlooks:

  • Ratings are referenced, and the document emphasizes that for the most updated credit rating information, users should check Moody's website.
  • Perrigo's outlook was changed to negative from stable.
  • WPD's target gearing is now credit positive, with a lower net debt to RAB ratio.

• Event Risk:

  • Several companies face increased event risk due to underperformance, shareholder pressure, and potential strategic actions.
  • Examples include Perrigo, Aegon, and CELESC D.

• Deleveraging and Financial Strategy:

  • Companies like Perrigo and SM Energy are actively working on deleveraging strategies.
  • WPD's lower dividend expectations and target gearing support its credit profile.

• Market Trends:

  • The revival in Russian mortgage lending is a key factor in the credit-positive outlook for developers like LSR Group.
  • The shift from off-price and online retailers is putting pressure on department stores like Macy's to optimize their store footprint.

• Regulatory Impact:

  • Regulatory changes, such as Germany's new bank insolvency laws, are influencing credit risk assessments.
  • The UK's regulatory environment is also affecting WPD's financial strategy.

• Economic and Political Factors:

  • Sovereign credit assessments are influenced by political tensions (e.g., Russia-Ukraine) and economic stability (e.g., South Africa's anti-money laundering measures).
  • Inflation and interest rate changes in Russia are affecting mortgage and real estate dynamics.

Conclusion

The document outlines a range of credit implications across different sectors, highlighting both credit-positive and credit-negative developments. Key factors include operational performance, financial strategies, regulatory changes, and market trends. Companies like Macy's and SM Energy are taking proactive steps to improve their financial profiles, while others like Perrigo and CELESC D face challenges related to deleveraging and event risk. Sovereigns are also affected by political and economic conditions, which influence their credit outlook.