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Credit Outlook Summary

Core Content

This document provides a summary of credit implications of current events across various sectors, including Corporates, Infrastructure, and Banks. It highlights both credit positive and credit negative developments, offering insights into how these events affect the financial health and credit ratings of the involved entities.

Main Points and Key Information

Corporates

• Booz Allen Hamilton's Special Dividend Is Credit Negative

  • The company declared a special dividend of $1 per share, totaling $144.5 million, along with a regular dividend of $58 million.
  • The dividend is credit negative due to the timing, as the company faces shrinking revenue and backlog from declining US defense spending.
  • Despite strong liquidity, the dividend could pressure the company's ratings if continued.

• Chilean Retailer SMU Extends Bank Debt Maturities, a Credit Positive

  • SMU reached a rescheduling agreement with creditors for $422 million of bank debt.
  • The agreement reduces short-term debt obligations and improves liquidity, benefiting bondholders.
  • The company is still highly leveraged with a total adjusted debt/EBITDA ratio of ~42x, and faces challenges such as weak margins and negative free cash flow.

• Rexam Plan to Return Proceeds from Healthcare Division Sale to Shareholders Is Credit Negative

  • Rexam sold its pharmaceutical devices and prescription retail packaging divisions for $805 million and plans to return the proceeds to shareholders.
  • This reduces the company's ability to finance future growth and increases its reliance on other sources.
  • Despite its strong position in the beverage can industry, the reduced diversification is a concern.

Infrastructure

• United Airlines Cutback of Hub Operations at Cleveland Airport Is Credit Negative

  • United is reducing its hub operations at Cleveland Hopkins International Airport, which will increase the cost per enplanement for remaining airlines.
  • This may lead to lower concession revenues and a weaker airport market.
  • The cuts reflect a broader trend in the industry and increase the airport's vulnerability to further reductions.

• SABESP's Plan to Reduce Water Consumption Will Hurt Cash Flow and Profitability

  • SABESP announced a 30% discount on water sourced from the Cantareira basin for consumers reducing consumption by 20%.
  • The discount is estimated to reduce EBITDA by ~10% in 2014.
  • The low water level in the Cantareira basin is due to a combination of low rainfall and high demand.

• Enagas' $491 Million Acquisition of TgP Stake Is Credit Negative

  • Enagas acquired a 22.38% stake in TgP for $491 million, increasing its debt and exposure to riskier assets.
  • The acquisition is part of Enagas' strategy to invest in international gas infrastructure, but it raises business risk.
  • The company's net debt/EBITDA ratio is expected to rise to ~4.0x in 2014.

Banks

• Court Approval of Bank of America Mortgage Settlement Is Credit Positive

  • The court approved part of the $8.5 billion settlement related to mortgage repurchase claims.
  • This reduces the risk of additional losses for BAC, though the settlement is not yet final.
  • The settlement covers a significant portion of BAC's remaining repurchase exposure, which is a positive for bondholders.

• Improper Trading Charges Against Chilean Brokerages Are Credit Negative

  • Chilean brokerages are accused of market manipulation and insider trading, which could lead to fines and reputational damage.
  • The charges may impact the companies' financial performance and raise concerns about systemic governance practices.
  • The SVS investigation comes at a time of increased regulatory scrutiny in the securities industry.

• European Banking Authority Stress Test Details Are Credit Positive for Banks

  • The EBA announced a new stress test covering 124 European banks, more comprehensive than the 2011 test.
  • The stress test includes a wider range of risks and scenarios, with a three-year time horizon.
  • The updated capital definition and higher hurdle rates are credit positive for banks that issued Basel III instruments.

Summary of Credit Implications

Key Entities and Their Ratings

• Booz Allen Hamilton Holding Corporation: Ba3 stable
• SMU S.A.: Caa1 negative
• Rexam PLC: Baa3 stable
• United Airlines, Inc.: B2 positive
• SABESP: Baa3 stable
• Enagas S.A.: Baa3 stable
• Bank of America Corporation: Baa2 stable
• Chilean Brokerages (Larrain Vial, Banchile, Citigroup): Unrated or Baa2/Aa3 stable
• European Banking Authority: Regulatory body conducting stress tests

Conclusion

The document outlines a mix of credit positive and negative developments across different sectors. While some companies and institutions benefit from improved liquidity or regulatory clarity, others face challenges such as declining revenue, increased leverage, and reputational risks. The credit implications are influenced by macroeconomic trends, regulatory actions, and strategic decisions made by the entities involved.