20170720-穆迪服务-Credit_Outlook_20页_846kb

Credit Outlook Summary

Core Content

This document provides an analysis of credit implications arising from recent events in various sectors, including Corporates, Infrastructure, Banks, Sovereigns, and Sub-sovereigns. It outlines how these events affect financial metrics, leverage, and overall creditworthiness of the entities involved.

Main Points

Corporates

• Multi-Color's Acquisition of Constantia's Label Division

  • Credit Impact: Credit negative
  • Reason: The acquisition will increase leverage, leading to a pro forma leverage ratio of over 5x, which is above Moody's quantitative guidance of 4x for Ba3 rating.
  • Details: The acquisition is expected to close in October, with revenue increasing by more than 75% and EBITDA of about $300 million. However, the projected $100 million in free cash flow is insufficient to reduce leverage to 4x or below within 12-18 months.
  • Outlook: Moody's is reviewing the company's Ba3 rating for possible downgrade due to integration risks and lack of sustained debt reduction.

• Church & Dwight's Acquisition of Water Pik

  • Credit Impact: Credit negative for Church & Dwight, credit positive for Water Pik
  • Reason: The acquisition increases leverage for Church & Dwight, raising its debt/EBITDA to 2.5x.
  • Details: The transaction is expected to close by the end of September, with projected EBITDA growth and integration synergies. However, the debt/EBITDA is expected to fall below 2.0x within 18-24 months.
  • Outlook: Church & Dwight's rating remains stable at Baa1, while Water Pik's rating is on review for upgrade.

Infrastructure

• California's Cap and Trade Extension
  • Credit Impact: Credit negative for Panoche Energy Center and Crockett Cogeneration
  • Reason: The extension of the cap and trade program to 2030 introduces new carbon liabilities.
  • Details: Panoche and Crockett are single-asset project financings without pass-through of carbon costs in their PPAs. Carbon costs are expected to reduce debt service coverage ratios.
  • Outlook: The new law creates a cumulative carbon liability, increasing financial pressure on these projects.

Banks

• Itaúsa's Acquisition of Alpargatas Stake
  • Credit Impact: Credit positive
  • Reason: The acquisition diversifies earnings without significantly increasing leverage.
  • Details: Itaúsa will issue a BRL3.5 billion seven-year bond to fund the acquisition. Itaúsa's debt/EBITDA is expected to remain below 1.5x, supported by its strong cash position and equity.
  • Outlook: The deal aligns with Itaúsa's strategy to benefit from Brazil's economic recovery and diversify its investment portfolio.

Sovereigns

• IMF Completes First Review of Egypt's Economic Reform Program

  • Credit Impact: Credit positive
  • Reason: Indicates progress in implementing reforms that reduce fiscal and external vulnerabilities.
  • Details: The review allows for another $1.25 billion in funding, with total disbursement reaching $3.95 billion. The Egyptian pound has depreciated by 50%, reducing parallel foreign-exchange markets and improving external liquidity.
  • Outlook: The deficit is expected to narrow to about 9.5% of GDP by the end of the fiscal year, and the debt/GDP ratio to 86.5% from 95%.

• China's Financial Stability and Deleveraging Objectives

  • Credit Impact: Credit positive
  • Reason: High-level endorsement of deleveraging and financial stability measures increases institutional strength and risk management.
  • Details: The conference emphasized reducing systemic financial risk, particularly in SOEs. A Financial Stability and Development Committee will be established to improve policy coordination.
  • Outlook: Although SOE debt is high, the pace of debt growth is expected to slow. Total social financing (TSF) is projected to reach 250% of GDP by the end of the decade.

Sub-sovereigns

• Japan's Regional and Local Government Tax Revenue Decreases
  • Credit Impact: Credit negative
  • Reason: Decline in tax revenue constrains RLGs' ability to improve performance, reduce debt, and avoid increasing debt.
  • Details: Tax revenue fell by 0.3% in fiscal 2016, ending a six-year growth trend. RLGs' debt often exceeds 100% of GDP, raising concerns about financial sustainability.
  • Outlook: The decline in tax revenue is a concern for credit quality, limiting the capacity for fiscal adjustments.

Key Information

• Multi-Color faces credit negative implications due to increased leverage and integration risks.
• Church & Dwight will see a temporary increase in leverage but is expected to reduce it over time.
• Metalloinvest benefits from launching a new HBI plant, improving earnings and reducing leverage.
• SOCAR will see a credit positive impact from the regulated gasoline price hike, which increases EBITDA and supports refinery modernization.
• Panoche Energy Center and Crockett Cogeneration face credit negative impacts due to new carbon liabilities.
• Itaúsa diversifies earnings through the acquisition of Alpargatas, with minimal impact on leverage.
• Egypt receives a credit positive from the successful IMF review, indicating progress in fiscal reforms.
• China sees credit positive outcomes from the endorsement of financial stability and deleveraging measures.
• Japan's RLGs experience credit negative effects due to declining tax revenue and high debt levels.

Conclusion

The document highlights the mixed credit implications of recent developments across different sectors. While some acquisitions and policy changes present credit positives, others introduce financial risks and leverage concerns. The overall analysis underscores the importance of financial metrics, such as leverage ratios and EBITDA, in assessing creditworthiness and the impact of regulatory and market changes on entities' financial health.