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Credit Outlook Summary

Core Content

This document provides a detailed analysis of the credit implications of various current events across different sectors, including Corporates, Infrastructure, Banks, and Insurers. It outlines the credit impacts of business decisions, legal actions, and market developments on the financial health and credit ratings of the involved entities.

Main Points by Sector

Corporates

• Toys R Us Bankruptcy:

  • Credit negative for Hasbro (Baa1 stable) and Mattel (Baa2 stable) due to their significant reliance on TRU as a top retail partner.
  • TRU's restructuring may disrupt cash flows and create uncertainty.
  • Both companies are expected to continue operations through the holiday season, with Mattel being a key supplier for TRU.

• Anadarko's Share-Repurchase Program:

  • Credit negative due to the use of substantial cash reserves for share buybacks.
  • Despite high debt levels, the company still maintains good liquidity with over $3 billion in cash.
  • The aggressive financial policy raises concerns about long-term resilience.

• Catalent Pharma Solutions' Acquisition of Cook Pharmica:

  • Credit positive as it enhances Catalent's capabilities in the biologics market.
  • The acquisition is expected to increase biologics revenue to 21% and improve EBITDA growth by 200-300 basis points.
  • Pro forma adjusted debt/EBITDA is expected to rise to 5.6x, but leverage is projected to return to 5x by 2018.

• Maersk's Sale of Maersk Tankers:

  • Credit positive due to debt reduction and strategic separation from energy operations.
  • The sale price reflects a 9.6x enterprise value/EBITDA, in line with industry peers.
  • The transaction provides flexibility for Maersk in the event of market recovery.

• House of Fraser's Cash Infusion:

  • Credit positive as the £25 million injection eases liquidity pressures.
  • The company's profitability remains weak, and 2018 performance is crucial for refinancing.
  • EBITDA for the first half of 2018 was negative, with challenges in e-commerce and brand rationalization.

• DP World's Acquisitions:

  • Credit positive due to the expansion of recurring revenue streams and strategic growth.
  • The acquisition of Dry docks and Maritime World is expected to increase net debt/EBITDA to 2.9x, still within its leverage policy.
  • The acquisition will boost group EBITDA by 4-5%, and the integration is expected to create long-term value.

• Toshiba's Sale of Memory Business:

  • Credit positive as it strengthens Toshiba's liquidity and capital structure.
  • The sale is expected to reverse the company's negative net worth and provide significant cash inflows.
  • The transaction's success is critical for maintaining Toshiba's stock listing and financial stability.

Infrastructure

• Gwynt Y Mor's Cable Failure Recovery:
  • Credit positive as the company will recover some of the £14.2 million in cable repair costs.
  • The recovery will help replenish liquidity reserves and improve cash resources.
  • The company has drawn on its emergency and debt service reserve accounts, but has access to a credit enhancement facility.

Banks

• Mexico's Proposed Fintech Law:

  • Credit positive for banks as it establishes clear regulatory norms for fintech activities.
  • The law supports banks' ability to invest in fintech and innovate in payment platforms and customer data.
  • Banks like BBVA and Banco Ve por Más are expected to benefit from the regulatory environment.

• Brazil's Capital Requirements Increase:

  • Credit positive for banks as it strengthens capital adequacy and financial stability.
  • The increase is part of a broader regulatory effort to ensure resilience in the banking sector.

• Dexia's Share Conversion:

  • Credit positive as the conversion of preference shares to ordinary shares improves capital structure.
  • This move is expected to enhance the company's financial flexibility and reduce leverage.

Insurers

• Hurricane Maria Impact:
  • Credit negative for Puerto Rico's financial guarantors due to potential losses.
  • However, the impact is expected to be modest due to limited insurance use.
  • Mexican insurers and banks have mitigants in place to handle earthquake losses.

Sub-sovereigns

• Mexico's Disaster Fund Activation:
  • Credit positive as the fund will relieve financial stress in Mexico City and affected states.
  • This supports the government's ability to manage economic shocks and maintain fiscal stability.

US Public Finance

• Universities and Community Colleges:
  • Credit positive due to the expansion of nondegree credential programs.
  • This reflects a strategic shift toward more flexible education offerings and improved financial performance.

Key Information

• Credit Positive Events:

  • Maersk's sale of tankers
  • DP World's acquisitions
  • Toshiba's sale of memory business
  • Mexico's Fintech Law
  • Brazil's capital requirements increase
  • Dexia's share conversion
  • House of Fraser's cash infusion
  • Mexico's disaster fund activation
  • US public institutions' credential program expansion

• Credit Negative Events:

  • Toys R Us bankruptcy
  • Anadarko's share repurchase
  • TRU's potential impact on consumer demand
  • Mexico City and states' financial stress
  • Puerto Rico's financial guarantors

• Ongoing Risks:

  • For toy companies: seasonality, fashion risk, technological shifts, and retailer concentration
  • For Catalent: volatility due to generic drug sales and pricing pressure
  • For HoF: weak credit metrics and reliance on seasonal performance
  • For DPW: exposure to Dubai and slight increase in leverage
  • For Toshiba: potential legal and governance issues

• Outlook:

  • Catalent and Maersk are expected to benefit from strategic moves
  • HoF and Toshiba require sustained performance to improve credit ratings
  • The toy industry and banking sector face unique challenges that may affect credit metrics

Conclusion

The document highlights the mixed credit implications of recent business and regulatory developments across various sectors. While some companies and entities benefit from strategic moves and regulatory support, others face credit risks due to financial restructuring, market volatility, and operational challenges. The overall credit outlook is cautiously optimistic, with a focus on liquidity, leverage management, and long-term strategic positioning.