20160229-穆迪服务-Credit_Outlook__Credit_Implications_of_Current_Events_58页_2mb

Credit Outlook Summary

Core Content

This document provides an overview of the credit implications of various current events across different sectors and regions, including corporate, infrastructure, banks, insurers, sovereigns, and securitization. It highlights both credit positive and negative outcomes of these events, with a focus on financial reporting changes, corporate acquisitions, regulatory decisions, and market trends.

Main Points

Corporate Sector

• US Lease Accounting Changes: The new FASB lease accounting standard (ASU 2016-02 Leases) will require US non-financial companies to recognize operating leases on their balance sheets, adding approximately $1 trillion to reported debt.
  • Most Affected Sectors: Airlines, retail, restaurants, telecom, and energy industries.
  • Impact on Credit Analysis: While the change increases reported debt, it does not affect credit ratings as Moody's already accounts for lease obligations.
  • Differences with Moody's Approach: Moody's uses sector multiples to estimate lease debt, which results in higher debt recognition than the FASB standard.
• Brakes' Credit Quality Improvement: The acquisition by Sysco is credit positive for Brakes, as it will repay most of its debt, reducing capital structure complexity and leverage.
  • Sysco's Financial Strength: Strong liquidity, 6x interest coverage, and a leading market position in North America.
  • Brakes' Financial Impact: Debt/EBITDA is expected to decrease from 7.7x to around 5.0x over the next 12–18 months.
• China Oriental's Credit Negative: The removal of restrictive covenants and modification of default events is credit negative as it reduces debt protection and allows more flexibility in raising debt and distributing cash to shareholders.
  • Reason for Restructuring: Significant net loss in 2015 due to steel industry downturn, price declines, and supply glut.
  • Financial Impact: Debt/EBITDA is expected to rise to about 5.0x due to weakened profitability and reduced debt covenants.

Infrastructure Sector

• New Leasing Standard for US Utilities: The FASB standard will increase transparency in the analysis of US utilities' power purchase agreements (PPAs), which are often treated as leases.
  • Impact on Debt: Utilities will capitalize up to $100 billion in lease obligations on their balance sheets when the standard becomes effective in 2019.
  • Transparency Issues: Many utilities do not disclose PPA lease details, but Edison International and Xcel Energy Inc. are exceptions.
  • Estimated Debt Increase: For these two companies, debt is expected to increase by 20–21% due to PPA lease obligations.
• Louisiana Regulator Blocks Cleco Sale: The rejection of the sale to Macquarie-Led Investor Group is credit positive for Cleco Corporation and its subsidiary Cleco Power LLC.
  • Reason for Rejection: Concerns over increased debt and reduced credit quality.
  • Financial Metrics: Cleco Corp. and Cleco Power had a cash flow pre-working capital to debt ratio of 29% and interest coverage of 5.7x for the 12 months ended September 30, 2015.
• NextEra Energy's Yieldco Equity Raise: The acquisition of wind energy centers by NextEra Energy Partners is credit positive for NextEra Energy.
  • Financing: The deal is funded with significant equity, which strengthens the balance sheet.
  • Portfolio Expansion: The acquisition increases NEP's generation portfolio to 2,509 megawatts, boosting adjusted EBITDA and cash available for distributions.
  • Yieldco Market Challenges: Despite the positive outcome, the yieldco market has weakened due to falling oil prices and rising interest rates.
• ENGIE's Asset Disposal: The sale of $10 gigawatts of US merchant power generation and $3 gigawatts of coal-fired generation in Indonesia and India is credit positive.
  • Debt Reduction: The disposals are expected to reduce ENGIE's reported net debt by €5.5 billion (20%).
  • Strategic Shift: The move is part of a broader €15 billion portfolio rotation program to reduce commodity price exposure and focus on low-carbon activities.

Banks Sector

• BB&T's Acquisition of Swett & Crawford: This transaction is credit positive for both BB&T and Swett & Crawford.
  • BB&T's Perspective: The acquisition is a reallocation of planned share repurchases, minimizing capital depletion and enhancing insurance brokerage capabilities.
  • Swett & Crawford's Perspective: The deal allows Swett & Crawford to fully repay and terminate its debt.
  • Synergies: The acquisition is expected to generate revenue and cost synergies, reducing the effective purchase multiple.
• Other Credit Positive Actions:
  • Banco Do Brasil lowered its dividend payout ratio.
  • EBA's Stress Test Methodology improved transparency at European banks.
  • ECB's Institutional Protection Schemes are positive for creditors.
  • London Stock Exchange and Deutsche Boerse Merger is credit positive.
  • Landesbank Baden-Wuerttemberg reduced leverage significantly in 2015.
  • Russian Central Bank's credit lines to systemically important banks are credit positive.
  • Ukraine designating three banks as systemically important is credit positive.
• Credit Negative Action:
  • Nigerian Banks are expected to face profit declines due to asset-quality deterioration.

Insurers Sector

• US Health Insurers may benefit from new Affordable Care Act enrollment requirements.
• MetLife's Sale to MassMutual is credit negative for MetLife and credit positive for MassMutual.
• Qatar Insurance Company approved a $162 million capital increase, a credit positive.

Sovereigns Sector

• Germany's Fiscal Surplus supports a declining debt/GDP ratio, a credit positive.
• Spain's Political Alliance is unlikely to reverse its sovereign debt trend, a credit negative.
• Korea's External Payments Position strengthened, a credit positive.
• Sri Lanka's Credit Negative Pressures drive requests for multilateral financing.

Sub-sovereigns Sector

• Scotland receives greater borrowing and revenue-raising powers from the UK, a credit positive.

Securitization Sector

• US RMBS Trusts may face increased expenses due to a California court allowing foreclosure challenges.

Key Information

• US Lease Accounting Changes: Expected to increase reported debt for non-financial companies by $1 trillion.
• Brakes Acquisition: Expected to reduce leverage and improve credit quality.
• China Oriental Restructuring: Credit negative due to reduced debt protection and increased financial flexibility.
• US Utilities PPA Leases: Increased transparency and debt recognition under the new FASB standard.
• Cleco Sale Rejection: Credit positive as it prevents increased leverage and credit risk.
• NextEra Energy's Yieldco Strategy: Credit positive due to equity raise and portfolio expansion.
• ENGIE's Asset Disposal: Credit positive, reducing debt and shifting focus to low-carbon activities.
• BB&T's Acquisition: Credit positive for both parties, enhancing insurance brokerage capabilities.
• Banco Do Brasil's Dividend Cut: Credit positive as it improves liquidity.
• Nigerian Banks: Likely to face profit declines due to asset-quality issues.
• Sovereign and Sub-sovereign Credit Implications: Germany and Korea show credit positives, while Spain and Sri Lanka show credit negatives. Scotland also receives a credit positive from UK powers.
• Securitization Changes: US RMBS trusts may face higher expenses due to legal changes in foreclosure challenges.

Rating Changes

• Downgraded Entities: Odebrecht Engenharia e Construcao, Teck Resources, ThyssenKrupp, Odebrecht Offshore Drilling Finance, TerraForm Global Operating, Brazil, Maranhao, Minas Gerais, Parana, Sao Paulo, Belo Horizonte, and Rio de Janeiro.
• Upgraded Entity: Whirlpool.

Research Highlights

• Reports published on US newspapers, global oil and gas, US homebuilding, US corporate accounting, European beverage companies, Asian corporate defaults, global infrastructure, public-private partnerships, US life insurers, global banks' oil exposure, Canadian and Hong Kong banks, Mexican regional and local governments, US municipal bankruptcies, CMBS, and Belgian SME securitizations.

Summary

The Credit Outlook document outlines significant credit implications from various financial and regulatory developments. Key themes include increased transparency in lease accounting, corporate acquisitions that improve or reduce credit quality, regulatory decisions that affect leverage and debt structure, and sovereign and sub-sovereign credit dynamics. While some changes are credit positive, such as the removal of restrictive covenants for certain companies and regulatory actions that prevent deleveraging, others are credit negative, like the restructuring of China Oriental and the expected profit declines in Nigerian banks. The document also highlights rating changes and research reports on multiple sectors, emphasizing the impact of accounting standards, market conditions, and strategic decisions on credit profiles.