20160804-穆迪服务-NEWS___ANALYSIS_Credit_implications_of_current_events_22页_1mb

Credit Outlook Summary

Core Content

This document provides an analysis of credit implications related to recent corporate, infrastructure, bank, and insurer activities. It highlights both credit positive and credit negative events, offering insights into financial leverage, liquidity, and risk exposure for various entities.

Main Points

Corporates

• Allegiant's Aircraft Order (Credit Negative):

  • Allegiant Travel Company ordered 12 new Airbus A320ceo aircraft, expected to enter service in 2017 or 2018.
  • The order increases capital investment per aircraft significantly, from $15 million for older models to $30–33 million per new aircraft.
  • This could lead to negative free cash flow and lower return on capital for these aircraft.
  • The move may signal a shift in Allegiant's operating model, potentially increasing competition on routes.
  • Debt/EBITDA ratio is expected to rise to 2.2x from 1.4x, increasing financial leverage.
  • Potential for cash-out financing if the purchase is made at a discount.

• Vale's Gold Stream Transaction with Silver Wheaton (Credit Positive):

  • Vale sold a 25% interest in gold extracted from the Salobo mine to Silver Wheaton, receiving an upfront payment of $800 million.
  • The transaction provides immediate liquidity, which is a key credit driver.
  • Pro forma adjusted gross leverage declines slightly to 4.9x from 5.0x.
  • The deal is part of a series, with Silver Wheaton now entitled to 75% of Salobo's gold production.
  • Despite a reduced upfront payment, the deal includes features that could provide additional credit positives, such as potential future payments if processing capacity is expanded.
  • Vale continues to seek asset sales and liquidity transactions totaling $4–5 billion in 2016 and potentially $10 billion in 2017.

• SOHO China's Sale of Century Plaza (Credit Positive):

  • SOHO China sold Century Plaza for RMB3.2 billion, providing immediate liquidity.
  • The sale marginally reduces rental income but is expected to be offset by lower interest expenses and reduced debt.
  • EBITDA/interest ratio is expected to remain at 1.0x, and cash/total assets to improve to 9.0–9.5%.
  • The property is located in Shanghai's Pudong District and was fully occupied in 2015.

• Fosun's Investments in Gland Pharma and Banco Comercial Portugues (Credit Negative):

  • Fosun International's planned investment in BCP and Gland Pharma increases its leverage.
  • The total consideration for the two acquisitions is estimated to be 5.6% of Fosun's investment portfolio.
  • The Gland Pharma acquisition would raise Fosun International's adjusted debt/EBITDA to 5.2x and Fosun Pharm's to 5.8x.
  • The investment in BCP could improve its capital position but exposes Fosun to credit and market risks.

Infrastructure

• Veolia's Sale of Transdev Stake (Credit Positive):
  • Veolia sold a 20% stake in Transdev for €220 million, with the remaining 30% subject to a put and call option.
  • The sale improves Veolia's FFO/net debt ratio by 40 basis points to 22.7%.
  • The transaction is expected to be completed by year-end 2016, with further sales of the remaining stake to follow.
  • The disposal of the stake is part of a broader strategy to improve liquidity and capital structure.

Banks

• Qatar International Islamic Bank's Sukuk Issuance (Credit Positive):

  • QIIB issued QAR1 billion (≈$275 million) in AT1 sukuk, improving its capital adequacy ratio to 20% from 16.6%.
  • The issuance supports capital buffers and liquidity amid economic slowdown and low oil prices.
  • Expected to maintain credit growth at around 10% in 2016, driven by infrastructure spending in Qatar.
  • Liquidity is expected to improve as the bank's liquid assets to total assets ratio is projected to rise.

• Chinese Wealth-Management Product Regulations (Credit Positive):

  • The CBRC's proposed regulations on wealth-management products are credit positive for Chinese banks.
  • The rules aim to reduce risks from indiscriminant sales and contingent liabilities.
  • They split the market into low-risk and high-risk segments, improving liquidity management.
  • While reducing bank profits and shifting product mix toward low-margin offerings, the benefits of reducing contingent liabilities outweigh the negatives.
  • Midsize and small banks are most affected due to their active participation in the wealth-management product market.

Insurers

• CNO's Reinsured Long-Term Care Block (Credit Negative):

  • CNO faces heightened counterparty risk due to ties between its reinsurer Beechwood and Platinum Partners LP.
  • Over half of the assets in the reinsurance trust are classified as Level 3, with some possibly linked to Platinum.
  • If CNO recaptures the long-term care liabilities, it may need to write down assets and increase reserves, negatively affecting its risk-based capital ratio.
  • CNO aims to reduce its long-term care block by 50% over the next 3–6 years, but recapturing liabilities could reverse progress.

• Hartford's UK P&C Liabilities Sale (Credit Positive):

  • Hartford sold its UK P&C run-off subsidiaries to Catalina Holdings, reducing exposure to volatile legacy liabilities.
  • The transaction is expected to close in Q4 2016 and improve liquidity and capital structure.
  • The move aligns with Hartford's strategy to reduce long-term exposure to asbestos and environmental claims.

Key Information

• Credit Positive Events:

  • Vale's gold stream transaction with Silver Wheaton
  • SOHO China's sale of Century Plaza
  • Veolia's sale of Transdev stake
  • Qatar International Islamic Bank's sukuk issuance
  • Hartford's sale of UK liabilities

• Credit Negative Events:

  • Allegiant's aircraft order
  • Fosun's investments in Gland Pharma and Banco Comercial Portugues
  • CNO's exposure to Beechwood and Platinum Partners

• Uncertainties:

  • Asset sales and their timing for Vale
  • Potential impact of lawsuits on Samarco Mineração S.A. on Vale's liquidity
  • The effect of regulatory changes on wealth-management product liquidity and profitability
  • The risk of recapturing liabilities for CNO and its impact on capital adequacy

Summary

The Credit Outlook document evaluates recent financial activities across various sectors, highlighting their credit implications. While some entities benefit from liquidity improvements and capital restructuring, others face increased leverage and risk exposure. The analysis underscores the importance of asset management, regulatory changes, and strategic decisions in shaping credit profiles.