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Credit Outlook Summary

Core Content

This document provides an analysis of credit implications of current events across various sectors, including Corporates, Infrastructure, Banks, Insurers, and Sovereigns. It outlines key developments and their potential impact on credit ratings and financial health of the entities involved.

Main Points and Key Information

Corporates

• ACCO Brands: The merger of Staples and Office Depot was blocked, which is credit positive for ACCO Brands. This merger would have reduced ACCO's revenue and increased pricing pressure. ACCO's revenue has declined by ~15% over the past two years, mainly due to consolidation among office supply retailers.
• LSB Industries: The sale of its climate-control business to NIBE Industrier AB for $364 million is credit positive, as it will improve liquidity and leverage. The sale is expected to complete in Q3 2016, and if successful, could lead to a stable outlook for LSB.
• Nissan Motor Co.: Purchased a 34% stake in Mitsubishi Motors for ¥237 billion ($2.2 billion), which is credit positive. This alliance is expected to help Mitsubishi improve operations and restore investor confidence, while also expanding Nissan's presence in Southeast Asia.
• APN News and Media Limited: Announced an equity raise of AUD180 million to pay down debt and proposed demerging its New Zealand operations (NZME). This is credit positive as it reduces exposure to the declining print media sector. The demerger is expected to be approved, and the company aims for a dividend payout ratio of 40%–60% of net profit after tax.
• Whiting Petroleum: Converted $476.3 million in convertible notes to common stock, improving its EBITDA/interest ratio and retained cash flow/debt ratio. However, the company still faces high financial leverage due to weak oil prices and its reliance on oil production.

Infrastructure

• Southern California Edison (SCE): The reopening of its nuclear settlement agreement is credit negative. SCE may not recover a significant portion of the shutdown costs, which could reduce operating cash flow and increase financial pressure.
• Eletrobras: Faced a credit-negative BRL3.8 billion reimbursement requirement to the RGR fund, which includes BRL1.8 billion in accrued interest. The company is expected to negotiate a 10-year payment plan, which will lower cash flow by BRL314 million annually.
• KEPCO: Benefited from the Korean government's decision to keep retail electricity tariffs steady. This, combined with a decline in input costs, is expected to improve KEPCO's operating cash flow and credit metrics.

Banks

• Chile's Proposed Bank Law: Credit positive, as it is expected to enhance regulatory oversight and financial stability.
• German Bank Regulator: Imposed higher Pillar 2 capital requirements, which is credit positive for banks as it improves capital adequacy.
• Russian Central Bank: Valuation of bank collateral is credit positive, indicating a more favorable lending environment.
• SMFG's Reorganization: Credit positive, as it is expected to strengthen the bank's financial position and improve credit metrics.

Insurers

• US Health Insurers: A ruling against ACA subsidies is credit negative, as it may lead to financial strain and reduced profitability for health insurers.

Sovereigns

• Brazil's Interim President: Faces similar challenges as previous administrations, impacting the country's credit profile.
• Latvia: The OECD invitation is credit positive, supporting policy stability and investor confidence.
• Ghana: Broadly met 2015 IMF program targets, which is credit positive.
• Mauritius: Tax treaty amendments with India are credit negative, likely leading to reduced foreign investment and financial strain.

Recent Developments

• Articles in Last Thursday's Credit Outlook: Highlight recent events and their credit implications.
• Weekly Market Outlook: Available as a sister publication, offering financial predictions and economic releases.

Summary of Credit Impacts