20151210-穆迪服务-Credit_Outlook_17页_2mb

Credit Outlook Summary

Core Content

This document provides an analysis of credit implications related to various corporate and financial events across different sectors. It outlines the credit impacts of business decisions, regulatory changes, and market conditions on the credit profiles of several companies and institutions.

Main Points by Sector

Corporates

• General Electric (GE):

  • Terminated the $3.3 billion sale of its appliance business to Electrolux, resulting in a credit negative impact.
  • The termination leaves GE with a tighter liquidity position than expected, especially after the recent Alstom acquisition.
  • Electrolux will pay a $175 million breakup fee, which will partially offset the credit negative effect.
  • GE is focusing on its industrial segments, particularly aviation, which will require significant capital investment and may strain free cash flow.
  • GE's cash flow is expected to be breakeven to modestly positive over the next couple of years.
  • The company is expected to leverage growth and efficiency initiatives to improve its financial profile.

• Devon Energy:

  • Announced two acquisitions totaling $2.5 billion, both credit negative.
  • The acquisitions are expected to only modestly improve cash margins and leverage metrics in 2016-17.
  • The company is funding the deals with a large equity component and will use debt initially.
  • The planned asset sales aim to reduce debt but face execution risks.
  • The company's leveraged full-cycle ratio is expected to remain below 1x unless the acquisitions and sales significantly improve its financials.

• Fluor:

  • Acquired Stork Holding B.V. for €695 million ($756 million), which is credit negative.
  • The deal increases Fluor's leverage to 1.8x-2.0x and reduces its interest coverage ratio.
  • Despite the increase in leverage, Fluor's A3 rating assumes its EBITDA margins remain above 3%-4% and leverage stays below 2.0x.
  • The acquisition expands Fluor's geographic reach and enhances its operations and maintenance business.

• Naspers:

  • Raised $2.5 billion through an equity issuance, which is credit positive.
  • The funds will support its investment strategy and avoid drawing on revolving credit facilities.
  • Pro forma adjusted leverage is expected to fall from 6.5x to around 6.0x.
  • Naspers plans to reduce leverage further to 5.0x over the next 12-18 months by improving operating performance.
  • The company's focus on emerging markets exposes it to higher business risks, including political and economic instability.

• Nan Fung:

  • Sold its 19.5% stake in Sino-Ocean for HKD7.8 billion, which is credit positive.
  • The proceeds will boost liquidity and reduce the need for debt financing.
  • Nan Fung's debt leverage is expected to remain at 25%-27% over the next 12-18 months.
  • The sale will reduce recurring income from dividends, but growing income from investment properties and financial portfolios is expected to offset this.

Infrastructure

• Electricité de France (EDF):
  • Sold no electricity under the ARENH mechanism for January-June 2016, leading to a credit negative impact.
  • The ARENH price is set at €42 per megawatt-hour, but the lack of sales means EDF must sell power on the wholesale market at lower prices.
  • EDF's EBITDA is expected to fall by about €430 million in 2016 due to the drop in ARENH sales.
  • The decline in ARENH volumes is the sharpest since 2009, reflecting a recession and increased inflation.

Banks

• PEFCO:

  • The reauthorization of Ex-Im Bank through 2019 is credit positive.
  • PEFCO relies heavily on Ex-Im Bank-guaranteed loans, which make up 98% of its balance sheet.
  • However, the reauthorization does not guarantee future stability, as further reauthorizations are uncertain.
  • PEFCO is expected to diversify its business but may not develop credit-risk products due to its lack of expertise.

• Russian Mortgage Loans:

  • Mortgage loan performance has worsened, with overdue loans increasing to 2.9% in October 2015.
  • Mortgage originations declined by 37% year-on-year, the sharpest drop since 2009.
  • This is credit negative for banks heavily exposed to mortgages, such as Sberbank, VTB24, Gazprombank, and DeltaCredit Bank.
  • The decline in originations and loan performance is attributed to a recession, declining real incomes, and increased inflation.
  • Mortgage loans are still performing better than other segments due to being directed at relatively creditworthy borrowers and limited foreign currency exposure (3.2% of mortgages as of November 2015).

US Public Finance

• Kentucky:
  • Lowered its long-term investment return assumption for pension plans from 7.5% to 6.75%, which is credit positive.
  • The change helps prevent asset depletion and reduces the risk of future financial strain on the state.
  • Kentucky's pension plans are severely underfunded, with benefit outflows reaching 36% of plan assets in 2015.
  • The state is required to make actuarially determined contributions starting in 2015, increasing the financial burden if assets are depleted.
  • The probability of complete asset depletion within the next 10 years is estimated between 3% and 6%, depending on asset allocation.

Key Information

• Credit Negative Events:

  • GE's termination of the appliance sale.
  • Devon Energy's acquisitions and the decline in mortgage loan performance in Russia.
  • Fluor's acquisition of Stork Holding.
  • EDF's drop in ARENH electricity sales.

• Credit Positive Events:

  • Naspers' equity raise.
  • Nan Fung's sale of Sino-Ocean stake.
  • Ex-Im Bank reauthorization for PEFCO.

• Financial Impact:

  • Liquidity and leverage are central to credit evaluations.
  • Synergy potential and market conditions significantly influence credit outcomes.
  • Regulatory changes and market trends play a key role in shaping credit profiles.

• Long-Term Outlook:

  • Most companies are expected to improve their credit profiles over the next 12-18 months through strategic moves and financial restructuring.
  • However, the credit implications of current events suggest continued challenges in liquidity, leverage, and profitability for several entities.