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CreditOutlook Summary

Core Content

This document provides an analysis of credit implications from recent corporate, infrastructure, bank, exchange, sovereign, and sub-sovereign events as of 2 May 2016. It outlines how these events may impact the creditworthiness of various entities, including their leverage ratios, liquidity, and overall financial health.

Main Points by Category

Corporates

• Apple Inc. (Aa1 stable):

  • Expanded shareholder return program by $50 billion, increasing total authorization to $250 billion through March 2018.
  • Credit negative due to increased capital return program and potential leverage increase.
  • Strong liquidity remains with $233 billion in cash and investments.
  • Ratings could be downgraded if debt/EBITDA exceeds 1.0x or cash/investments to debt falls below 2.0x.

• AbbVie Inc. (Baa1 review for downgrade):

  • Acquired Stemcentrx for $5.8 billion, delaying deleveraging.
  • Expected to hit debt/EBITDA target of 3.0x by 31 December 2017.
  • May not meet the target due to the high proportion of revenues from Humira, facing competition and biosimilars.
  • Maintains a target leverage of 2x, supporting its investment-grade rating.

• Anheuser-Busch InBev (A2 review for downgrade):

  • Sold SAB European assets for $700 million in EBITDA, slightly reducing leverage.
  • Pro forma debt/EBITDA expected to be around 5.10x, still in speculative grade.
  • Maintains strong presence in Europe and diversification benefits from SABMiller acquisition.

• Verisk Analytics Inc. (Baa3 negative):

  • Sold healthcare unit for $820 million, credit positive by helping reach 2.5x debt/EBITDA target.
  • Expected to improve margins by up to four percentage points.
  • The sale aligns with international expansion strategy.

• Brown-Forman Corporation (A1 stable):

  • Acquired BenRiach whisky brands for £285 million, credit negative due to increased leverage.
  • Expected to maintain leverage close to 2x within 18-24 months.
  • Expands presence in single malt Scotch whisky market, reducing reliance on Jack Daniel's.

• Avery Dennison Corporation (Baa2 stable):

  • Acquired Mactac's European business for €200 million, credit positive.
  • Minimal impact on current debt/EBITDA ratio (2.2x).
  • Expected to enhance growth and competitiveness, especially in Europe and Asia.

• Sanofi (A1 stable):

  • Made an all-cash offer to acquire Medivation for $9.3 billion, credit negative.
  • Would lower CFO/debt ratio to 30%, below the 40% threshold for its A1 rating.
  • Potential asset swap with Boehringer Ingelheim could mitigate financial impact.

• Fortescue Metals Group Ltd. (Ba3 negative):

  • Repaid $577 million in debt, credit positive.
  • Reduced total debt by 7%, improving financial leverage.
  • Lower interest costs and better liquidity expected despite the reduction in cash cushion.

Infrastructure

• Empresas Publicas de Medellin (EPM, Baa3 positive):
  • Resumed operations at two units of the Guatape power plant, credit positive.
  • Reduced power purchases in the spot market, improving financial performance.
  • Expected to save around $200 million in total costs, with insurance covering most of the damage.
  • Helps stabilize Colombian spot power prices during the end of the El Niño phenomenon.

Banks

• Mexican Government's Guarantee on Loans to Cities and States:
  • Credit positive for banks, reducing risk exposure.
• RBS Delays Williams & Glyn's Divestment:
  • Credit negative due to added costs and delayed liquidity improvements.
• FASB's New Expected Credit Loss Model:
  • Aligns with the economics of lending and investing, improving transparency and risk assessment.
• US Regulators' Proposed Funding Rule:
  • Would enhance bank liquidity, supporting credit quality.

Exchanges

• European Central Counterparty Stress Test:
  • Shows resilience to market shocks, credit positive.

Sovereigns

• Delays in Greece's Bailout Program Review:
  • Credit negative, as uncertainty affects financial stability.
• UK's Suspension of Aid to Mozambique:
  • Credit negative for the African sovereign, reducing financial support.

Sub-sovereigns

• Increase in Russian Government Budget Loans to Regions:
  • Credit positive, as it suggests improved regional funding and support.

US Public Finance

• Illinois' Stopgap Higher Education Funding Bill:
  • Credit positive, but challenges remain in long-term funding.
• Strike at San Francisco Community College:
  • Signals credit-negative resistance to budget cuts, indicating financial strain.

Key Information

• The document includes detailed analyses of credit implications for each entity, focusing on leverage, liquidity, and operational performance.
• Major events such as acquisitions, divestitures, and debt repayments are evaluated for their impact on credit quality.
• The financial health of companies is often tied to their ability to manage leverage, cash flow, and operational risks.
• Several entities have strong liquidity but face challenges in maintaining leverage ratios within acceptable thresholds.
• The document also highlights the role of external factors such as economic conditions, regulatory changes, and market trends in shaping credit outlooks.