20170123-穆迪服务-Credit_Implications_of_Current_Events_44页_1mb

Credit Outlook Summary

Core Content Overview

This document provides a detailed analysis of the credit implications of various corporate, infrastructure, banking, insurance, asset management, and sovereign events as of January 2017. It highlights how these events may impact credit metrics, leverage, profitability, and overall financial health of the entities involved.

Main Points and Key Information

Corporates

• Western Union's Settlement with US Regulators Is Credit Negative

  • Western Union agreed to pay $586 million to settle fraud and money laundering charges.
  • The settlement is likely to be funded through debt, increasing pro forma debt/EBITDA to 2.6x.
  • Despite the negative impact, the settlement reduces regulatory uncertainty and the company has strong liquidity, including $1.28 billion in cash and a $1.65 billion revolving credit facility.
  • High compliance costs (around 4% of annual revenues) will continue to hamper profitability.

• ExxonMobil's Permian Acquisition Provides Growth without Straining Credit Metrics

  • ExxonMobil acquired oil-producing properties in the Permian Basin for $5.6 billion in equity.
  • The deal adds 3.4 billion boe of resources, with 75% being liquids, and does not increase financial leverage.
  • The acquisition is strategic, enhancing production capacity and flexibility in capital investment.
  • The deal is in line with market trends and recent transactions in the Permian.

• Hyatt's Acquisition of Miraval Group Is Credit Positive

  • Hyatt acquired Miraval Group for $215 million, with an additional $160 million planned for expansion.
  • The acquisition diversifies Hyatt's portfolio and provides entry into the health and wellness segment.
  • EBITDA from Miraval is expected to offset any reduction from asset sales, though credit metrics may not improve significantly in 2017 and 2018.
  • Hyatt's debt/EBITDA was 2.8x as of 30 September 2016.

• La Quinta's Potential Spinoff of Owned Real Estate Could Raise Leverage

  • La Quinta plans to spin off its owned real estate, which could increase leverage and weaken credit metrics.
  • The spinoff may result in a taxable transaction, negatively affecting 2018 cash flow.
  • The company's debt/EBITDA could rise above 6.25x, potentially leading to a downgrade.
  • La Quinta's B1 rating is vulnerable to downgrade due to its high ownership of hotels (47% of capacity).

• Western Digital's Further Investment in Toshiba's Chip Business Would Be Credit Negative

  • Western Digital may increase its stake in Toshiba's semiconductor business, delaying deleveraging.
  • The investment would require significant R&D and capital expenditure funding, potentially stressing credit metrics.
  • Western Digital's debt/EBITDA was 5.1x as of 30 September 2016, and is expected to fall to below 4x by mid-2017, but this could be reversed if the investment proceeds.

• Despite Positive Kasper Topco Acquisition, Nine West Still Faces Potential Default

  • Nine West acquired Kasper Topco Limited, reducing its debt/EBITDA to 18x, still considered unsustainable.
  • The company faces high leverage, ongoing business challenges, and debt maturities starting in 2019.
  • Ratings were downgraded to Caa3 with a stable outlook from Caa2 with a negative outlook.
  • The acquisition is expected to modestly improve EBITDA but not significantly impact credit metrics.

• Brazilian Steelmakers' 2016 Production Decline Is Credit Negative

  • Brazil's steel production dropped 9% in 2016, continuing a long-term decline.
  • Steelmakers like Gerdau, CSN, and Usiminas face weak demand and low EBITDA margins.
  • Despite some improvements in leverage and EBITDA, the sector remains under pressure due to weak domestic and global demand.
  • Usiminas' EBITDA hit a historical low in 2016, forcing liquidity arrangements and debt restructuring.

• SMU Plans to Float at Least $190 Million in Shares to Retire Debt, a Credit Positive

  • SMU plans to issue 1.15 billion shares, raising $190–250 million to retire debt.
  • The IPO will significantly reduce leverage, increasing cash to short-term debt ratio to over 50%.
  • SMU's adjusted debt/EBITDA is expected to drop to 5.5x by Q1 2017 from 6.4x in September 2016.
  • The company has successfully completed its Triennial Plan to cut costs and deleverage since 2014.

• Tie-Up with Luxottica Will Enhance Essilor's Credit

  • Essilor is merging with Luxottica, creating a European eyewear giant with combined revenues over €15 billion.
  • The merger is expected to yield cost and revenue synergies of €420–600 million.
  • Essilor's leverage is expected to decrease, and the combined entity will generate free cash flow exceeding €1 billion.
  • The merger may face antitrust challenges due to vertical integration and market dominance.

Infrastructure

• Merger of NSTAR Electric and Western Massachusetts Electric Is Credit Positive

  • The merger is expected to improve operational efficiency and reduce costs.
  • It aligns with industry trends and could lead to better credit metrics for the combined entity.

• NextEra Energy's Sale of FiberNet Is Credit Positive

  • The sale of FiberNet allows NextEra to focus on core energy operations and improve its financial profile.
  • The transaction is expected to reduce leverage and improve cash flow.

• Gener Subsidiary Alto Maipo's Initial Agreements with Key Stakeholders Are Credit Positive for Gener

  • Gener's subsidiary has made progress in securing agreements, which could lead to improved credit metrics.
  • The progress is seen as a positive step toward financial stability.

Banks

• Banco de Galicia y Buenos Aires Agrees to Sell Compañía Financiera Argentina, a Credit Positive for Galicia

  • The sale is expected to improve Galicia's financial position and reduce leverage.

• Russia's Proposal to Insure Individual Investment Accounts Is Credit Positive for Securities Firms

  • The proposal is seen as a positive development for securities firms, enhancing investor confidence.

• Czech National Bank's Enhanced Authority over Housing Loans Is Credit Positive

  • The enhanced authority is expected to improve lending practices and reduce credit risk for banks.

• Poland's Proposed Framework on Foreign-Currency Mortgages Is Credit Positive

  • The framework is aimed at stabilizing the mortgage market and reducing exposure to currency fluctuations.

• Korean Banks' Slowing Loan Growth Is Credit Positive

  • Slower loan growth is seen as a positive for credit risk management, indicating more prudent lending practices.

• Korea's Bank-Owning Financial Holding Companies Will Benefit from Regulatory Reforms

  • Regulatory reforms are expected to improve the financial health and credit profile of these companies.

Insurers

• AIG Transfers Reserve Risk to Berkshire Hathaway, a Credit Positive

  • Transferring reserve risk to Berkshire Hathaway is expected to improve AIG's financial position and reduce credit risk.

• US-EU Agreement Is Credit Positive for Reinsurers

  • The agreement is seen as beneficial for reinsurers, potentially increasing business opportunities.

• Canadian Insurers' Prospects in China Improve with Easing Investment Restrictions

  • Easing investment restrictions in China is expected to enhance the prospects of Canadian insurers.

• CMHC's Premium Increase Is Credit Positive

  • The increase in premiums is viewed as a positive for credit metrics, indicating stronger financial stability.

Asset Managers

• TIAA Asset Management's Merger with Sister Company Is Credit Positive
  • The merger is expected to improve operational efficiency and reduce costs, leading to better credit metrics.

Sovereigns

• Railway Opening Gives Landlocked Ethiopia Access to Red Sea, a Credit Positive
  • The railway project improves Ethiopia's economic prospects by enhancing trade and transportation links, thus supporting credit stability.

Recently in Credit Outlook

• Articles in Last Monday's Credit Outlook

  • The document references previous credit outlook articles, indicating ongoing analysis and updates.

• Go to Last Monday's Credit Outlook

  • Readers are directed to previous editions for more detailed information.

Conclusion

The summary highlights a mix of credit positive and negative implications across different sectors. While some companies like SMU, Hyatt, and Essilor are taking steps to improve their credit profiles through strategic acquisitions, debt reduction, and restructuring, others such as Western Union, Nine West, and Brazilian steelmakers face credit risks due to regulatory penalties, high leverage, and weak market conditions. The analysis is conducted by Moody's credit officers and analysts, focusing on financial metrics, leverage, operational efficiency, and market trends.