20141218-穆迪服务-Credit_OutlookCredit_lmplications_of_Current_Events_17页_794kb

Credit Outlook Summary - 18 December 2014

Core Content Overview

This document outlines the credit implications of various recent events across different sectors, including Corporates, Banks, Insurers, and US Public Finance. It provides an analysis of how these events affect credit metrics, profitability, and overall financial health of the involved entities.

Main Points and Key Information

Corporates

• FedEx's Acquisition of GENCO:

  • FedEx plans to acquire GENCO for an undisclosed price, using debt financing.
  • This limits its ability to deleverage in 2015 and may affect credit metrics.
  • The acquisition is expected to improve service offerings and expand the customer base.
  • Despite the debt increase, FedEx's credit metrics are still expected to remain supportive of its Baa1 rating.
  • Key metrics: Debt/EBITDA (≤ 2.8x), EBIT/interest (≥ 4x), EBITDA margin (≥ 19%).

• Royal Philips' Acquisition of Volcano:

  • Philips is acquiring Volcano for $1.3 billion, which is credit negative due to increased short-term debt.
  • The acquisition is expected to be completed in Q1 2015.
  • Volcano's products will complement Philips' imaging business but its low operating margin and small size limit the impact on Philips' group margins.
  • Philips is undergoing a strategic overhaul, which includes the divestiture of non-core businesses, potentially offsetting the negative impact of the acquisition.

Banks

• Royal Bank of Scotland (RBS) Sale of Irish Real Estate Portfolio:

  • RBS is selling a £1.2 billion Irish real estate portfolio, which is credit positive.
  • The sale reduces low-quality assets and improves asset quality.
  • It is expected to increase RBS's CET1 ratio by ~10 basis points.
  • RBS is in the process of winding down its RBS Capital Resolution (RCR) portfolio, which includes a wide range of assets.

• National Australia Bank (NAB) Sale of UK Commercial Real Estate Loans:

  • NAB is selling £1.2 billion of UK commercial real estate loans, which is credit positive.
  • The sale significantly reduces exposure to high-risk loans and improves capital ratios.
  • It also supports the potential sale of NAB's UK subsidiary, Clydesdale Bank.
  • NAB's CET1 ratio is expected to improve to 8.69% post-sale.

• Russian Interest Rate Hike:

  • The Central Bank of Russia raised the interest rate to 17.0%, which is credit negative for Russian banks.
  • This increase raises funding costs and limits lending opportunities, leading to reduced loan growth.
  • It also hurts GDP growth, which negatively affects consumer and corporate creditworthiness.
  • We expect real loan growth to decline by 5–7% in 2015, worsening bank profitability.
  • The rate hike may also reduce the value of fixed income securities held by banks, affecting liquidity.

Insurers

• US Spending Bill Impact on ACA Reimbursements:

  • The new spending bill weakens the risk corridor program, which is credit negative for health insurers.
  • Insurers may face reduced payments for losses incurred from ACA-exchange policies, leading to financial strain.
  • This may result in higher premiums for 2016 policies, reducing sales and profitability.
  • Larger insurers are less affected, while smaller insurers, especially startups and cooperatives, face greater challenges.

• Reinsurance Group of America (RGA) Embedded Value Securitization:

  • RGA accelerated profits from a closed block of business, which is credit negative.
  • The transaction involves an affiliate and the issuance of $300 million in notes.
  • RGA retains most of the downside risk and may not deploy the proceeds to better credit-rated businesses.
  • The move is seen as validating the value of inforce business, with a reported embedded value of around $4 billion.

US Public Finance

• State and Local Governments Scaling Back Traffic Violation Cameras:
  • New Jersey lawmakers failed to renew a law allowing local governments to use red light cameras for revenue.
  • Nassau County, New York, repealed a law allowing speed cameras near schools.
  • These actions are credit negative as they reduce potential revenue streams for governments.
  • Many local governments are facing property tax limits, uneven sales tax growth, and anti-tax sentiment.
  • Nassau County had previously collected $21 million from speed cameras, which could have exceeded its projected $30 million in 2015 revenue.
  • Suffolk County scrapped its speed camera plan early, influenced by Nassau's experience.

Summary of Credit Impacts

Key Entities and Ratings

• FedEx Corporation: Baa1 stable
• Royal Philips N.V.: A3 stable
• Royal Bank of Scotland: Baa2 negative
• National Australia Bank: Aa2 stable
• Reinsurance Group of America: Baa1 stable
• State of New Jersey: A1 negative
• Nassau County, New York: A2 stable
• Suffolk County, New York: A3 stable

Conclusion

The document highlights the mixed credit impacts of recent corporate and financial developments. While some actions, such as asset sales and strategic divestitures, are credit positive, others like increased debt financing and regulatory changes, are credit negative. These events affect credit metrics, profitability, and the overall financial health of the entities involved, with particular emphasis on the challenges faced by Russian banks and health insurers due to macroeconomic and regulatory pressures.