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Credit Outlook Summary - 2 March 2017

Core Content

This document provides an overview of the credit implications of various current events across different sectors, including Corporates, Banks, Exchanges, Insurers, Asset Managers, and Sovereigns. It highlights both credit positive and negative factors affecting the creditworthiness of entities involved.

Main Points by Sector

Corporates

• Hi-Crush Partners LP (Caa1 negative)

  • Announced two credit-positive acquisitions: Permian Basin Sand Company and Whitehall facility.
  • Also announced a public offering to raise $360–410 million, enhancing liquidity and balance sheet strength.
  • Acquisitions increase frac-sand reserves to 371 million tons and processing capacity to 13.4 million tons annually.
  • Expected to close by the end of Q1 2017.
  • Despite the credit-positive impact, the Caa1 rating and negative outlook remain unchanged for now.
  • Adjusted debt/EBITDA was over 20x in 2016, and adjusted EBIT/interest was negative.

• Bharti Airtel Ltd. (Baa3 stable)

  • Acquired Telenor India, enhancing its spectrum holdings, revenue, and market share.
  • Expected to increase market share to ~26% and revenue by ~5%.
  • The acquisition is credit positive as it strengthens Bharti's position in the competitive Indian mobile market.
  • Adjusted consolidated debt/EBITDA was 3.3x as of December 2016.
  • Bharti's profitability is expected to remain under pressure due to competition, but cash from monetization will help reduce debt.

Banks

• Chile's New Supervisory Body (CMF)

  • Credit positive for banks and the financial system due to improved regulatory structure and autonomy.
  • CMF will eventually take over bank supervision, enabling more timely and forceful intervention in failing banks.
  • The new body is a key step towards Basel III adoption and international banking regulation.

• Proposed UK Bank Capital Changes

  • Credit negative due to increased competition and reduced profitability for banks.
  • PRA's proposal aims to reduce capital requirements for small banks, which may lead to lower capital resilience.
  • Banks with a focus on low-LTV mortgages are likely to benefit from reduced Pillar 2A capital requirements.
  • MREL requirements may decrease, reducing loss-absorption capacity for creditors.

• Cabot's Potential IPO

  • Credit positive for bondholders as it offers capital raising and deleveraging opportunities.
  • Expected to improve corporate governance and transparency.
  • Current debt/EBITDA is ~4.5x, and private-equity ownership is a risk factor due to high leverage and short investment horizons.

• UniCredit's €13 Billion Capital Increase

  • Credit positive as it restores capital levels and allows continued coupon payments.
  • The capital increase offsets large one-off charges and improves CET1 ratio to above 11%.
  • Targets include a €4.7 billion net profit for 2019, despite weak operating conditions in Italy.

• Strengthening Swedish Financial Regulator's Mandate

  • Credit positive for banks, as it enables SFSA to implement macro-prudential measures without parliamentary review.
  • Aims to address household indebtedness and financial imbalances in the credit market.
  • The draft proposal allows the SFSA to use tools like debt-to-income caps and loan-to-value limits.

Exchanges

• London Stock Exchange-Deutsche Börse Merger
  • Lower likelihood of merger is credit negative for the exchanges.

Insurers

• Ogden Discount Rate Cut
  • Credit negative for UK motor insurers and reinsurers due to claims inflation.

Asset Managers

• China's Potential Fund Manager Reforms
  • Credit negative for asset managers due to regulatory changes.

Sovereigns

• Germany
  • Debt reduction accelerates with a third consecutive fiscal surplus.
• Korea
  • Strong external payments position provides a cushion against shocks.
• Pakistan
  • Import controls signal mounting external pressures.
• Sri Lanka
  • Drought-related costs add to the challenge of achieving fiscal targets.

Key Information

• The document outlines both positive and negative credit implications for various entities based on recent events and regulatory changes.
• Hi-Crush and Bharti are highlighted as credit positive due to strategic acquisitions and market positioning.
• Chile's new supervisory body and UniCredit's capital increase are seen as credit positive for improving regulatory framework and financial stability.
• UK bank capital changes and Swedish regulator reforms are credit positive for enhancing regulatory capabilities but may have negative impacts on competition and capital resilience.
• Cabot's potential IPO is viewed as credit positive for reducing leverage and improving governance.
• Pakistan and Sri Lanka face credit negative implications due to external pressures and fiscal challenges.

Summary of Credit Implications

• Credit Positive: Hi-Crush, Bharti, Chile's CMF, UniCredit's capital increase, and strengthening of SFSA's mandate.
• Credit Negative: UK bank capital changes, Ogden discount rate cut, China's fund manager reforms, and the likelihood of a failed London Stock Exchange-Deutsche Börse merger.

Recent Articles

• The document includes references to recently published articles in the Credit Outlook, though no specific content is provided.

Conclusion

The summary reflects Moody's Analytics' assessment of credit implications, emphasizing the importance of strategic moves, regulatory changes, and market conditions in shaping the creditworthiness of financial institutions and corporations.