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Credit Outlook Summary

Core Content

The Credit Outlook document from Moody's Analytics, dated 16 October 2017, analyzes the credit implications of various current events across different sectors, including Corporates, Infrastructure, Banks, Insurers, and Sovereigns. It highlights both credit positive and negative developments, offering insights into financial performance, strategic moves, and regulatory changes that affect credit risk and financial stability.

Main Points by Sector

Corporates

• Hewlett-Packard (HP):

  • HP's PC sales data indicates strong performance with a 22.8% market share, up from 21.7% in 2016.
  • The company is expected to see a 9% increase in PC revenue for fiscal 2017 compared to a 5% decline in 2016.
  • Operating profit margins are projected to remain at 3-4% due to market pricing, component shortages, and supply chain challenges.
  • HP's strong execution and product offerings are expected to sustain its market position.

• Micron Technology:

  • The $1 billion stock offering is credit positive as it will be used to repay debt and reduce leverage.
  • Adjusted debt/EBITDA is expected to fall to 0.9x, and reported debt to decrease to $8 billion from $11.1 billion.
  • Micron's debt levels are expected to improve over the next 12-18 months due to EBITDA growth and debt reduction.

• Voyage Bidco Limited:

  • Applying the National Minimum Wage to sleep-in workers is credit negative due to increased personnel costs.
  • The company is expected to face a 0.7x increase in gross leverage, temporarily exceeding the downgrade trigger of 6.5x.
  • However, leverage is expected to decline as the company recovers some costs from local authorities, although this may be constrained by government budgetary pressures.

• Agung Podomoro Land (APL):

  • Approval to proceed with the reclamation of island G in North Jakarta is credit positive.
  • This avoids significant losses from asset write-offs and allows APL to grow its land bank in Jakarta.
  • The project is expected to be completed in 2020, with reclamation work to restart in early 2019.
  • Leverage is expected to weaken to 3.3x-3.5x over the next 12-24 months.

• Ascott REIT:

  • The equity-funded acquisition of Ascott Orchard Singapore is credit positive.
  • The deal improves the REIT's financial profile and credit metrics, making it the largest rated hospitality REIT in Singapore.
  • Adjusted debt/deposited assets will fall to 37% from 40%, and adjusted net debt/EBITDA will decrease to 6.8x from 7.2x.
  • The acquisition is strategically located in Singapore's Orchard shopping belt and near medical facilities.

• SMCP's IPO:

  • The IPO of SMCP Group is credit positive for Shandong Ruyi Technology Group.
  • Proceeds will be used to reduce SMCP's debt, which in turn will lower Ruyi's financial leverage.
  • Ruyi's adjusted debt/EBITDA is expected to improve to 7.0x-7.5x over the next two years.
  • Ruyi's revenue is projected to grow by 18% in 2017 and 5% in 2018, supported by SMCP's international expansion.

Infrastructure

• Public Service Company of New Hampshire (PSNH):
  • The sale of power generation assets is credit positive as it will transform PSNH into a lower-risk transmission and distribution (T&D) utility.
  • The $258 million sale includes 1,200 MW of fossil-fueled plants and 69 MW of hydroelectric plants.
  • The sale is part of a restructuring and rate stabilization agreement, allowing PSNH to recover stranded costs through securitization bonds.

Banks

• Slovenian Banks:
  • Lending recovery and declining nonperforming loans are expected to improve profitability.
  • The credit outlook is positive due to these factors.

Insurers

• Trump Administration's Healthcare Regulations:
  • Changes to healthcare regulations are credit negative for insurers due to potential cost increases and regulatory uncertainty.
• California Wildfires:
  • Threaten significant losses for property and casualty (P&C) insurers, leading to credit negative implications.

Sovereigns

• The Netherlands:
  • The new ruling coalition agreement is credit positive, indicating political stability and potential for improved economic conditions.

Key Information

• Credit Positive Events:

  • HP's strong PC sales and market share growth.
  • Micron's debt reduction through stock offering.
  • APL's reclamation approval and financial improvement.
  • Ascott REIT's strategic acquisition and improved credit metrics.
  • SMCP's IPO and its impact on Ruyi's leverage and revenue growth.
  • PSNH's asset sale and transition to a lower-risk utility model.

• Credit Negative Events:

  • Philips' defibrillator production suspension due to FDA compliance issues.
  • Voyage's application of the National Minimum Wage to sleep-in workers, increasing personnel costs.
  • Trump administration's healthcare regulation changes and California wildfires affecting insurers.

• Financial Metrics:

  • HP's PC segment is projected to generate $1.2 billion in operating profit with margins around 3.8%.
  • Ruyi's EBITDA margin is expected to improve to 12.0%-12.5% over the next two years.
  • APL's leverage is projected to fall to 3.3x-3.5x from 2.8x in 2016.

• Market Outlook:

  • The document also references the Weekly Market Outlook, a sister publication, for further financial insights and economic forecasts.

Conclusion

The Credit Outlook document provides a comprehensive assessment of credit risk across various sectors, emphasizing the importance of market performance, regulatory changes, and strategic financial decisions. While some companies face credit challenges due to operational and regulatory issues, others benefit from strong performance, asset sales, and improved financial structures. These insights are critical for investors and stakeholders in evaluating the creditworthiness of companies and sectors in the current economic environment.