weekly credit update - danske bank€¦ · freight routes in order to improve the overall financial...

20 January 2015

Weekly Credit Update

Important disclosures and certifications are contained from page 20 of this report.

Analyst Mads Rosendal +46 8 568 80594 [email protected]

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- Market news

- Company news

- Trade ideas

Contents

- Chart pack

- List of official and shadow ratings and recommendations

3 Sources: Bloomberg, Danske Bank Markets

What’s on our mind - general credit market news

• Risk sentiment was back on last week as the market was gearing up for the upcoming ECB announcement later this week. Despite somewhat volatile equity markets, credit markets remained fairly calm and the European IG index itraxx main was 6bp tighter w/w while the HY index (iTraxx crossover) was about 40bp tighter w/w.

• We saw larger primary activity compared to the previous week. The

market improved in both volumes and diversity of issuance as both core, periphery and non-European issuers entered the market.

• European Court of Justice Advocate-General, Pedro Cruz Villalón, announced his opinion last week on the European Central Bank's OMT programme ahead of a ruling expected later this year by the court. Mr. Villalón found the ECB’s bond-purchase programme to be compatible "in principle" with European law, thereby contradicting the German Constitutional Court’s legal challenge and giving Draghi the green light ahead of this week’s expected QE announcement.

• Due to expected portfolio rebalancing effects, we anticipate that the ECB’s announcement later this week will have a positive effect on corporate credit spreads going forward, even if the ECB decides only to include SSAs in the purchase programme to begin with.

Close of relative trade (‘Buy’ Stena 2020, ‘Sell’ Stena 2019) The yield differential is no longer ‘very’ attractive between Stena 2020 and Stena 2019. Yield pickup

between the bonds has narrowed to some 0.55% p.a. (compared with a start yield differential of 1.4% p.a. when the trade was suggested on 24 October 2014).

Following healthy relative performance since initiation in October 2014, we close out and take profit on our earlier trade idea (buy Stena 2020, sell Stena 2019).

Fundamentally, we like Stena and currently view the company as a ‘BB’ credit with moderately improving credit metrics short term (<2016) but flat to declining credit metrics longer term (>2016). Following the close of the trade, we keep our absolute ‘Buy’ recommendation on the Stena bonds/CDS (see valuation chart later in this presentation).

Source: Bloomberg, Moody’s, Danske Bank Markets

0,00

0,20

0,40

0,60

0,80

1,00

1,20

1,40

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okt-2014 nov-2014 nov-2014 dec-2014 dec-2014 jan-2015

Mid yield difference Stena 2020 versus Stena 2019

5 Source: Danske Bank Markets

Recent trade ideas

See the end of this presentation for a list of our coverage including shadow ratings and recommendations

Trade Idea

Opened 18 dec 2014

Start spread 807

Opened 18 dec 2014

Start spread 16

Opened 27 nov 2014

Start spread 72

Opened 25 nov 2014

Start spread 640

Opened 19 nov 2014

Start spread 450

Opened 18 nov 2014

Start spread 2

Opened 13 nov 2014

Start spread 115

SAABAB '19 Trading wider than the ‘BBB+’ shadow rating would imply

Switch from SKFBSS '19 to

SKFBSS '18 or '20

SKF’s 2020s and 2018s offer attractive value relative to the rating (‘BBB+’ NO and ‘Baa1’ S) Downgrade seems priced in already

VLVY' 17 or VLVY'19 We see the VLVY cash curve at attractively valued and an (uncertain) downgrade is more than priced in to spreads

NYNAAB '18 NYNAAB '18's, which we see as 'B+' indicatively trade way too cheap relative to the industrial 'B+' curve

COMHSS '19 COMHSS '19 looks cheap compared to other rated and unrated issues in SEK. Trades like a B+, but is officially rated BB-

SASSS '17 We believe the SAS 2017 offers an attractive absolute value – supported by adequate liquidity

Switch from ATCOA '19 to

ATCOA '23

The Atlas Copco 2019s trades tighter than the average ‘A+’ rated EUR corporate. Go out the curve and buy the '23s


Company news from the past week

Name News Implication

DNB

DNB presented its oil exposure in a conference call in late December. Total oil-related exposure is 8% of total credit exposure split between Oil & Gas (3.7%), Offshore (2.6%) and Oilfield services (1.5%). Only 2% of DNB’s oil lending portfolios are high risk (63% low risk and 25% medium risk) according to DNB. The riskiest oil-related segments are exploration and oil-field services (total EAD NOK28bn or 1% of total exposure) where the riskier segments are seismic (EAD only NOK1.0bn) as well as the leveraged buy-out portfolio (LBO) with an EAD of NOK7.5bn. While it is obvious that the lower oil price is likely to have a medium-term negative impact on the Norwegian economy, DNB has historically shown very good credit control and surprisingly low loan losses in cyclical sectors where they have structurally large exposures, such as shipping and oil-related sectors. In its oil-related lending portfolio, DNB had peak loan losses only at 5bp p.a. in 1998-9. So far the falling oil price has not had any impact on the loan book and DNB said that the oil-related credit exposures were robust enough to withstand an oil price below USD60 based on made stress tests. As with its shipping exposure, the lending to clients is done based on cash flow and not asset values. Currently, DNB is reporting the loan loss ratio at around 10bp versus approaching but not surpassing 100bp during the financial crisis. DNB still expects to have group impairments below normalised levels in 2015, i.e. below 20bp. According to management, an oil price of USD60 per barrel will not trigger individual write-downs. We don’t know what oil price will trigger individual provisioning but we expect management to increase collective provisioning already in Q4. We think the potential oil impact will be much harsher on smaller Norwegian banks than DNB but we are still cautious on the name. On capitalisation, in Q3 14 DNB reported a CET1 ratio of 12.6% based on transitional floor rules, up from 12.1% at the end of Q2 14. Fully-loaded Basel III CET1 was 14.7%. We will carefully monitor the house price development in the near future as a warning signal for asset quality in Norwegian banks. A potential dive in this segment could be a catalyst for driving loan losses significantly higher for the banks. Also watch out for corporate bankruptcy numbers. So far we have not really seen an adverse development but recent regional housing prices show that, for example, Stavanger (oil centre) has started to lag other areas.

Credit neutral


Company news from the past week

Stena

Stena and Scandlines have revealed they have agreed to sell the short duration infrastructure-like ferry route Helsingborg-Helsingør (including the five vessels operating the route) to a European infrastructure fund managed by First State Investments. The route has been operated and owned in a 50/50 partnership between Stena and Scandlines (owned by PE fund 3i). The route transported some 720,000 cars passengers and 4m passengers during 2013. In 2013, the route experienced a decline in all transportation segments ranging from 0.2-1.6%. No sales price nor explicit sales motivations revealed by the parties other than some loose statements from 3i in today’s paper that the route has been profitable and that the purchase price offered to the parties was attractive. In light of the fierce competition on Öresund (the route competes with the bridge to Sweden owned and operated by the Danish and Swedish state), 3i´s intentions to exit the overall investment in Scandlines in the best possible way and Stena´s current focus on restructuring its ferry activities, the full exit on the route seems natural. We regard the sale as a minor (positive) credit event for Stena. Within the ferry business, Stena will continue to focus on its remaining 23 routes and 40 vessels with special focus on developing its longer transport and freight routes in order to improve the overall financial results for this segment.

Credit positive

Metso

Metso announced the sale of its process automation unit (PAS) as previously communicated when the strategy was updated in late 2014. The PAS business was left behind following the divestment of the Pulp, Paper and Power business in 2013. The value of the transaction is EUR340m and Metso's net debt should be significantly reduced following the completion of the transaction which will be sometime in Q2. Proforma we expect to see adj. net debt to decline from 1.7x currently to around 1.1-1.3x. Metso's annual EBITDA will decline by around EUR40m proforma. Overall this is postive at least short term. A leverage lower than 1.5x is not really needed to maintain a 'BBB' rating and as such one could fear that Metso will use the proceeds for M&A or addtional shareholder payouts. Metso's mainshareholder is Cevian with 13.8% of the capital.

Credit positive

Stora Enso

Stora Enso has taken a writedown on assets in its graphic paper production business. Some are related to the recent sell-off of the Uetersen paper mill in germany. As the writedown will not affect cash flow, this is credit neutral and not unexpected given the ongoing weakness in the graphic paper market.

Credit neutral


Selected new issues

Selected new issues

Date Issuer Coupon CCY Volume Maturity S&P / Mdy / Fitch ASW/DM

19-01-2015 Goldman Sachs Group Inc 1,375% EUR 1 000 m Jul-22 / Baa1e / Ae 10014-01-2015 Kbc Bank Nv 0,45% EUR 1 000 m Jan-22 / Aaae / AAAe 214-01-2015 Toyota Motor Credit Corp 0,75% EUR 1 000 m Jul-22 / Aa3e / 2814-01-2015 Volkswagen Fin Serv Nv EUR003M +21bps EUR 60 m Jan-17 A / A3 / 2114-01-2015 Iberdrola Intl Bv 1,125% EUR 600 m Jan-23 BBB / Baa1 / BBB+e 6514-01-2015 Evonik Industries Ag 1% EUR 750 m Jan-23 BBB+ / Baa2 / 5313-01-2015 Arkema 1,5% EUR 700 m Jan-25 BBB / Baa2 / 8713-01-2015 Gas Natural Fenosa Finan 1,375% EUR 500 m Jan-25 BBB / Baa2 / BBB+ 7512-01-2015 Telecom Italia Spa 3,25% EUR 1 000 m Jan-23 BB+ / Ba1 / BBB-e 275

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Chart pack: Euro spreads and returns Euro IG ASW, iBoxx indices

Source: Macrobond, Danske Bank Markets [all charts]

Euro HY ASW, Merrill Lynch indices

IG Total Return, iBoxx indices, 2014-01=100

HY Total Return, Merrill Lynch indices, 2014-01=100

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Chart pack: Relative value iTraxx vs iBoxx

Source: Bloomberg, Macrobond, Danske Bank Markets [all charts]

Euro vs US CDS indices - IG (Markit)

EUR CDS Spreads – Nordic Banks

Euro vs US HY bond indices (Merrill Lynch)

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Chart pack: General market development European swap and government yields


Euro swap curve spread

3m TED-spread, US & Euro Area

Euro/USD basis swaps

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Chart pack: Fund flows Europe, net sales


Sweden, net sales

US, net sales

Norway, net sales

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Chart pack: Macro GDP y/y growth, calendar adjusted


Euro area y/y chg in bank lending

Purchasing Manager’s Indices

Euro area lending standards

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Our coverage and shadow ratings 1 of 5

Ratings from S&P/Moody's/Fitch and Danske Bank Markets shadow ratings

Analyst(s)

Company Rating Outlook Sr. Unsec Rating Outlook Rating Outlook Rating OutlookAhlstrom Oyj B+ Stable Mads RosendalAkelius Residential Ab BBB- Stable BBB- Louis LandemanAmbu A/S BBB- Stable Jakob MagnussenAp Moeller - Maersk A/S BBB+ Stable Baa1 Stable Brian Børsting BUYArla Foods Amba BBB+ Stable Mads RosendalAtlas Copco Ab A Stable A2 Stable Mads Rosendal SELLAvinor As AA- Stable A1 Stable Ola Heldal HOLDBank 1 Oslo Akershus As BBB+ Stable T. Hovard / L. HolmBank Norwegian As BBB Stable T. Hovard / L. HolmBeerenberg Holdco Ii As B+ Stable Øyvind MossigeBw Offshore BB+ Stable Øyvind MossigeCargotec Oyj BBB- Stable Mads RosendalCarlsberg Breweries A/S Baa2 Neg BBB Stable Brian Børsting SELLCermaq Asa BB Stable Knut-Ivar BakkenCitycon Oyj BBB Stable Baa2 Stable Louis LandemanColor Group As BB- Stable B+ Niklas RipaCom Hem Holding Ab BB- Stable Ola HeldalDanfoss A/S BBB Stable Jakob MagnussenDanske Bank A/S A Neg A3 Stable A StableDfds A/S BBB- Stable Niklas RipaDlg Finance As BB- Stable Mads RosendalDna Ltd BBB- Stable Ola HeldalDnb Bank Asa A+ Stable A1 Neg T. Hovard / L. Holm HOLDDong Energy A/S BBB+ Stable Baa1 Stable BBB+ Stable Jakob Magnussen HOLDDsv A/S BBB Stable Brian BørstingEg Holding B Stable Jakob MagnussenEika Boligkreditt As A- Stable T. Hovard / L. HolmEika Gruppen As BBB Stable T. Hovard / L. HolmElectrolux Ab BBB Stable Wr WD Brian Børsting HOLDElenia Oy Jakob Magnussen BUYElisa Oyj BBB Pos Baa2 Stable Ola Heldal BUYEntra Eiendom As A- Stable Ola Heldal

Recomm.Danske Bank S&P Moody's Fitch

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Analyst(s)

Company Rating Outlook Sr. Unsec Rating Outlook Rating Outlook Rating OutlookFarstad Shipping Asa BB Neg BB- Øyvind MossigeFingrid Oyj A+ Stable A1 Stable A+ Stable Jakob Magnussen BUYFinnair Oyj BB Stable Brian BørstingFortum Oyj A- Neg A2 Neg A- Neg Jakob Magnussen SELLFortum Varme Holding Samagt Med Stockholms Stad Ab BBB+ Stable Jakob MagnussenFred Olsen Energy Asa BB+ Neg Sondre StormyrG4S Plc BBB- Stable Brian Børsting BUYGetinge Ab BB+ Neg Louis LandemanGolden Close Maritime Corp Ltd B Sondre StormyrHeimstaden Ab BB Stable BB- Louis LandemanHemso Fastighets Ab BBB+ Stable BBB Louis LandemanHkscan Oyj BB Stable Brian BørstingHoist Kredit Ab BB- Stable B+ Gabriel BerginHusqvarna Ab BBB- Pos Louis LandemanIkano Bank Ab BBB Stable T. Hovard / L. HolmInvestor Ab AA- Stable A1 Stable Brian Børsting BUYIss A/S BBB- Stable Brian Børsting HOLDJ Lauritzen A/S B Stable B- Bjørn Kristian RøedJernhusen Ab A- Stable Gabriel BerginJyske Bank A/S A- Stable Baa1 Neg Thomas M. Hovard BUYKesko Oyj BBB Stable Mads RosendalKlaveness Ship Holding As BB- Stable B+ Bjørn Kristian RøedLoomis Ab BBB- Stable Brian BørstingLuossavaara-Kiirunavaara Ab BBB+ Stable Louis LandemanMeda Ab BB- Stable Louis LandemanMetsa Board Oyj B+ Pos B1 Pos Mads RosendalMetso Oyj BBB Stable Baa2 Stable Mads Rosendal HOLDNcc Ab BBB- Stable Louis LandemanNeste Oil Oyj BBB- Stable Jakob Magnussen HOLDNokia Oyj BB Pos Ba2 Pos BB Stable Ola Heldal HOLDNokian Renkaat Oyj BBB+ Stable Jakob MagnussenNordea Bank Ab AA- Neg Aa3 Neg AA- Stable T. Hovard / L. Holm SELL


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Analyst(s)

Company Rating Outlook Sr. Unsec Rating Outlook Rating Outlook Rating OutlookNorwegian Air Shuttle Asa BB- Stable B+ Brian BørstingNorwegian Property Asa BBB- Stable Ola HeldalNykredit Bank A/S A+ Neg Baa2U Stable A Stable T. Hovard / L. Holm HOLDNynas Group B+ Stable B+ Jakob MagnussenOdfjell Se B+ Stable B Bjørn Kristian RøedOlav Thon Eiendomsselskap Asa BBB+ Stable Ola HeldalOlympic Shipping As B+ Stable B Øyvind MossigeOrkla Asa BBB+ Pos Ola HeldalOutokumpu Oyj B Pos Mads RosendalPohjola Bank Oyj AA- Neg Aa3 Neg A+ Stable T. Hovard / L. Holm SELLPosten Norge As A- Stable Ola HeldalPostnord Ab BBB+ Stable Gabriel BerginProsafe Se BB Stable Sondre StormyrRamirent Oyj BB+ Stable Brian BørstingSaab Ab BBB+ Stable Wr Louis LandemanSampo Oyj Baa2 Stable T. Hovard / L. Holm HOLDSandnes Sparebank BBB+ Stable T. Hovard / L. HolmSandvik Ab BBB Neg Mads Rosendal HOLDSas Ab B- Stable Wr Stable Brian BørstingSbab Bank Ab A Neg A2 Neg T. Hovard / L. Holm HOLDScania Ab A- Stable Mads Rosendal HOLDSchibsted Asa BBB Stable Ola HeldalSeadrill Ltd BB+ Stable BB Sondre StormyrSecuritas Ab BBB Stable Wr Brian Børsting HOLDSkandinaviska Enskilda Banken Ab A+ Neg A1 Neg A+ Pos T. Hovard / L. Holm BUYSkanska Ab BBB+ Stable Louis LandemanSkf Ab BBB+ Neg Baa1 Stable Mads Rosendal SELLSognekraft As BBB Stable BBB Jakob MagnussenSolstad Offshore Asa BB- Stable B+ Øyvind MossigeSpar Nord Bank A/S BBB+ Stable T. Hovard / L. HolmSparebank 1 Boligkreditt As A- Stable Lars HolmSparebank 1 Nord Norge A2 Neg A Stable T. Hovard / L. Holm HOLD


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Analyst(s)

Company Rating Outlook Sr. Unsec Rating Outlook Rating Outlook Rating OutlookSparebank 1 Smn A2 Neg A- Stable T. Hovard / L. Holm HOLDSparebank 1 Sr-Bank Asa A2 Neg A- Stable T. Hovard / L. Holm HOLDSponda Oyj BBB- Stable Louis LandemanSt1 Nordic Oy BB Stable Jakob MagnussenStatkraft Sf A- Stable Aaa Stable Jakob Magnussen BUYStatnett Sf A+ Stable Wr Stable Jakob Magnussen HOLDStatoil Asa AA- Stable Aa2 Stable Jakob Magnussen SELLSteen & Strom As BBB+ Stable Ola HeldalStena Ab BB Stable B2 Stable Niklas Ripa BUYStockmann Oyj Abp B+ Stable Mads RosendalStolt-Nielsen Ltd BB+ Stable BB Bjørn Kristian RøedStora Enso Oyj BB Stable Ba2 Stable WD Mads Rosendal HOLDStorebrand Bank Asa BBB+ Stable BBB+ Neg Baa2 Neg T. Hovard / L. HolmSuomen Hypoteekkiyhdistys A- Stable T. Hovard / L. HolmSwedavia Ab A- Stable Gabriel BerginSwedbank Ab A+ Neg A1 Neg A+ Pos T. Hovard / L. Holm BUYSwedish Match Ab BBB Stable Baa2 Stable Brian Børsting HOLDSvensk Fastighetsfinansiering Ab BBB Stable Louis LandemanSvenska Cellulosa Ab Sca A- Stable Baa1 Stable Mads Rosendal BUYSvenska Handelsbanken Ab AA- Neg Aa3 Neg AA- Stable T. Hovard / L. Holm HOLDSydbank A/S Baa1 Neg T. Hovard / L. Holm BUYTallink Group As BB Stable BB- Niklas RipaTdc A/S BBB Neg Baa3 Stable BBB Stable Ola Heldal HOLDTeekay Offshore Partners Lp BB- Stable B+ Bjørn Kristian RøedTele2 Ab BBB Stable Ola HeldalTelefonaktiebolaget Lm Ericsson BBB+ Stable Baa1 Stable BBB+ Stable Ola Heldal HOLDTelenor Asa A Stable A3 Stable Ola Heldal HOLDTeliasonera Ab A- Stable A3 Neg A- Stable Ola Heldal SELLTeollisuuden Voima Oyj BBB Neg Wr BBB Stable Jakob Magnussen BUYThon Holding As BBB+ Stable Ola HeldalTine Sa BBB+ Stable Ola HeldalUpm-Kymmene Oyj BB+ Stable Ba1 Stable WD Mads Rosendal HOLD


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Source: Standard & Poor's, Moody's, Fitch, Danske Bank Markets

Analyst(s)

Company Rating Outlook Sr. Unsec Rating Outlook Rating Outlook Rating OutlookVasakronan Ab A- Stable Louis LandemanVattenfall Ab A- Stable A3 Stable A- Neg Jakob Magnussen HOLDVestas Wind Systems A/S BBB- Pos Niklas Ripa BUYVictoria Park Ab BB- Stable B+ Louis LandemanWilh Wilhelmsen Asa BBB- Stable Bjørn Kristian RøedVolvo Ab BBB Neg Baa2 Neg BBB Stable Mads Rosendal BUY


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Fixed Income Credit Research team Thomas Hovard, Chief Analyst Head of Credit Research +45 45 12 85 05 [email protected]

Louis Landeman, Analyst TMT, Industrials +46 8 568 80524 [email protected]

Mads Rosendal, Analyst Industrials, Pulp & Paper +46 8 568 80594 [email protected]

Jakob Magnussen, Senior Analyst Utilities, Energy +45 45 12 85 03 [email protected]

Knut-Ivar Bakken, Analyst Fish Farming +47 85 40 70 74 [email protected]

Brian Børsting, Senior Analyst Industrials +45 45 12 85 19 [email protected]

Lars Holm, Senior Analyst Financials +45 45 12 80 41 [email protected]

Gabriel Bergin, Analyst Strategy, Industrials +46 8 568 80602 [email protected]

Niklas Ripa, Senior Analyst High Yield, Industrials +45 45 12 80 47 [email protected]

Bjørn Kristian Røed, Analyst Shipping +47 85 40 70 72 [email protected]

Ola Heldal, Analyst TMT +47 85 40 84 33 [email protected]

Sondre Dale Stormyr, Analyst Offshore Rigs +47 85 40 70 70 [email protected]

Henrik René Andresen, Analyst Credit Portfolios +45 45 13 33 27 [email protected]

Øyvind Mossige, Senior Analyst Oil Services +47 85 40 54 91 [email protected]

mailto:[email protected]














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Disclosures

This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S (‘Danske Bank’).

Analyst certification

Each research analyst responsible for the content of this research report certifies that the views expressed in the research report accurately reflect the research analyst’s personal view about the financial instruments and issuers covered by the research report. Each responsible research analyst further certifies that no part of the compensation of the research analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed in the research report.

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General disclaimer

This research has been prepared by Danske Bank Markets (a division of Danske Bank A/S). It is provided for informational purposes only. It does not constitute or form part of, and shall under no circumstances be considered as, an offer to sell or a solicitation of an offer to purchase or sell any relevant financial instruments (i.e. financial instruments mentioned herein or other financial instruments of any issuer mentioned herein and/or options, warrants, rights or other interests with respect to any such financial instruments) (‘Relevant Financial Instruments’).

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The opinions expressed herein are the opinions of the research analysts responsible for the research report and reflect their judgement as of the date hereof. These opinions are subject to change, and Danske Bank does not undertake to notify any recipient of this research report of any such change nor of any other changes related to the information provided in this research report.

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weekly credit update - danske bank€¦ · freight routes in order to improve the overall financial...

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