Credit Outlook：Credit Implications of Current Events

MOODYS.COM 15 FEBRUARY 2016 NEWS & ANALYSIS Corporates 2 » Mylan’s Deal for Meda Is Credit Negative » Manutencoop Faces Risk of Losing Italian Government Contract, a Credit Negative » Gecina’s Sale of Its Healthcare Real Estate Portfolio Is Credit Positive » Lippo Karawaci Cancels Note Issue, Reducing Pressure on Financial Metrics, a Credit Positive Infrastructure 7 » US Supreme Court’s Stay of Clean Power Plan May Swing Merchant Coal Plant Closure Decisions » Lower Price in New England Electricity Capacity Auction Is Credit Negative for Merchant Generators Banks 9 » European Commission Changes to MREL Are Credit Negative » Common Regulatory Approach for Transatlantic Clearinghouses Is Credit Positive » Italian Mutual Banks Will Benefit from Cross- Guarantee Scheme » Nykredit’s Stock Offering Plans Are Credit Positive » Russia’s Extension of Subsidized Mortgages Is Credit Positive for Lenders » Hungary’s Plan for Banks’ Impaired Assets Gets European Commission Approval, a Credit Positive » Poland’s Proposal for Foreign-Currency Mortgage Conversions Is Credit Negative for Banks » Vietnamese Banks Would Benefit from Proposed Tightening of Liquidity and Lending Rules Insurers 23 » Coface Sets Contingent Equity Facility to Bolster Its Capital in Stress Scenario, a Credit Positive US Public Finance 25 » Voter Renewal of Levies for Seattle Public Schools Is Credit Positive RATINGS & RESEARCH Rating Changes 26 Last week we downgraded SKF, Aria Energy Operating, Homer City Generation, Azerbaijan and Western Australia Treasury Corporation, and upgraded NAV Canada, Greater Toronto Airports Authority, CarMax prime auto ABS and Ally Financial auto ABS, among other rating actions. Research Highlights 32 Last week we published on UK care home providers, Polish food retailers, US diversified technology, European pharmaceuticals, US corporate defaults and recoveries, European gaming, European and CIS steelmakers, US wireless tower operators, Entergy, Centrica, AGL Energy, Sub-Saharan African banks, Russian banks, global insurers, Georgia, Indonesia, US public finance ratings, California school districts, US mobile phone ABS, US property markets, US RMBS, US mortgage warehouse securitizations, global covered bonds and US CLOs, among other reports. RECENTLY IN CREDIT OUTLOOK » Articles in Last Thursday’s Credit Outlook 37 » Go to Last Thursday’s Credit Outlook The next issue of Moody’s Credit Outlook will be Monday 22 February NEWS & ANALYSIS Credit implications of current events 2 MOODY’S CREDIT OUTLOOK 15 FEBRUARY 2016 Corporates Mylan’s Deal for Meda Is Credit Negative Last Wednesday, Mylan N.V., parent company of Mylan Inc. (Baa3 stable), announced plans to acquire Swedish pharmaceutical company Meda AB (unrated) for about $9.9 billion, including $2.8 billion of Meda’s net debt. The deal is credit negative for Mylan because it will increase its financial leverage to about 4.0x debt/EBITDA from under 2.5x as of 31 December 2015. But it will also expand Mylan’s presence in European generics and specialty pharmaceuticals, increase its exposure to faster-growing emerging markets and reduce its concentration in the EpiPen epinephrine auto-injector. Following the transaction’s announcement, we affirmed Mylan’s rating and outlook. The purchase price values Meda at about 12.9x its 2015 EBITDA and equals a 92% premium to its market value just before the deal’s announcement. Mylan will take on about $8.5 billion in new debt to fund the transaction, with the remainder coming from Mylan’s shares. Mylan expects to achieve $350 million in synergies over four years post close. It expects to complete the deal, which requires regulatory and Meda shareholder approval, by the end of the third quarter of 2016. We expect Mylan to rapidly delever after the transaction closes, given the company’s solid earnings growth and cash generation. However, we also expect Mylan to continue pursuing acquisitions and undertaking share repurchases, making it unlikely that it will sustain financial leverage materially below 3.5x. In November, Mylan announced a $1 billion share repurchase program through August 2016. Mylan late last year lost a hostile bid for Perrigo Company plc (Baa3 stable) that was valued at about $40 billon and would have increased leverage to about 4.8x, before synergies. We expect Mylan to look for more significant deals as the generic drug industry and its customers – drug wholesalers and retailers – continue to rapidly consolidate. Although Mylan is already one of the world’s largest generic drug companies, Teva Pharmaceuticals Industries Ltd.’s (Baa1 review for downgrade) pending acquisition of Allergan’s generics assets vaulted Teva’s generic drug business to nearly $17 billion – almost twice the size of Mylan’s. Despite the increase in leverage, acquiring Meda, which focuses on both patented and off-patent products, also known as branded generics, will bring strategic benefits to Mylan. The combined company