MOODYS.COM 23 JANUARY 2017 NEWS & ANALYSIS Corporates 2 » Western Union's Settlement with US Regulators Is Credit Negative » ExxonMobil's Permian Acquisition Provides Growth without Straining Credit Metrics » Hyatt's Acquisition of Miraval Group Is Credit Positive » La Quinta's Potential Spinoff of Owned Real Estate Could Raise Leverage » Western Digital's Further Investment in Toshiba's Chip Business Would Be Credit Negative » Despite Positive Kasper Topco Acquisition, Nine West Still Faces Potential Default » Brazilian Steelmakers' 2016 Production Decline Is Credit Negative » SMU Plans to Float at Least $190 Million in Shares to Retire Debt, a Credit Positive » Tie-Up with Luxottica Will Enhance Essilor's Credit » Rolls-Royce’s Bribery Settlement Is an Unwelcome Drain on Cash Flows » Penguin Random House Stake Increase or Recapitalisation Would Be Credit Negative for Bertelsmann » British American Tobacco Agrees to Take Over Reynolds American in $49.4 Billion Deal, a Credit Negative » Atlas Copco's Proposed Split into Two Companies Is Credit Negative » China Strengthens State-owned Enterprises' Investment Activities, a Credit Positive » Wanhua Chemical’s Improved 2016 Profit Guidance and Share Placement Are Credit Positive » Baoshan Iron & Steel's Expected Profit Improvement Is Credit Positive Infrastructure 18 » Merger of NSTAR Electric and Western Massachusetts Electric Is Credit Positive » NextEra Energy's Sale of FiberNet Is Credit Positive » Gener Subsidiary Alto Maipo's Initial Agreements with Key Stakeholders Are Credit Positive for Gener Banks 22 » Banco de Galicia y Buenos Aires Agrees to Sell Compañía Financiera Argentina, a Credit Positive for Galicia » Russia's Proposal to Insure Individual Investment Accounts Is Credit Positive for Securities Firms » Czech National Bank's Enhanced Authority over Housing Loans Is Credit Positive » Poland's Proposed Framework on Foreign-Currency Mortgages Is Credit Positive » Korean Banks' Slowing Loan Growth Is Credit Positive » Korea's Bank-Owning Financial Holding Companies Will Benefit from Regulatory Reforms Insurers 33 » AIG Transfers Reserve Risk to Berkshire Hathaway, a Credit Positive » US-EU Agreement Is Credit Positive for Reinsurers » Canadian Insurers' Prospects in China Improve with Easing Investment Restrictions » CMHC's Premium Increase Is Credit Positive Asset Managers 39 » TIAA Asset Management's Merger with Sister Company Is Credit Positive Sovereigns 41 » Railway Opening Gives Landlocked Ethiopia Access to Red Sea, a Credit Positive RECENTLY IN CREDIT OUTLOOK » Articles in Last Monday’s Credit Outlook 42 » Go to Last Monday’s Credit Outlook Click here for Weekly Market Outlook, our sister publication containing Moody’s Analytics’ review of market activity, financial predictions, and the dates of upcoming economic releases. NEWS & ANALYSIS Credit implications of current events 2 MOODY’S CREDIT OUTLOOK 23 JANUARY 2017 Corporates Western Union’s Settlement with US Regulators Is Credit Negative Last Thursday, The Western Union Company (Baa2 stable) announced that it had reached agreements with the US Department of Justice (DOJ) and the US Federal Trade Commission (FTC) to settle charges that that the company had failed to maintain adequate fraud prevention and anti-money laundering programs. The settlement, under which Western Union will pay $586 million to reimburse customers who were victims of fraud, is credit negative because the company is likely to issue debt to fund the payments. Assuming that Western Union funds the settlement with debt, we estimate that pro forma debt/EBITDA would be about 2.6x, up from current leverage in the low-2x range. However, leverage would be little changed from 2.5x for the 12 months that ended 30 September 2016, and is still consistent with our expectations for the Baa2 rating category. Although the settlement is credit negative, it reduces the uncertainty associated with the overhang of regulatory investigations. Western Union also maintains ample liquidity, based on our expectation of cash flow from operations of more than $1 billion in 2017 (excluding the settlement payment, which we expect will be covered primarily by the proceeds from new debt); a significant cash balance ($1.28 billion as of 30 September before the company’s October 2016 repayment of debt, the exact amount of which has yet to be disclosed); and access to an undrawn $1.65 billion revolving credit facility. The DOJ said its Western Union investigation focused on illegal activities conducted via the company’s money-transfer network, including gambling, money laundering, consumer fraud schemes and “illicit transactions being sent to China to fund human smuggling or drug trafficking.” Under the deferred prosecution agreement with the DOJ and consent order with the FTC, Western Union will take actions to enhance its oversight of agents and protect its customers. An independent compliance auditor will review these ne