NEWS & ANALYSIS

MOODYS.COM 27 FEBRUARY 2017 NEWS & ANALYSIS Corporates 2 » Restaurant Brands’ Acquisition of Popeyes Will Increase Leverage » Boston Scientific Recalls Its Lotus Valve, a Credit Negative » SourceHOV’s Reverse IPO Merger with Novitex and Quinpario Is Credit Positive » Brazil’s Votorantim Steel Deal with ArcelorMittal Eases Leverage » China’s Curbs on Secondary Equity Offering Reduce Funding Flexibility for Listed Companies » Alibaba’s Strategic Partnership with Bailian and Further Expansion into Offline Retail Is Credit Positive » Singtel’s Latest Digital Marketing Acquisition Keeps Leverage Elevated » Oil India and ONGC Will Benefit from Government Royalty Claims Settlement » Parkway Life REIT’s Acquisition of Japanese Assets Enhances Portfolio Quality, Extends Lease-Expiry Profile Infrastructure 16 » Japanese Utility Kansai Electric’s Preliminary Nuclear Restart Approval Is Credit Positive Banks 18 » Desjardins’ Sale of Subsidiary’s Insurance and Brokerage Operations Is Credit Positive » Brazilian Measure to Stimulate Mortgage Lending Is Credit Positive for Banks » Royal Bank of Scotland May Not Need to Divest Williams & Glyn, a Credit Positive » Germany’s Overvalued Real Estate Market Poses Risks for Banks and RMBS » Germany’s Deposit Protection Fund Reforms Make It More Viable, Benefitting Banks » German Court’s Validation of Contract Cancellations Is Credit Positive for Building and Loan Associations » BPCE’s Reduction of Its Domestic Branch Network Is Credit Positive » Raiffeisen Schweiz's Mortgage Lending Grows as Margins Shrink, a Credit Negative » Sweden’s MREL Framework Is Credit Positive » China’s Coordinated Approach to Regulating Investment Products Would Be Credit Positive for Banks » SMBC and Resona Combining Subsidiary Banks in Japan’s Kansai Region Would Be Credit Positive Financial Market Infrastructure 36 » UK Proposals to Enhance Supervision of Financial Market Infrastructure Companies Are Credit Positive Sovereigns 37 » Hong Kong’s Budget Balances Economic Support with Fiscal Prudence, a Credit Positive » Korea’s Rising Household Debt Poses Downside Risks to Economic Growth Sub-sovereigns 41 » German Laender’s Salary Pact with Public Employees Is Credit Positive » Australian Universities to Benefit from Growing International Student Enrollments US Public Finance 44 » Kansas Governor Vetoes Tax Hike, a Credit Negative RECENTLY IN CREDIT OUTLOOK » Articles in Last Monday’s Credit Outlook 46 » 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 27 FEBRUARY 2017 Corporates Restaurant Brands’ Acquisition of Popeyes Will Increase Leverage Last Tuesday, Restaurant Brands International Inc. (RBI), the parent company of 1011778 B.C. Unlimited Liability Company (B1 stable), announced that it had reached a definitive agreement to acquire Popeyes Louisiana Kitchen, Inc. (unrated) for approximately $1.8 billion in cash. The company expects to fund the transaction with approximately $1.3 billion of new debt and $600 million in cash. Should the transaction close as proposed, Moody’s-adjusted pro forma leverage would likely increase to around 5.5x from about 5.0x at year-end 2016. After the announcement, we changed 1011778 B.C.’s rating outlook to stable from positive to reflect the increase in debt required to fund the Popeyes acquisition, which will adversely affect credit metrics, particularly leverage. However, we affirmed 1011778 B.C.’s B1 corporate family rating (CFR) despite the higher debt levels, given that pro forma credit metrics should be appropriate for the B1 CFR because credit metrics gradually strengthen through improved earnings and required amortization. The B1 rating affirmation and stable outlook also take into account the larger scale of the combined company, greater revenue diversification of its brands and product offerings, and potential growth in new markets with the addition of Popeyes. Factors that could result in an upgrade include a sustained strengthening of debt protection metrics with debt/EBITDA migrating toward 4.5x and EBITA coverage of interest moving toward 3.0x. A higher rating would also require maintaining very good liquidity. Factors that could result in a downgrade include an inability to strengthen credit metrics with debt/EBITDA exceeding 5.5x or EBITA to interest approaching 2.0x on a sustained basis. A deterioration in liquidity for any reason could also result in a downgrade. 1011778 B.C. owns, operates and franchises more than 15,700 Burger King hamburger quick service restaurants and more than 4,600 Tim Horton restaurants. Annual revenues are around $4.1 billion, although systemwide sales exceed $24 billion. 3G Restaurant Brands Holdings LP, owns approximately 43% of the combined voting powe