Credit Outlook

MOODYS.COM 2 MARCH 2017 NEWS & ANALYSIS Corporates 2 » Hi-Crush's Acquisitions and Common Unit Offering Are Credit Positive » Bharti's Acquisition of Telenor India Is Credit Positive Banks 5 » Chile's New Consolidated Supervisory Body Is Credit Positive for Banks » Proposed UK Bank Capital Changes Are Credit Negative » Cabot's Potential IPO Would Be Credit Positive » UniCredit's €13 Billion Capital Increase Restores Its Creditworthiness » Strengthening Swedish Financial Regulator's Mandate Would Be Credit Positive for Banks » Absa Bank Will Benefit from Separation Agreement with Barclays Bank Exchanges 13 » Lower Likelihood of London Stock Exchange-Deutsche Börse Merger Is Credit Negative Insurers 14 » Claims-Inflating Ogden Discount Rate Cut Is Credit Negative for UK Motor Insurers and Reinsurers Asset Managers 16 » China’s Potential Reforms for Fund Managers Are Credit Negative Sovereigns 18 » Germany’s Debt Reduction Accelerates with Third Consecutive Fiscal Surplus » Korea’s Strong External Payments Position Provides Cushion Against Shocks » Pakistan's Import Controls Signal Mounting External Pressures » Sri Lanka's Drought-Related Costs Add to Challenge of Achieving Fiscal Targets Securitization 26 » Germany's Public-Sector Pfandbriefe Benefit from Government's Better-than-Expected Fiscal Surplus RECENTLY IN CREDIT OUTLOOK » Articles in Last Monday’s Credit Outlook 28 » 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 2 MARCH 2017 Corporates Hi-Crush’s Acquisitions and Common Unit Offering Are Credit Positive Last Thursday, Hi-Crush Partners LP (Caa1 negative) announced two credit-positive acquisitions. Hi-Crush will acquire the Permian Basin Sand Company, LLC from a third party and it will acquire from its sponsor, the Whitehall facility, additional properties located near the Whitehall facility, and the remaining 2% additional interest in Hi-Crush Augusta LLC. Hi-Crush also announced a primary public offering in which it expects to raise $360-$410 million. The proceeds of the public offering, along with up to $75 million of newly issued common units to the seller of Permian Basin Sand, will be used to fund the purchases. The total consideration for the two transactions is $415 million, not including the contingent earn-out associated with the acquisition of the Whitehall facility. The acquisitions are credit positive because they position Hi-Crush to capitalize on the frac-sand demand recovery with more frac-sand reserves, expanded low-cost production capacity and a new presence in the Permian regional sand market. The Whitehall acquisition also simplifies Hi-Crush’s structure by consolidating all of the production assets from its sponsor into the limited partnership. The common unit offering is credit positive because it strengthens Hi-Crush’s balance sheet and preserves liquidity at a time when we expect end markets to remain unpredictable, despite what appears to be the beginning of a frac-sand industry recovery. Hi-Crush expects the acquisitions to close by the end of the first quarter. Following the acquisitions, Hi-Crush will have 371 million tons of frac-sand reserves and 13.4 million tons of annual processing capacity, including a processing plant to be constructed at the Permian Basin Sand site. Hi-Crush will construct the on-site processing facility, which it expects will be operational by the fourth quarter of this year. The company estimates the cost of constructing the facility at $45-$50 million. Hi-Crush will have enough liquidity following the common unit offering to fund construction. As of year-end 2016, Hi-Crush had approximately $72 million of liquidity. Hi-Crush also has an at-the-market equity program under which it can sell common units up to $50 million. We expect Hi-Crush’s cash flow to improve in 2017 as the frac-sand industry recovers. Hi-Crush reported growth in sand volume sales during the third and fourth quarters of 2016 after multiple quarters of declines. The sand price is also increasing. Hi-Crush has no meaningful debt maturities until its term loan matures in 2021. A revolving credit facility matures in 2019, but there are no borrowings drawn except for $8.6 million letters of credit. At this time, Hi-Crush’s Caa1 rating and negative outlook are unchanged. If we gain confidence that the recovery in shipment volumes and prices are sustainable, we would revise the outlook to stable. Hi-Crush’s key metrics would need to improve considerably before we would consider a rating upgrade. Adjusted debt/EBITDA was more than 20.0x for 2016, and adjusted EBIT/interest was below zero. Houston, Texas-based Hi-Crush is an integrated producer, transporter, marketer and distributor of high-quality m