NEWS & ANALYSIS

MOODYS.COM 27 MARCH 2017 NEWS & ANALYSIS Corporates 2 » Sears’ 10-K Disclosure Highlights Its Going-Concern Risk » Audit of Perrigo’s Tysabri Revenue Is Credit Negative » J. Crew’s Debt-Exchange Proposal Is Credit Negative for Term Loan » Vodafone India’s Joint Venture with Idea Cellular Is Credit Positive » Ontex’s Credit-Positive Capital Increase Improves Liquidity and Supports Growth » Vedanta Resources’ Liquidity Will Increase with Special Dividend from Zinc Subsidiary Infrastructure 9 » State Regulator’s Rate Case Order Is Credit Negative for Oklahoma Gas & Electric » JEA’s Plan to Decommission Coal-Fired Power Plant Is Credit Positive Banks 11 » Wells Fargo’s February Retail Banking Trends Are Credit Positive, but Growth Trajectory Markedly Slowed » Argentina’s New Government Funding Facility Will Spur Mortgage Lending, a Credit Positive for Banks » Portugal’s Maturity Extension of State Loans to Resolution Fund Is Credit Positive for Banks » Hungary’s MKB Bank Returns to Profitability After Six Years of Losses, a Credit Positive » South African Banks’ Asset Quality Pressures Ease with Households’ Declining Debt to Disposable Income » Tanzania’s Banks Will Benefit from Central Bank’s Lower Cash Reserve Requirement » Hong Kong Financial Institutions Agree to Sell Stakes in Insurer, a Credit Positive Insurers 22 » Japanese Insurers’ New Products and Investment Strategies Are Credit Negative Exchanges 23 » SEC's Two-Day Settlement Rule Is Credit Positive for Clearinghouses and Their Members » Brazil’s Antitrust Regulator Approves BM&FBovespa-Cetip Merger, a Credit Positive Sovereigns 26 » Canadian Budget Indicates Debt Ratio Will Resume Downward Trend » Poland’s Growth Prospects Improve with Drop in Unemployment Sub-sovereigns 30 » Brazil Excludes State Pensions from Reforms, a Credit Negative for States Securitization 32 » American Homes 4 Rent’s Equity Raise and Debt Repayment Are Credit Positive for Single Family Rental Securitizations RECENTLY IN CREDIT OUTLOOK » Articles in Last Thursday’s Credit Outlook 33 » Go to Last Thursday’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 MARCH 2017 Corporates Sears’ 10-K Disclosure Highlights Its Going-Concern Risk Last Tuesday, Sears Holdings Corp. (Caa2 stable) in its 10-K filing with the US Securities and Exchange Commission said that its historical results suggest “substantial doubt exists related to the company’s ability to continue as a going concern.” The disclosure confirms Sears’ credit-negative challenges. Sears also said that it views its plans to satisfy its liquidity needs as likely. A Financial Accounting Standards Board update from 2014 requires management to assess whether conditions or events raise substantial doubt about an entity’s ability to continue as a going concern within one year after the financial statements are issued. This was the first accounting period for which the disclosure was mandatory and it sparked the disclosure. Management’s disclosure is distinct from an auditor’s going-concern warning and does not cause an acceleration under any of Sears’ debt securities. Deloitte, Sears’ auditor, gave the company an unqualified audit opinion for fiscal 2016, which ended 31 January. Sears’ disclosure reiterated the company’s plans to improve its liquidity in 2017 and mitigate the going-concern risk. The plan includes its already-completed sale on 9 March of Craftsman to Stanley Black & Decker Inc. (Baa1 stable) for about $900 million. The company also has an agreement to amend its asset-based credit facility, which includes an additional $250 million of general basket borrowings. And, Sears highlighted its pursuit of strategic alternatives for its real estate portfolio, its Kenmore and DieHard brands and its Sears Home Services and Sear Auto Centers businesses. Sears raised $100 million this month from the sale of three properties as part of its effort to raise at least $1 billion through asset sales, a target the company announced in January. Sears’ Caa2 rating reflects the company’s sizable operating losses of approximately $1.8 billion in fiscal 2016. Our SGL-3 rating reflects our view that Sears’ liquidity is adequate and that the company will continue to rely on external financing and the monetization of its alternative assets to fund its operating losses this year. Although the company continues to take significant steps to improve its liquidity, it is uncertain if the operational strategies will sufficiently reduce its cash burn to breakeven levels. Sears will continue to have sizable assets upon completion of its plans, but its debts are significant, with approximately $4.2 billion of funded debt at the end of fourth-quarter 2016 and unfunded pension and retirement obligation