MOODYS.COM 30 OCTOBER 2017 NEWS & ANALYSIS Corporates 2 » International Paper Transfers Its Consumer Packaging Business, a Credit Positive » Graphic Packaging's Combination with International Paper's Consumer Packaging Unit Is Credit Positive » Eli Lilly's Separation of Animal Health Unit Would Be Credit Negative » Texas Instruments' Strong Results and Outlook Bode Well for Analog Devices » Hudson Bay’s Sale of Lord & Taylor Building and New Preferred Investment Reduces Leverage » GSK's Shingrix Gains FDA Approval, a Credit Positive, but M&A Related Event Risk Increases » Private Equity Takeover of Refresco Is Credit Negative » Shop Direct's Reduced Bond Issuance Is Credit Positive Banks 13 » US Banks' Net Interest Margins Are Still Increasing, a Credit Positive » Disaster-Related Provisions Are Manageable for Affected US Mainland Banks » SBAB's Removal of Change-of-Control Clause on New Senior Debt Securities Is Credit Positive for Existing Creditors » Government's Capital Infusion Plan Is Credit Positive for Indian Public- Sector Banks Insurers 19 » Great-West Lifeco Will Have Hurricane-Related CAD175 Million After-Tax Reinsurance Loss Sovereigns 21 » South Africa's Medium-Term Budget Signals Credit-Negative Change in Policy Direction » Mongolia's Refinancing of Debt Obligations Relieves Liquidity and External Pressure, a Credit Positive Securitization 25 » Falling Demand for Cars Is Credit Negative for UK Auto ABS CREDIT IN DEPTH Chinese Communist Party Congress Consolidates Central Power and Focuses on Reform, but Highlights Challenges 28 Further consolidation of power under President Xi Jinping — as outlined at the conclusion of the 19th National Congress of the Chinese Communist Party — could advance the process of economic reform and rebalancing, because one obstacle to reform has been the misalignment of incentives between the central leadership and other officials. RECENTLY IN CREDIT OUTLOOK » Articles in Last Thursday’s Credit Outlook 30 » 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 30 OCTOBER 2017 Corporates International Paper Transfers Its Consumer Packaging Business, a Credit Positive Last Tuesday, International Paper Company (IP, Baa2 stable) announced plans to transfer its North American consumer packaging business to Graphic Packaging International Inc. (Ba1 stable) for $660 million in cash and a 20.5% interest in the combined business, which will have about $6 billion in revenue. The companies expect to close the transaction in early 2018, pending regulatory approval and other customary closing conditions. The deal is credit positive for IP because it will improve the company’s margins and enable it to focus on retained operations that have stronger competitive positions, higher returns, and better long-term growth prospects than consumer packaging. Although leverage-neutral, the deal’s structure reinforces IP’s commitment to deleverage to 3x debt/EBITDA by the end of 2018. As part of the deal, IP will receive $660 million in cash proceeds from a new loan it will take out before the end of this year and that Graphic will assume upon the deal’s closing. The proceeds from the loan will be used by IP to pay down existing debt, which will offset the estimated $210 million of EBITDA that IP is transferring to Graphic. IP will also receive a 20.5% ownership interest, valued at $1.14 billion, in the combined business, which IP will be able to sell after a two-year standstill agreement. This will provide a future source of funds that IP can use to grow its core businesses or reduce debt. We expect IP’s EBITDA margins to improve following the divestiture, given that consumer packaging has historically had lower margins than the rest of IP’s business. During the last three years, IP’s North American consumer packaging business averaged 13% EBITDA margins, compared to 17% for the entire company. The weaker margins in IP’s consumer packaging business reflects pricing and volume declines in recent years amid weaker demand and increased import pressure from European competitors. The transfer allows IP to focus on its leading North American containerboard business, which has generated EBITDA margins of about 23% over the past three years, as well as its global fluff pulp business, which it acquired in December 2016 from Weyerhaeuser Company (Baa2 stable). Combining Graphic and IP’s consumer packaging business will create a major consumer packager with $6 billion in revenue and leading positions in a complete breadth of major paperboard substrates and higher integration levels. The addition of IP’s leading solid bleached sulfate business (used to make paper coffee cups and perfume boxes) to Graphic’s leading coated recycled