MOODYS.COM 15 MARCH 2018 NEWS & ANALYSIS Corporates 2 » Dana's merger with GKN's driveline business is credit positive, but will increase leverage » Clorox's acquisition of Nutranext is credit negative » For Indonesian coal producers, price cap on domestic coal sales to electric utilities is credit negative Infrastructure 6 » New York's renewable energy contracts are positive for renewable developers and state Banks 8 » Egypt's first movable collateral registry is credit positive for banks » Lebanon's implementation of Basel liquidity coverage ratio is credit positive » Cyprus' highest GDP growth since 2008 benefits banks » Emirates NBD's planned rights issuance would be credit positive » Agricultural Bank of China plans to increase capital with RMB100 billion private share placement, a credit positive Exchanges 16 » CFTC formalizes CME Group's exit from CDS clearing, a credit positive for Intercontinental Exchange Covered Bonds 18 » New legislation will strengthen European covered bond legal frameworks RECENTLY IN CREDIT OUTLOOK » Articles in Last Monday’s Credit Outlook 20 » 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 15 MARCH 2018 Corporates Dana’s merger with GKN’s driveline business is credit positive, but will increase leverage Last Friday, Dana Incorporated (Ba3 stable) announced that it had signed definitive agreements to merge with GKN plc’s Driveline division (GKN Driveline), a credit-positive development for the long-term, but one that will increase leverage more immediately. The addition of GKN Driveline will strengthen Dana’s competitive position through a significant increase in global scale and the addition of product offerings complementary to its current offerings, such as electrified driveline products not currently offered by Dana, and it will extend Dana’s market penetration to growing Asian markets. However, until expected synergies from the transaction reach their run-rate, we expect Dana’s 2017 debt/EBITDA of 3.1x to approach 4x pro forma for the transaction, not including expected synergies or equity income from affiliates. We expect that Dana’s Moody’s-adjusted EBITA margin of 8.2% in 2017 will change little over the next 12-18 months because costs associated with achieving transaction synergies will temper the improvements from stronger commercial vehicle production in the US. By late 2019, we expect that the combination of improvement in Dana’s North American operations and the realization of transaction synergies (which Dana estimates at $235 million over the next three years) will return the company’s debt/EBITDA to the mid-3x range from around 4x after the transaction. Dana’s intention to fund this transaction largely with its own stock reflects a strong commitment to managing its leverage given the highly cyclical nature of the automotive industry. The company said that the combined businesses will operate under a newly created UK-based holding company, Dana plc. The total consideration is $1.6 billion in cash proceeds to GKN plc, the assumption of approximately $1.0 billion of net pension liabilities, and 133 million new Dana plc shares issued to GKN shareholders, valued at approximately $3.5 billion. Dana shareholders will own approximately 52.75% of the company, with GKN shareholders owning 47.25%. We believe Dana’s SGL-1 Speculative Grad Liquidity profile will remain intact because Dana is unlikely to use year-end cash and short-term investment balances of $643 million, as indicated by Dana, to fund the transaction. The company expects the transaction to be completed in the second half of this year, subject to shareholder and customary regulatory approvals. UK-based GKN Driveline is a market leader in constant-velocity jointed driveshafts, all-wheel-drive systems and electrified driveline solutions. The transaction will almost double Dana’s scale to pro forma 2017 consolidated revenue of $13.4 billion, versus Dana’s actual consolidated 2017 revenue of $7.2 billion. GKN Driveline’s revenue is geographically balanced, like Dana’s: the Americas contributed 35% of 2017 revenue; Europe, Middle East and Africa 39%; and rest of world 27%. The company expects platform diversity to increase the number of crossover utility vehicle and passenger car offerings, particularly in Europe. GKN Driveline’s top customer concentration risk is similar to Dana’s, with the top three customers contributing 36% of revenue. Yet, with complementary product lines, the combination of Dana and GKN Driveline should support stronger customer and product developed relationships. Timothy Harrod Vice President - Senior Credit Officer +1.212.553.4488 timothy.harrod@moodys.com This publication does not announce a