MOODYS.COM 9 APRIL 2015 NEWS & ANALYSIS Corporates 2 » Go Daddy's IPO Reduces Its Leverage and Enhances Its Ability to Grow » Teva's Auspex Deal Boosts Pipeline Without Raising Leverage » Royal Philips Sells Stake in Lumileds, a Credit Positive » Country Garden Plans Credit-Positive Equity Issuance » Chinese Property Developers Will Benefit from Relaxed Mortgage Lending Terms and Housing Tax Rules Infrastructure 7 » US West Coast Ports Face Negative Credit Pressure from Canada's Prince Rupert » Duke Energy Sells Competitive Generation Business, a Credit Positive Banks 10 » Russia Adds Tier 1 Instruments to Bank Recap Plan, a Credit Positive » China's New Deposit Insurance Scheme Is Credit Negative for Small Banks Insurers 15 » US Health Insurers’ Final 2016 Medicare Advantage Rates Are Credit Positive » US Insurance Regulator Targets Variable Annuity Captives, a Credit Positive » Canada Mortgage and Housing Corporation's Premium Hike Is Credit Positive Sovereigns 21 » Nigeria's Peaceful Transition of Power Is Credit Positive Sub-sovereigns 22 » Russian Regions Will Benefit from Restructuring of Soft Loans US Public Finance 23 » New York Budget Is Credit Positive for the State and Its School Districts RECENTLY IN CREDIT OUTLOOK » Articles in the 30 March Credit Outlook 25 » Go to the 30 March 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 9 APRIL 2015 Corporates Go Daddy’s IPO Reduces Its Leverage and Enhances Its Ability to Grow On 1 April, GoDaddy Inc., the indirect parent company of Go Daddy Operating Company, LLC (Go Daddy, Ba3 stable), completed an initial public offering (IPO), raising $520 million in gross proceeds by selling shares of its Class A common stock at $20 per share. The IPO is credit positive for Go Daddy because the company will use the proceeds to pay off $300 million in debt and increase its cash balances by about $125 million. This will reduce leverage and enhance the company’s ability to invest in its growth initiatives. After the IPO, we upgraded Go Daddy’s corporate family rating to Ba3 from B1 and changed the outlook on the rating to stable from negative. We expect Go Daddy’s leverage, which we define as total debt to cash flow from operations plus interest expense, to decline to about 3.5x by mid-2016 from roughly 4.6x at the time of the IPO. We estimate that Go Daddy will produce free cash flow of approximately $180 million, or about 15% of total debt, over the 12 months ending 30 June 2016. The company has only modest levels of net operating loss carryforwards. Under its tax receivable agreements (TRAs), Go Daddy will pay company founder Bob Parsons and financial sponsors Kohlberg Kravis Roberts, Silver Lake and Technology Crossover Ventures about 85% of the income tax savings it will realize from tax attributes created by the exchange of LLC units for shares of Class A common stock. As taxable income rises, tax benefits will create an increasing liability from the TRAs that will reduce Go Daddy’s free cash flow. Following Go Daddy’s leveraged buyout in December 2011, the company has shown a high tolerance for financial risk, including debt-funded distributions to shareholders and acquisitions. With the completion of the IPO, Mr. Parsons and the company’s financial sponsors still collectively control more than 80% of the voting power of the common stock, increasing the likelihood that debt would rise to facilitate the future exit of sponsors. Go Daddy is the market leader in Internet domain name registration, with approximately 21% of the global domains under its management. The company generates most of its revenue from selling lower-cost, highly commoditized domain name and web hosting services, which are characterized by low barriers to entry, modest pricing power and low average revenue per user (ARPU). However, the company operates in an industry characterized by rapid growth as small businesses and consumers seek to establish their online presence by acquiring domain names and ancillary services, such as domain-specific email services, website building, hosting and security tools, and e-commerce applications. The company’s total bookings increased at a compound annual growth rate of 16% between 2010 and 2014, driven by compound annual subscriber growth of around 12% and ARPU growth of about 4%. We project that Go Daddy’s organic bookings will grow by 12%-15% over the next 12-18 months, driven by a similar mix of customer and ARPU expansion. The acquisitions of Locu, Media Temple and AfterNic in 2013 broadened Go Daddy’s product portfolio. This expanded portfolio, along with improved execution through product upgrades and an enhanced customer experience on its websites, should boost ARPU growth. In addition, the company in