MOODYS.COM 20 APRIL 2015 NEWS & ANALYSIS Corporates 2 » Raytheon’s $2 Billion Patriot Defense System Order Is Credit Positive » Emirates Engine Order Is Positive for Rolls-Royce, Negative for GE and United Technologies » Grainger’s $3 Billion Share Repurchase Program Is Credit Negative » Builders FirstSource’s $1.63 Billion ProBuild Purchase Is Credit Negative » Colt Defense’s Proposed Debt Restructuring Is Credit Negative » Smurfit Kappa Group’s Acquisition of Inspirepac Is Credit Positive Infrastructure 8 » Empresas ICA Will Gain Nearly $200 Million from New Toll-Road Joint Venture » Strong Performance of Transurban’s US and Australia Toll Roads Bodes Well for NorthConnex Project » Perth Airport’s Decline in Passenger Traffic Is Credit Negative Banks 14 » Russian Central Bank Continues to Shut Down Problematic Small Banks, a Credit Positive » China Merchants Bank’s Employee Stock Incentive Plan Is Credit Positive » China's Relaxation on Brokerage Account Rules Is Credit Negative for Securities Companies » Taiwan Targets Banks’ Exposure to China, a Credit Positive Insurers 22 » EXOR’s Bid for PartnerRe Is Credit Negative for PartnerRe and AXIS Capital » Spain’s Motor Insurers’ Claims Will Increase with Third-Party Bodily Injury Reforms Money Market Funds 27 » First Multi-Billion Euro Money Market Fund Survives Outflow from Negative Yield Sub-sovereigns 29 » New Transparency Law is Credit Positive for Mexican Sub-sovereign Governments » Legislative Changes Boost Istanbul’s and Izmir’s Tax Revenues, a Credit Positive US Public Finance 34 » Limited Federal Disaster Aid Is Credit Negative for Massachusetts Local Governments » Oregon’s Education Budget Is Credit Positive for School Districts RATINGS & RESEARCH Rating Changes 38 Last week we downgraded Fortescue Metals, Electricite de France, EDF Trading, Lancer Finance Company, Schahin II Finance Company, Bahrain and New Jersey, and upgraded Weyerhaeuser, Catalyst Healthcare (Manchester) Financing and Panama Canal Railway, among other rating actions. Research Highlights 44 Last week we published on Asian corporate covenants, US accounting rules, Canadian exploration and production, North American covenants, global iron ore and metallurgical coal, US tobacco industry, China pharmaceuticals, European hotels, global home prices, Latin American corporates, China capital markets, EMEA beer makers, US gaming, Chinese property developers, US consumer durables, US packaging companies, UK hospitals, French toll roads, UK water, EMEA infrastructure, global insurers, global banks, Korea, Ukraine, Fondo Latinoamericano de Reservas, Australia, European quantitative easing, US universities, US highway infrastructure, European RMBS and ABS, French covered bonds, US subprime auto ABS, global CLOs, US student loans, US ABS, Canadian ABCP, EMEA ABCP and Korean structured finance, among other reports. RECENTLY IN CREDIT OUTLOOK » Articles in Last Thursday’s Credit Outlook 53 » Go to Last Thursday’s Credit Outlook NEWS & ANALYSIS Credit implications of current events 2 MOODY’S CREDIT OUTLOOK 20 APRIL 2015 Corporates Raytheon’s $2 Billion Patriot Defense System Order Is Credit Positive On Friday, Raytheon Company (A3 stable) announced that it had received an award valued at more than $2 billion to provide the Patriot Air and Missile Defense System to an undisclosed international customer that we believe is in the Middle East. This order is credit positive, adding both incremental backlog and international sales exposure, while also mitigating revenue pressure at the company’s Integrated Defense Systems (IDS) segment, of which the Patriot Air and Missile Defense System is a core product. The order follows a $2 billion Patriot order in December 2014 from Qatar and both underscore a credit-positive trend for global defense contractors with significant Middle East exposure, including Thales (A2 negative), General Dynamics Corporation (A2 stable), Lockheed Martin Corporation (Baa1 positive) and BAE Systems plc (Baa2 stable). The brisk order activity over the past six months supports our view that increasing geopolitical risk has and will continue to offset the dilutive effect of lower oil prices on oil-exporting nations’ willingness to invest in defense. This order will materially increase Raytheon’s backlog and international sales, while stemming the tide of declining Patriot-related sales at Raytheon’s IDS segment. A $2 billion order equals about 6% of the company’s 2014 year-end total backlog of $33.6 billion and about 30% of the IDS segment’s backlog. Notably, the IDS segment’s backlog declined more than 6% in 2014 from 2013, but would have declined more without Qatar’s Patriot order announced at the end of 2014. Revenue and margin trends are similar, with 2014 sales declining $404 million, or approximately 6%, to about $6.1 billion and segment margins falling 120 basis points to 16%. A $441 million reduction in Patriot-related revenue, driven by the completio