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Investment Research
Headlines
Subdued sentiment continues across markets
iTraxx indices to roll on Monday 6 October
Market commentary
It has been another week of subdued market sentiment for equity, credit and commodity
markets – although iTraxx ended the week marginally tighter then last week. The
Bloomberg Commodity Index mentioned last week (consisting of prices on 20 different
commodities) continued to drop from a four-year low and the UK Brent is currently
trading at USD93/barrel, which has not been seen since mid-2012. Last week was
dominated by spread widening across the different iTraxx indices and after a peak on
Monday, spreads have tightened this week with a marginal spread tightening since last
Friday, to 62bp for Europe Main (-2bp) and 252bp for Crossover (-11bp).
This week’s major macroeconomic event was yesterday’s ECB meeting in Naples and its
ABS and covered bond outright purchase programmes will start mid-October. They are
intended to last for two years. ECB President Mario Draghi’s lack of detail and the signal
that QE in sovereign bonds is not just around the corner disappointed. The exact size of
the purchases was not disclosed although Draghi indicated a balance sheet increase
towards the size in 2012 (implies <EUR1trn). The ECB’s progressive purchase
programme will be conducted in both the secondary and primary markets and apply to
EUR issues from euro-zone members, which must be minimum investment grade from
one major rating agency. The ECB will also consider buying ABS and covered bonds
retained by the banks that have created them.
Here we roll again – iTraxx series 22 as of Monday
The current 21st series is set to roll on Monday 6 October (coupon as of 22 September).
Itraxx indices roll semi-annually, but the roll to series 22 is different as the new ISDA
protocol is in effect from the 6 October and the Crossover index is extended by 15 CDSs
based on the supplementary list (now 75 names) – with a lower average rating ~ ‘B’
category. The most important change to the 2014 protocol is for sovereigns and financials
and for financials the CDS will follow the reference bond’s priority in a potential
succession event. Consequently, senior financial CDSs are expected to tighten and
subordinated CDSs expected to widen under the new protocol, as the CDS protection will
better reflect the reference bond and the situation for subordinated CDS holders in Banco
Espritito Santo in August would not have occurred (under ISDA protocol 2003).
Table 1. Selected issues
Name Rating Coupon Cur. Tenor Size Spread*
SCBC /Aaa/ 0.63% SEK 7Y 1000 MS + 1 Adidas AG - 2.25% EUR 12Y 400 MS + 100 Prologis LP BBB/Baa1/BBB 1.38% EUR 6Y 600 MS + 85 Aerports de Paris A+//A+ (Corporate rating) 1.50% EUR 10.5Y 500 MS + 45 Alandsbanken AA// 0.50% EUR 4Y 150 MS + 20
Source: Danske Bank Markets, Bloomberg. Size in million, ratings are senior unsecured ratings from S&P/Moody’s/Fitch
3 October 2014
Senior Analyst Åse Haagensen +47 22 8613 22 [email protected]
Contents
Market commentary 1
Selected charts 2
Recently published research 4
Official and shadow ratings 6
Weekly Credit Update
iTraxx Europe (investment grade)
Source: Bloomberg, Danske Bank Markets
iTraxx Crossover (high yield)
Source: Bloomberg, Danske Bank Markets
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Selected Charts
iTraxx (Europe) vs CDX (US) Investment grade corporate yields
Source: Bloomberg, Danske Bank Markets Source: Bloomberg, Danske Bank Markets
Nordic corporates vs iTraxx Nordic banks 5Y CDS spreads
Source: Bloomberg, Danske Bank Markets Source: Bloomberg, Danske Bank Markets
Corporate BBB bond yield vs EuroSTOXX dividend yield 3M Libor OIS spreads
Source: Bloomberg, Danske Bank Markets Source: Bloomberg, Danske Bank Markets
Financials spread vs non-financials (Industrials), A-rated
Source: Bloomberg, Danske Bank Markets
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Europe fund flows Sweden fund flows Norway fund flows
Source: Macrobond Source: Macrobond Source: Macrobond
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Recently published research
Talivaara: credit update and coverage suspension
After considerable delay (due to the ongoing restructuring process) Talvivaara reported
its Q2 14 results on 30 September and at the same time issued a draft proposal for a
corporate restructuring plan. Under the plan, the operating subsidiary of Talvivaara plc
(Talvivaara Sotkamo) is to be sold to a new operating entity (NewCo), which will
subsequently take over all assets (including mining rights, except for Uranium) and pay
back part of the remaining senior secured debt obligations (with proceeds from the sale).
The establishment of the NewCo will be subject to new/existing investors injecting
around EUR100-200m of fresh capital into the new structure. If the plan is carried out in
its current form, unsecured debt holders are set to take a significant haircut of about 99%
but will have the option to negotiate supplementary payments as part of the business
purchase agreement (BPA) between the new operating entity and Talvivaara Sotkamo.
We subsequently withdraw our shadow rating on Talvivaara and suspend our coverage on
the name.
Following the Q2 result, Talvivaara updated on the ongoing restructuring programme. A
full liquidation of the company is currently not on the drawing board, as Talvivaara's
operations have been deemed viable for the time being (the economic loss for the
Sotkamo region would be substantial). It is therefore proposed that the operating
company (Talvivaara Sotkamo) is to be purchased by the new operating company (OpCo)
with fresh capital from new/existing investors. By current estimates, senior creditors will
take a significant haircut and it is proposed that unsecured creditors will be almost fully
written down, getting back only 1% of the nominal value. The solution is still dependent
on the NewCo obtaining funds to buy the operating subsidiary, which it should get from
either a bond or share issue with the involvement of one or more cornerstone investors
(e.g. the Finnish state). The full restructuring proposal is to be submitted for approval on
1 December 2014 at the latest. If the involved parties fail to reach an agreement, it could
result in a full wind down of the company, which would be the most costly outcome
leaving both senior and unsecured creditors with nothing.
Due to the increased clarity on the restructuring process and the potential consequences
for senior unsecured creditors, we withdraw our shadow rating on Talvivaara and suspend
our coverage on the name.
Rating action by S&P on back of its new bank hybrid criteria
On Monday, S&P took rating action on the back of its new methodology, new S&P
Criteria for Hybrids. The agency looked into 1,200 instruments and 88% were
downgraded one or two notches more than before. As standard, both AT1 and Legacy T1
instruments are now rated four notches below the stand-alone rating (three and two
notches before, respectively). The former was expected but the latter came as a surprise.
Last week S&P stated that standard notching for Legacy T1 would be three notches (one
notch more than before), but today the agency stated that two-thirds of all Legacy T1 was
downgraded four notches(two notches more than before). While there is no mandatory
contingency capital feature (CoCo) on Legacy instruments, S&P believes that under
statutory resolution and bail-in regimes, Legacy T1 will be handled equivalent to new
style CoCo bonds.
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While it might be the case in a true default situation (both types of instruments are
probably written down to zero), we believe there is a marked difference especially in the
risk of coupon cancellations. Coupons on AT1s are fully discretionary (i.e. like a
dividend) and can be cancelled without any implications for the life of the instrument.
This is not the case for Legacy T1, where a cancellation of coupons in certain situations
could be the first step of the bank getting into resolution/termination.
Thus, we find the risks of AT1s from an investor point of view significantly higher than
Legacy instruments and find equal treatment by S&P a bit puzzling.
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Ratings from Standard & Poor’s, Moody’s and Fitch and Danske Bank markets shadow ratings
Source: Standard & Poor’s, Moody’s, Fitch, Danske Bank Markets
Analyst(s)
Company Rating Outlook Sr. Unsec Rating Outlook Rating Outlook Rating OutlookAkelius Residential Ab BB+ Pos BB Wiveca SwartingAmbu A/S BBB- Stable Jakob MagnussenAp Moeller - Maersk A/S BBB+ Stable Baa1 Stable Brian Børsting BUYArla Foods Amba BBB+ Stable Mads RosendalAtlas Copco Ab A Stable A2 Stable Mads Rosendal SELLAvinor As AA- Stable A1 Stable Åse Haagensen HOLDBank 1 Oslo Akershus As BBB+ Stable T. Hovard / L. HolmBeerenberg Holdco Ii As B+ Stable Øyvind MossigeBw Offshore BB+ Stable Øyvind MossigeCargotec Oyj BBB- Stable Kasper F. LarsenCarlsberg Breweries A/S Baa2 Stable BBB Stable Brian Børsting SELLCermaq Asa BB Stable Knut-Ivar BakkenCitycon Oyj BBB Stable Baa2 Stable Åse HaagensenColor Group As BB- Stable B+ Åse HaagensenDanske Bank A/S A Neg Baa1 Pos A StableDlg Finance As BB- Stable Mads RosendalDfds A/S BB+ Stable Brian BørstingDna Ltd BBB- Stable Ola HeldalDnb Bank Asa A+ Stable A1 Neg T. Hovard / L. Holm HOLDDong Energy A/S BBB+ Stable Baa1 Stable BBB+ Stable Jakob Magnussen HOLDDsv A/S BBB Stable Brian BørstingEg Holding B Stable Jakob MagnussenEika Boligkreditt As A- Stable T. Hovard / L. HolmEika Gruppen As BBB Stable T. Hovard / L. HolmElectrolux Ab BBB Wr WD Brian Børsting HOLDElisa Oyj BBB Pos Baa2 Stable Ola Heldal BUYEntra Eiendom As A- Stable Åse HaagensenFarstad Shipping Asa BB Stable BB- Åse HaagensenFinnair Oyj BB Stable Brian BørstingFingrid Oyj AA- Neg A1 Stable A+ Stable Jakob Magnussen BUYFortum Oyj A- Neg A2 Neg A- Neg Jakob Magnussen SELLFred Olsen Energy Asa BB+ Stable Sondre StormyrG4S Plc BBB- Stable Brian Børsting BUYGetinge Ab BBB- Neg Louis LandemanHeimstaden Ab BB Stable BB- Wiveca SwartingHelgeland Sparebank Baa2 Neg T. Hovard / L. HolmHemso Fastighets Ab BBB+ Stable Wiveca SwartingHoist Kredit Ab BB- Stable B+ Gabriel BerginHusqvarna Ab BBB- Stable Louis LandemanInvestor Ab AA- Stable A1 Stable Brian Børsting BUYIss A/S BBB- Stable Baa3 Stable Brian Børsting HOLDJernhusen Ab A- Stable Gabriel BerginJ Lauritzen A/S B Stable B- Åse HaagensenJyske Bank A/S A- Stable Baa1 Neg Thomas M. Hovard BUYKesko Oyj BBB Stable Mads RosendalKlaveness Ship Holding As BB- Stable B+ Bjørn Kristian RøedMeda Ab BB- Stable Louis LandemanMetsa Board Oyj B+ Pos B2 Pos Mads RosendalMetso Oyj BBB Stable Baa2 Neg Mads Rosendal BUYMjolby-Svartadalen Energi Ab BBB+ Watch Louis LandemanNcc Ab BBB- Stable Wiveca SwartingNeste Oil Oyj BBB- Stable Jakob Magnussen HOLDNokia Oyj BB Pos Ba2 Stable BB Stable Ola Heldal HOLDNokian Renkaat Oyj BBB+ Stable Jakob MagnussenNordea Bank Ab AA- Neg Aa3 Neg AA- Stable T. Hovard / L. Holm SELLNorth Atlantic Drilling Ltd BB Stable BB- Sondre StormyrNorwegian Air Shuttle Asa BB- Stable B+ Brian BørstingNorwegian Property Asa BBB- Stable Åse HaagensenNykredit Bank A/S A+ Neg Baa2U Stable A Stable T. Hovard / L. Holm BUYNynas Group B+ Stable B+ Jakob MagnussenOdfjell Se B+ Stable B Bjørn Kristian RøedOlav Thon Eiendomsselskap Asa BBB+ Stable Åse HaagensenOlympic Shipping As B+ Stable B Åse HaagensenOutokumpu Oyj B- Pos Mads RosendalOrkla Asa BBB+ Pos Åse HaagensenPohjola Bank Oyj AA- Neg Aa3 Neg A+ Stable T. Hovard / L. Holm SELLPosten Norge As A- Stable Åse HaagensenPostnord Ab BBB+ Stable Gabriel BerginProsafe Se BB Stable Åse HaagensenRamirent Oyj BB+ Stable Brian BørstingSaab Ab BBB+ Stable Wr Wiveca Swarting
S&P Moody's FitchDanske Bank Recomm.
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Ratings from Standard & Poor’s, Moody’s and Fitch and Danske Bank markets shadow ratings
Source: Standard & Poor’s, Moody’s, Fitch, Danske Bank Markets
Analyst(s)
Company Rating Outlook Sr. Unsec Rating Outlook Rating Outlook Rating OutlookSampo Oyj Baa2 Stable T. Hovard / L. Holm HOLDSandnes Sparebank BBB+ Stable T. Hovard / L. Holm HOLDSandvik Ab BBB Stable Mads Rosendal HOLDSas Ab B- Stable Wr Pos Brian BørstingSbab Bank Ab A Neg A2 Neg T. Hovard / L. Holm HOLDScania Ab A- Stable Mads Rosendal HOLDSchibsted Asa BBB Stable Åse HaagensenSeadrill Ltd BB+ Stable BB Sondre StormyrSecuritas Ab BBB Stable Wr Brian Børsting HOLDSkandinaviska Enskilda Banken Ab A+ Neg A1 Neg A+ Pos T. Hovard / L. Holm BUYSkanska Ab BBB+ Stable Wiveca SwartingSkf Ab BBB+ Stable Baa1 Stable Mads Rosendal HOLDSolstad Offshore Asa BB- Stable B+ Åse HaagensenSparebank 1 Boligkreditt As BB- Stable Lars HolmSparebank 1 Nord Norge A- Stable A2 Neg A Stable T. Hovard / L. HolmSparebank 1 Smn A2 Neg A- Stable T. Hovard / L. Holm BUYSparebank 1 Sr Bank Asa A2 Neg A- Stable T. Hovard / L. Holm HOLDSpar Nord Bank A/S BBB+ Stable T. Hovard / L. HolmSponda Oyj BBB- Stable Wiveca SwartingSt1 Nordic Oy BB Stable Jakob MagnussenStatkraft Sf A- Stable Aaa Stable Jakob Magnussen BUYStatnett Sf A+ Stable Wr Stable Jakob Magnussen HOLDStatoil Asa AA- Stable Aa2 Stable Jakob Magnussen SELLSteen & Strom As BBB+ Stable Åse HaagensenStena Ab BB Stable B2 Stable Brian Børsting BUYStockmann Oyj Abp BB- Neg Mads RosendalStolt-Nielsen Ltd BB+ Stable BB Bjørn Kristian RøedStora Enso Oyj BB Stable Ba2 Neg WD Mads Rosendal HOLDStorebrand Bank Asa BBB+ Stable BBB+ Neg Baa1 Neg T. Hovard / L. HolmSuomen Hypoteekkiyhdistys A- Stable T. Hovard / L. HolmSwedavia Ab A- Stable Gabriel BerginSwedbank Ab A+ Neg A1 Neg A+ Pos T. Hovard / L. Holm BUYSwedish Match Ab BBB Stable Baa2 Stable Brian Børsting HOLDSvenska Cellulosa Ab Sca A- Stable Baa1 Stable Mads Rosendal BUYSvensk Fastighetsfinansiering Ab BBB Stable Louis LandemanSvenska Handelsbanken Ab AA- Neg Aa3 Neg AA- Stable T. Hovard / L. Holm HOLDSydbank A/S Baa1 Neg T. Hovard / L. Holm BUYTallink Group As BB Stable BB- Jakob MagnussenTalvivaara Mining Co Plc C Mads RosendalTdc A/S BBB Neg Baa3 Stable BBB Stable Ola Heldal HOLDTeekay Offshore Partners Lp BB- Stable B+ Bjørn Kristian RøedTele2 Ab BBB Stable Ola HeldalTelefonaktiebolaget Lm Ericsson BBB+ Stable Baa1 Stable BBB+ Neg Ola Heldal HOLDTelenor Asa A- Pos A3 Stable Ola Heldal HOLDTeliasonera Ab A- Stable A3 Stable A- Stable Ola Heldal SELLTeollisuuden Voima Oyj BBB Neg Wr BBB Stable Jakob Magnussen BUYThon Holding As BBB+ Stable Åse HaagensenUpm-Kymmene Oyj BB Pos Ba1 Stable WD Mads Rosendal HOLDVasakronan Ab BBB+ Stable Wiveca SwartingVattenfall Ab A- Stable A3 Stable A- Neg Jakob Magnussen HOLDVestas Wind Systems A/S BBB- Pos Niklas Ripa BUYVolvo Ab BBB Neg Baa2 Neg BBB Stable Mads Rosendal HOLDWilh Wilhelmsen Asa BBB- Stable Bjørn Kristian RøedYit Oyj B Neg Louis Landeman
Danske Bank S&P Moody's Fitch Recomm.
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Knut-Ivar Bakken
Fish farming (+47) 85 40 70 74 [email protected]
Wiveca Swarting
Real Estate, Construction (+46) 8 568 80617 [email protected]
Ola Heldal
TMT (+47) 85408433 [email protected]
Henrik René Andresen
Credit Portfolios (+45) 45 13 33 27 [email protected]
Brian Børsting
Industrials (+45) 45 12 85 19 [email protected]
Mads Rosendal
Industrials, Pulp & Paper (+45) 45 14 88 79 [email protected]
Lars Holm
Financials (+45) 45 12 80 41 [email protected]
Jakob Magnussen
Utilities, Energy (+45) 45 12 85 03 [email protected]
Åse Haagensen
High Yield, Industrials (+47) 22 86 13 22 [email protected]
Fixed Income Credit Research
Louis Landeman
TMT, Industrials (+46) 8 568 80524 [email protected]
Thomas Hovard
Head of Credit Research (+45) 45 12 85 05
Find the latest Credit Research
Danske Bank Markets: Bloomberg: http://www.danskebank.com/danskemarketsresearch DNSK<GO>
Gabriel Bergin
Strategy, Industrials (+46) 8 568 80602 [email protected]
Niklas Ripa
High Yield, Industrials (+45) 45 12 80 47 [email protected]
Bjørn Kristian Røed
Shipping (+47) 85 40 70 72 [email protected]
Sondre Dale Stormyr
Offshore rigs (+47) 85 40 70 70 [email protected]
Øyvind Mossige
Oil services (+47) 85 40 54 91 [email protected]
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Disclosures This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S (‘Danske
Bank’). The author of the research report is Thomas Hovard, Chief Analyst.
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Each research analyst responsible for the content of this research report certifies that the views expressed in the
research report accurately reflect the research analyst’s personal view about the financial instruments and issuers
covered by the research report. Each responsible research analyst further certifies that no part of the compensation
of the research analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed
in the research report.
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