Credit Market Pulse - Credit Analytic Solutions

Credit Market Pulse
∫ Global
Credit Risk Trends
∫ Credit Trends Behind Major Market Indexes
∫ Best, Worst and Top Movers
FEBRUARY 2014
ISSUE 2
S&P CAPITAL IQ CREDIT MARKET PULSE
Editors’ Note
W
elcome to the latest edition of Credit Market Pulse and thank you for your positive response to and encouraging feedback on our first issue, published
in November 2013. Produced with the busy investment management, credit officer and financial risk reporting audience in mind, S&P Capital IQ’s Credit
Market Pulse is the first publication for the credit risk industry that provides a holistic overview of the health and trends of global credit capital markets
leveraging the extensive analytical intelligence and depth of data from our own institution. The benchmarks, trends and individual company analyses examined
in this article are intended to provide financial professionals with a better understanding of the risks and opportunities underlying their investment or lending
decisions as well as how their portfolios perform against the market.
At the core of Credit Market Pulse is S&P Capital IQ’s proprietary probability of default (PD) model, ‘Market Signals’, a unique analytical model which provides
daily changing, 1-year forward looking PDs of publicly listed companies based on a cutting-edge econometric framework. In addition, this model generates more
than 37,000 company-specific PDs every day, covering 99.9% of global market capitalization across developed economies, frontier and emerging markets.[1]
Like the inaugural edition, this issue of Credit Market Pulse has three
core sections, providing different views of credit risk. These include the
quarterly evolution of the median PD; monthly evolution of the credit risk for
constituents of the S&P 500 equity index and its various industry sub-indices,
and PD tables of individual companies that merit special attention.
In the first section, the quarterly evolution of the median PD is shown for the
last three years with a monthly blow-out for the last year. Our charts depict
all listed companies headquartered in North America, Western Europe, Asia
Pacific Mature and BRIC countries with revenues over $500M USD.[2]
“
”
Thank you for your positive response to and
encouraging feedback on our first issue.
In the second section, the PDs of all constituents of the S&P 500 equity index and its various industry sub-indices are generated and aggregated into
median PDs and the monthly evolution of the credit risk is shown for the last year with a weekly blowout for the most recent five weeks.[3] This process can be
replicated for any other index and this will be explored in future editions. Please note that for S&P Capital IQ subscribers, an Excel® template is available for
users to replicate this section with other indices.
Finally, the third section shows a table of individual companies that merit special attention. For each of the four regions identified in section 1, the companies
with over $5B USD in revenues with the worst individual PDs as of January 15, 2014 as well as biggest deteriorations or greatest improvement of credit risk
since October 31, 2013—highlighted in the first issue of Credit Market Pulse—are singled out.[4]
We hope Credit Market Pulse will become an important tool for credit risk officers, investment managers, the debt capital market community and others looking to
bring additional credit risk metrics and forecasting capabilities into their financial decision making. We continue to publish bi-monthly and will occasionally focus
on trends occurring locally, regionally and globally. We look forward to receiving further feedback and suggestions for additional comparative analysis or regions
and industries of your interest. To subscribe to the Credit Market Pulse, visit www.spcapitaliq-credit.com/creditmarketpulse.
Authors*
Silvina Aldeco-Martinez
Managing Director,
Product & Market Development
EMEA,
S&P Capital IQ
Marcel Heinrichs
Director,
Market Development Americas,
S&P Capital IQ
Thomas Yagel
Director,
Credit Market Development,
S&P Capital IQ
PD Market Signals enables different views for almost 250 countries and territories, more than 140 different industries and has coverage for companies of all sizes.
[1]
The median PD is preferred over the average PD because it is less sensitive to outliers. The revenue threshold is utilized because North America has a much higher concentration of small and micro-cap companies that
negatively skew the credit view of the region (if they are included) when compared to the other regions. The total number of daily observations for this analysis still exceeds 7,000 and counts across regions are fairly even. For
reference, the table below the graph shows the PD median values and their mapped credit scores as lower case letter grades.
[2]
Weightings are adjusted for companies that do not produce a PD value as a small handful of companies may be lacking data and we are not scoring most financial institutions at this time.
[3]
Their PDs and mapped with credit scores shown and improvements and deteriorations are calculated based on biggest changes in credit scores, not PD percentage change, as small PD values can produce outsized
percentage changes that aren’t extremely significant (ties are broken with PD percentage change).
[4]
* Authors listed in alphabetical order.
2 | FEBRUARY 2014 ISSUE 2
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Credit Market Pulse
Global Credit Risk Trends
APAC Mature
Market Signals Probability of Default Regional Averages
BRIC
Western Europe
North America
2013–2014 Monthly Stats (in monthly PD changes)
View From The Bleachers (in quarterly PD changes)
(%)
(%)
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0
Mar
2011
Jun
2011
Sep
2011
Dec
2011
Mar
2012
Jun
2012
Sep
2012
Dec
2012
Mar
2013
Jun
2013
Sep
2013
Dec
2013
0
Jul
2013
Aug
2013
Sep
2013
Oct
2013
Nov
2013
Dec
2013
Jan
2014
REGIONAL COMMENTARY
zz
Since the first edition of Credit Market Pulse in November, the short-term PD trends for non-financial corporations with revenues above USD 500m from North America,
Europe and Asia Mature show further reduction of assumed credit risk in each of these markets. For of all these developed markets combined we even register the lowest median PD—below 0.1%—since the beginning of the financial crisis in 2008. Conversely, the median PD for companies from BRIC countries has reverted to a slightly
more elevated level, from 1.6% to 2.1%.
zz
For North America, the current market view of credit risk continues to be optimistic. A median PD of 0.02%, which can be mapped to a credit score of aa-, implies that
50% of its public companies with revenues above USD 500m are considered to have no or very low credit risk. This is aligned with a series of economic indicators, which
indicate that the US economy is on a path of steady recovery. However, this optimistic view of aggregated credit risk should not be misinterpreted as a sign that no
individual sectors or even companies exhibit elevated credit risk, as sections 2 and 3 illustrate, notably for selected retail companies.
zz
Western European mid- to large cap corporations continue to show a higher average credit risk than their North American counterparts, but the gap remains low.
Neither the Eurozone crisis nor the continuing tight economic conditions of the debt-burdened countries in the European periphery are considered imminent risks to
the overall credit health in this region. And indeed, recent discussions at the World Economic Forum in Davos have shifted the attention more towards the weakening
conditions of emerging market countries.
zz
The credit risk for companies from Asia Pacific Mature markets has further improved over the last two months from a median PD of 0.19% to 0.12%. However, this PD
level is still twice as high as that of Western European counterparts and its mapped credit score remains the same at bbb+ as it did two months ago.
zz
The median PD for BRIC countries is the only one that deteriorated. It remains significantly greater than the median PD for developed economies, and the mapped credit score is still unchanged at bb-, which is well within the high-yield segment. In all four BRIC countries, uncertainty about their economic growth paths has increased as
a consequence of mainly two fears: first, that tighter policies from the FED and its counterparts from the European Union may lead investors to withdraw from emerging markets and second, an increased perception that capital in these countries is not allocated efficiently to strengthen the economy of their domestic markets.
MAR. 31,
2011
JUN. 30,
2011
SEP. 30,
2011
DEC. 30,
2011
MAR. 30,
2012
JUN. 29,
2012
SEP. 28,
2012
DEC. 31,
2012
MAR. 29,
2013
JUN. 28,
2013
JUL. 15,
2013
AUG. 15,
2013
SEP. 13,
2013
OCT. 15,
2013
NOV. 15,
2013
DEC. 13,
2013
JAN. 15,
2014
0.07%
a
0.11%
a-
1.71%
bb-
0.52%
bbb-
0.07%
a
0.33%
bbb
0.09%
a-
0.13%
bbb+
0.02%
aa-
0.09%
a-
0.06%
a
0.06%
a
0.06%
a
0.03%
a+
0.04%
a+
0.03%
aa-
0.02%
aa-
0.20%
bbb+
0.20%
bbb+
2.21%
bb-
0.67%
bb+
0.16%
bbb+
0.97%
bb
0.19%
bbb+
0.15%
bbb+
0.10%
a-
0.27%
bbb
0.18%
bbb+
0.12%
a-
0.11%
a-
0.05%
a
0.06%
a
0.09%
a-
0.06%
a
0.29%
bbb
0.23%
bbb
1.05%
bb
0.59%
bb+
0.14%
bbb+
0.75%
bb+
0.19%
bbb+
0.15%
bbb+
0.10%
a-
0.47%
bbb-
0.40%
bbb-
0.49%
bbb-
0.43%
bbb-
0.19%
bbb+
0.18%
bbb+
0.12%
a-
0.13%
bbb+
0.83%
bb+
1.04%
bb
1.68%
bb-
1.98%
bb-
1.54%
bb-
2.10%
bb-
1.98%
bb-
1.14%
bb
1.21%
bb
2.17%
bb-
2.11%
bb-
1.71%
bb-
2.12%
bb-
1.45%
bb-
1.61%
bb-
1.63%
bb-
2.09%
bb-
North America (1743*)
Western Europe (1218*)
APAC Mature (2714*)
BRIC (1526*)
*Counts as of January 15, 2014. PD Market Signal scores are represented by lowercase nomenclature to differentiate them from S&P Ratings Services credit ratings.
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FEBRUARY 2014 ISSUE 2 | 3
S&P CAPITAL IQ CREDIT MARKET PULSE
Credit Trends Behind Major Market Indexes
Consumer discretionary
Information technology
S&P 500 Average PD Market Signal by Sector**
Consumer staples
Materials
Energy
Telecom services
Healthcare
Utilities
Industrials
S&P 500
5-week Focus (in weekly PD changes)
2-year Flux (in monthly PD changes)
(%)
(%)
1.00
1.00
0.10
0.10
0.01
0.01
0.00
0.00
Nov
2012
Dec
2012
Jan
2013
Feb
2013
Mar
2013
Apr
2013
May
2013
Jun
2013
Jul
2013
Aug
2013
Sep
2013
Oct
2013
Nov
2013
Dec
2013
Dec. 18,
2013
Dec. 25,
2013
Jan. 1,
2014
Jan. 8,
2014
Jan. 15,
2014
INDEX COMMENTARY
zz
Since our last report in November 2013, the credit risk of the S&P 500 index has continued to improve, reaching an overall probability of default of 0.02%.
This is also true for most of the S&P 500 sector constituents.
zz
The Telecommunication Services constituents have not been an exception with a reduction of the medium PD down to 0.12%. Nonetheless the sector continues to be
the highest contributor to the credit risk behind the index. The heaviest credit-risk downward pull is still coming from Frontier Communications Corp. with a PD of 1.02%.
zz
Along with Telecommunications Consumer discretionary, the Energy and Utilities segments pulled the index average PD upwards. Within these sectors the highest
PD levels were recorded by International Game Technology (IGT) and GameStop Corp at 1.83% and 1.39%, respectively, both minor constituents of the Consumer
Discretionary group. Holiday sales reports did not meet market expectations, and market consensus based on current S&P Capital IQ estimates are also reviewing
NYSE:GME EPS downwards, which ultimately pressures forward looking credit quality. Downward revisions of NYSE:IGT 2014 EPS have substantially exceeded upward
movements. Whilst the PD for both companies is relatively low, the level is uncharacteristically higher than peer constituents and could require monitoring.
zz
Best credit risk performing aggregated sectors within the S&P 500 were Information Technology, Consumer Staples and, Industrials; with miniscule Market
Signal PDs at the 0.01% level each.
NOV.
DEC.
2012
2012
Consumer Discretionary (83*)
Value
0.07% 0.12%
Credit Score
a
a-
JAN.
2013
FEB.
2013
MAR.
2013
Apr.
2013
May.
2013
Jun.
2013
Jul.
2013
Aug.
2013
Sep.
2013
Oct.
2013
Jan.
2014
DEC. 18,
2013
DEC. 24,
2013
DEC. 31,
2013
JAN. 8,
2014
JAN. 15,
2014
0.06%
a
0.06%
a
0.04%
a+
0.05%
a
0.06%
a
0.09%
a-
0.06%
a
0.20%
bbb+
0.11%
a-
0.08%
a-
0.04%
a+
0.03%
aa-
0.03%
aa-
0.03%
aa-
0.03%
a+
0.04%
a+
Consumer Staples (40*)
Value
0.03%
Credit Score
aa-
0.04%
a+
0.02%
aa-
0.01%
aa
0.01%
aa+
0.01%
aa+
0.02%
aa
0.03%
aa-
0.02%
aa
0.04%
a+
0.02%
aa
0.01%
aa+
0.01%
aa
0.01%
aa+
0.01%
aa+
0.01%
aa+
0.01%
aa
0.01%
aa
Energy (44*)
Value
Credit Score
0.08%
a-
0.13%
a-
0.05%
a+
0.04%
a+
0.04%
a+
0.08%
a
0.10%
a-
0.16%
bbb+
0.06%
a
0.11%
a-
0.09%
a-
0.03%
aa-
0.04%
a+
0.03%
a+
0.03%
a+
0.03%
aa-
0.03%
a+
0.04%
a+
Healthcare (52*)
Value
Credit Score
0.03%
a+
0.04%
a+
0.12%
a-
0.02%
aa-
0.02%
aa
0.02%
aa-
0.03%
a+
0.05%
a
0.03%
a+
0.06%
a
0.03%
aa-
0.02%
aa-
0.02%
aa
0.02%
aa-
0.02%
aa
0.02%
aa-
0.02%
aa
0.02%
aa
Industrials (63*)
Value
Credit Score
0.06%
a
0.08%
a
0.04%
a+
0.02%
aa-
0.02%
aa
0.03%
aa-
0.04%
a+
0.07%
a
0.03%
a+
0.07%
a
0.04%
a+
0.02%
aa-
0.01%
aa
0.01%
aa
0.01%
aa
0.01%
aa
0.01%
aa
0.01%
aa
Information Technology (63*)
Value
0.07% 0.07%
Credit Score
a
a
0.06%
a
0.03%
aa-
0.02%
aa-
0.03%
aa-
0.02%
aa-
0.03%
aa-
0.01%
aa
0.02%
aa-
0.02%
aa
0.02%
aa-
0.01%
aa+
0.01%
aa
0.01%
aa+
0.01%
aa+
0.01%
aa+
0.01%
aa+
Materials (30*)
Value
Credit Score
0.10%
a-
0.04%
a+
0.04%
a+
0.04%
a+
0.19%
bbb+
0.17%
bbb+
0.26%
bbb
0.09%
a-
0.15%
bbb+
0.10%
a-
0.08%
a
0.03%
aa-
0.05%
a
0.05%
a
0.04%
a+
0.03%
a+
0.03%
aa-
Telecommunication Services (6*)
Value
0.43% 0.68%
Credit Score
bbbbb+
0.52%
bbb-
0.29%
bbb
0.31%
bbb
0.29%
bbb
0.40%
bbb-
0.44%
bbb-
0.24%
bbb
0.53%
bbb-
0.56%
bb+
0.18%
bbb+
0.10%
a-
0.07%
a
0.06%
a
0.07%
a
0.08%
a-
0.10%
a-
Utilities (30*)
Value
Credit Score
0.15%
bbb+
0.03%
a+
0.04%
a+
0.03%
aa-
0.02%
aa
0.01%
aa+
0.01%
aa+
0.02%
aa
0.03%
a+
0.04%
a+
0.09%
a-
0.05%
a+
0.03%
a+
0.03%
aa-
0.02%
aa-
0.03%
aa-
0.02%
aa-
0.03%
aa-
0.03%
aa-
S&P 500(411*,**)
Value
0.07%
Credit Score
a
0.10%
a-
0.07%
a
0.04%
a+
0.03%
a+
0.05%
a
0.06%
a
0.08%
a-
0.04%
a+
0.10%
a-
0.07%
a
0.04%
a+
0.02%
aa-
0.02%
aa-
0.02%
aa-
0.02%
aa-
0.02%
aa-
0.02%
aa-
*Counts as of January 15, 2014. PD Market Signal scores are represented by lowercase nomenclature to differentiate them from S&P Ratings Services credit ratings.
**S&P 500 is inclusive of all S&P 500 Index constituents that have S&P Capital IQ PD Market Signal coverage and excluding GICS (trade mark) Financial Sector (GICS code 40). Industries are not S&P 500 sub-indices, but rather,
GICS 2-digit Sector groupings within the S&P 500 Index.
4 | FEBRUARY 2014 ISSUE 2
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S&P CAPITAL IQ CREDIT MARKET PULSE
Best, Worst and Top Movers
REGION
HIGHEST
Western
Europe
OM:SAS
SAS AB
(b-)
(6.55%)
LSE:TT.
TUI Travel PLC
bbb aaa
0.26% 0.00%
LSE:SBRY
J. Sainsbury plc
aaa bbb
0.01% 0.27%
XTRA:AB1
Air Berlin PLC & Co. Luftverkehrs KG
(b+)
(2.28%)
LSE:EZJ
easyJet plc
bb+ aa0.77% 0.03%
ENXTPA:TEC
Technip
aa- bb
0.03% 1.00%
ENXTLS:PTC
Portugal Telecom, SGPS S.A.
(bb-)
(2.05%)
LSE:DRTY
Darty plc
bb+ aa0.61% 0.02%
ENXTPA:ORA
Orange
aa- bb+
0.02% 0.78%
NasdaqGS:NIHD
NII Holdings Inc.
(ccc-)
(32.89%)
NYSE:KND
Kindred Healthcare Inc.
bb- a+
1.81% 0.03%
NYSE:DGX
Quest Diagnostics Inc.
aaa bbb+
0.01% 0.18%
NasdaqGS:SHLD
Sears Holdings Corporation
(ccc)
(17.22%)
TSX:AGU
Agrium Inc.
bbb aaa
0.28% 0.00%
NYSE:APC
Anadarko Petroleum Corporation
aa bbb0.02% 0.38%
NYSE:JCP
J. C. Penney Company, Inc.
(b-)
(7.46%)
NasdaqGS:CAR
Avis Budget Group, Inc.
b+ a
2.95% 0.07%
NYSE:GME
GameStop Corp.
a bb
0.05% 1.14%
BOVESPA:VVAR3
Via Varejo S.A.
(ccc+)
(11.91%)
BSE:500368
Ruchi Soya Industries Limited
ccc- b25.92% 6.35%
SEHK:992
Lenovo Group Limited
aa- bb+
0.02% 0.74%
BOVESPA:OIBR4
Oi SA
(ccc+)
(10.44%)
SEHK:1070
TCL Multimedia Technology
Holdings Ltd.
ccc b
18.13% 4.08%
BOVESPA:VVAR3
Via Varejo S.A.
bb+ ccc+
0.69% 11.91%
SHSE:600575
Wuhu Port Storage & Transportation
Co., Ltd
(b-)
(8.70%)
NYSE:ERJ
Embraer SA
bb bbb
1.07% 0.22%
BOVESPA:PETR4
Petróleo Brasileiro S.A. - Petrobras
bbb bb0.21% 1.43%
KOSE:A117930
Hanjin Shipping Co., Ltd.
(ccc)
(21.91%)
TSE:2282
Nippon Meat Packers Inc.
bb- aa1.64% 0.03%
KOSE:A000880
Hanwha Corp.
aa- bb+
0.02% 0.80%
KOSE:A011200
Hyundai Merchant Marine Co. Ltd.
(ccc)
(19.59%)
TSE:2212
Yamazaki Baking Co. Ltd.
bb- aa1.85% 0.02%
SEHK:883
CNOOC Ltd.
aa+ bbb
0.01% 0.23%
ASX:QAN
Qantas Airways Limited
(ccc+)
(11.14%)
TSE:4578
Otsuka Holdings Co., Ltd.
bbb- aa+
0.43% 0.01%
KOSE:A009540
Hyundai Heavy Industries Co. Ltd.
aa- bb+
0.03% 0.63%
North America
BRIC
APAC Mature
IMPROVEMENT
DETERIORATION
COMPANY PERFORMANCE SPOTLIGHT
Companies over $5B USD in revenues, changes over two-month period prior to and including October 30, 2013
zz
The top three highest PDs across all regions are NII Holdings Inc. (holder of Nextel wireless) in North America, which was up from 28.32% in October to 32.89%,
Hanjin Shipping Co. in APAC Mature at 21.91%, and Hyundai Merchant Marine Co. Ltd also in APAC Mature at 19.59%. Both Hanjin and Hyundai are new to the
top list, with NII Holdings featuring in this report for the second time. Standard & Poor’s Ratings Services placed NII Holdings Inc. on Credit Watch/Outlook
‘Negative’ from ‘Stable’ on 1November 2013 and further downgraded the company one notch from ‘B-‘ to ‘CCC+’ on 10 January 2014. The company’s equity
price has also been deteriorating and driving the increase in PD. Air Berlin PLC’s PD (also in the last report’s top PD list) improved from 6.74% to 2.28%, but
the company remains among the top three highest Western European PDs for companies with the equivalent of USD5 billion or more in revenue. Interestingly,
Western Europe actually has the lowest threshold for the top three positions, i.e. the top three highest PDs in the other regions are all much higher. In this issue
of Credit Market Pulse, we see that several Retail companies are have high PDs, including Sears, J.C. Penney and Via Varejo. Sears is new to the list this month
and passed J.C. Penney (which actually improved since the last report).
zz
Nippon Meat Packers Inc. and Yamazaki Baking Co., both in APAC Mature, improved the most over the with a nine notch increase from bb- to aa-. Although Nippon reported a net loss of THB 13 million compared with net profit of THB 158 million for same period a year ago, the overall reduction of their current liabilities
resulted in a significant drop in PD. Ruchi Soya Industries Ltd., which was in the highest PD category two months ago, had a six notch increase from cc- to
b- or a change in PD from 25.92% to 6.53% – still at a high PD level but much improved on a relative basis. This may have been related to the Q2 and half year
financials released on 15 November or the 16 November announcement that Ruchi agreed to the acquire oil refining business from Ruchi Infrastructure Limited
(NSEI:RUCHINFRA). Five other companies improved the equivalent of eight notches; three in North America (Kindred Healthcare, Agrium Inc. and Avis Budget
Group), TUI Travel in Western Europe and Otsuka Holding Co.in APAC Mature.
zz
The energy sector seemed to be hit the hardest across all regions with one energy company from each region appearing in the biggest deteriorations list. Specifically, we saw deteriorations for Technip (ENXTPA:TEC), Anadarko (NYSE:APC), Petrobras (BOVESPA:PETR4) and CNOOC Ltd (SEHK:883). These warning signals
are potentially related to concerns over lower oil prices due to the continued strength in U.S. domestic production from shale reserves, and in some cases
increased production and stability within the Middle East. Note that the underlying model for this analysis, PD Market Signals, reflects standalone credit risk
without directly incorporating potential support from parent companies or governments. Additionally we also see that globally two companies deteriorated by
the equivalent of eight notches (the highest notch level deteriorations this period). These were both in Western Europe—J. Sainsbury plc (aaa to bbb) and Technip (aa- to bb). Finally we see higher risk levels within Hyundai Group reflected both in term of highest PD levels (Hyundai Merchant Marine Co. Ltd at 19.59%)
and largest deteriorations (Hyundai Heavy Industries Co. Ltd with a seven notch deterioration, although to a still relatively low PD level of 0.63%).
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FEBRUARY 2014 ISSUE 2 | 5
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