Unrated corporate bonds market - UniCredit

6 February 2015 Credit Research

Unrated Corporate Bonds

UniCredit Research page 1 See last pages for disclaimer.

Unrated corporate bonds market ■ In the last five years, continued low interest rates and a

diversification of funding sources, as well as investors’ hunt for yield, have led to a surge in the issuance of rated and unrated bonds. A significant level of opportunism and rising demand for longer-term debt have allowed companies to lock in funding at historically low rates. Issuance activity in the unrated segment also reflects more favorable terms and conditions, including lighter covenant packages compared to bank loans. Unrated issuance has also been driven by a shift from loans to bonds due to Basel III banking regulations, which force banks to hold more capital against loans. However, Fitch has noted that in the last three years, unrated issuance has remained stable at around 10% of all outstanding bonds, as the market is capped due to the small and finite demand from retail investors, institutional investor constraints and a revival of lending.

■ We analyzed 577 EUR bonds issued by 411 companies (not rated by Moody’s, S&P, Fitch) between 2010-2014, with a total volume of EUR 82bn and an average size of ca. EUR 142mn. Around 60% of unrated issuance since 2010 was EUR <100m, with a further 32% between EUR 101mn and EUR 500mn. Germany and France were the main domicile of the majority of unrated issues (44%) and the countries with the highest average bond size. In the same period, companies from outside the eurozone opportunistically issued unrated EUR bonds, including Switzerland, the UK, the US and Canada. Ca. 11% of unrated bond volumes between 2010 and 2014 were from Construction, followed by Oil/Gas, Electronics and Retail. However, if we focus on the number of transactions, Oil/Gas and Transportation represent only a small part, which implies that these capital-intensive sectors are represented by fewer, larger corporates, which tend to be frequent issuers (thus rated).

■ Many issuers have been able to take advantage of their well-known profiles among retail investors in successfully issuing unrated bonds. A number of companies do not want to take on the cost, work and management time involved with obtaining a rating – particularly family controlled companies. These include German Sixt and adidas, Prada and Barilla from Italy, and Air France-KLM, to name but a few. According to Fitch, a sizeable proportion of the larger issues of unrated bonds display credit profiles that could be classified as investment, or near-investment grade. A good example of an unrated issuer with a strong credit profile is Prada. At the time of the bond issue in August 2013, the company’s credit metrics compared well to larger peers Kering (--/BBBs/--) and LVMH (--/A+s/--).

■ However, as many investors are limited to buying unrated paper, and most prefer the transparency that a rating confers, unrated bond issues remain relatively rare. Unrated bonds also tend to be smaller and less liquid than rated debt. Companies therefore have to pay lenders a premium to the yields at which they would normally expect to issue. The extra cost of issuing unrated debt has, however, fallen over the last couple of years. Going forward, Moody’s expects banks to step up lending activity on the back of improving financial stability, notably in Germany, and also a moderate rise in bond issuance while alternative lending markets in Europe (private placements; direct lending) continue to grow.

Contents

Advantages and disadvantages of unrated Issues ___ 2 Recent trends in the unrated bond market _________ 3

Definition _________________________________ 3 Review of the unrated bond market ____________ 3 No rating requirement _______________________ 4 Industries and Regions ______________________ 6 Outlook __________________________________ 7

Appendix __________________________________ 9 Bond issuance charts _______________________ 9 Market structure of German Mittelstand bonds ___ 10 Selected large unrated* bond issues since 2010 _ 11 Key sources _____________________________ 12

UNRATED BOND ISSUANCE

SPREAD DEVELOPMENT OF LARGEST ISSUES

Source: Bloomberg, UniCredit Research

Authors Dr. Manuel Herold (UniCredit Bank) Credit Analyst +49 89 378-12650 [email protected] Mehmet Dere (UniCredit Bank) Credit Analyst +49 89 378 11294 [email protected] Bloomberg UCCR Internet www.research.unicredit.eu

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Advantages and disadvantages of unrated Issues Issuers‘ view ■ Unrated: No cost, work or management time involved in obtaining a rating; avoids

negative consequences (on investor demand) of having a public rating at low speculative levels. However, institutional investors are restricted on the amount of unrated bonds in their holdings.

■ Infrequent issuers can avoid the cost and the effort of a rating process. However, this reduces transparency, which is offered by rating agencies. A stock market listing of the issuer or strong name recognition can also increase transparency.

■ Lighter covenant packages and funding diversification: As no covenants and an IG documentation are used, the issuer enjoys more flexibility than it would from bank loans. However, this means less protection for investors. Companies also see an opportunity to diversify funding sources since Basel III regulations require banks to hold more capital against loans, reducing lending.

■ Pricing: Often in the low IG area plus a crossover/liquidity premium. Of course, final pricing depends on the name, scarcity volume and the stage of the credit cycle. The market benefits from low pricing, ongoing restrictive bank lending practices, relatively advantageous terms and conditions for bond issuance, and a high level of investor appetite for unrated bonds.

■ Research: Unrated issues are often accompanied by an in-depth credit research report to support transparency. In addition, an issuer roadshow is often mandatory. Investors have lowered their risk tolerance levels in adapting to an ever lower yield environment.

■ Household names: Benefit from retail investor familiarity. However, retail investor base (less likely to seek ratings) represents a relatively small and finite part of the market.

Investors‘ view ■ Characteristic of issuers: A sizeable proportion of issuers could be classified as IG or near-IG. According to Fitch, a high-level analysis of the credit profiles of the unrated issuers leads to the conclusion that a sizeable portion of the larger issuers have credit profiles that could be classified as investment, or near investment grade. This is in spite of a significant level of opportunistic issuance by smaller, non-eurozone domiciled corporates.

■ Bond features: Key features of unrated bonds are not materially different from those of rated bonds. Among the 40 largest bond issues in our survey, 35% had a denomination of 1,000 (retail size).

■ Strong performance despite lower risk perception: Riskier unrated bonds offer a more favorable investment opportunity for investors, due to their high performance and lower risk perception of asset classes such as equities and sovereign debt.

■ Investment guidelines of funds: Unrated bonds represent an off-benchmark bet. Therefore, the number of potential investors is limited because of investment guidelines, which usually cap the amount held at 5-10% of their total portfolio. Meanwhile retail investors, who are unlikely to look for ratings, represent a small part of the market.

■ Low liquidity: Compared to IG bonds, liquidity in unrated bonds is often lower and issuers have to pay a premium to the yield. Therefore, the investor base comprises more “buy and hold” investors (e.g. insurance companies). In addition, unrated bond issues tend to be smaller than IG issues, which is likely to affect the bonds’ liquidity and therefore institutional investor appetite.




Recent trends in the unrated bond market

Definition Analysis In our survey, we analyzed 577 EUR bonds issued by 411 companies (not rated by

Moody’s, S&P, Fitch) between 2010-2014, with a total volume of EUR 81.7bn and an average size of around EUR 142mn. For achieving a maximum pool of unrated bond issues we used Dealogic, Bloomberg, UniCredit Database and the German webpage for mid-market bonds bondguide.de. First we took all corporate EUR bond issues since 2010 and then filtered the data for bond ratings and issuer ratings. Alongside S&P, Moody’s and Fitch, we also considered rating companies who are operating in the German bond market, such as Euler Hermes, Creditreform and Feri. For our sector analysis we used Dealogic definitions.

UNRATED* EUR BOND ISSUANCE AT A GLANCE (2010-2014)

Features Details Total volume Ca. EUR 82bn Number of issues 577 EUR bond issues Average coupon Around 91% have a fixed-rated coupon

Average coupon 4.88% Average maturity Average tenor is ca. 5.6 years Deal sizes 60% EUR <100mn; 17% EUR 101-250mn; 15% EUR 251-

500mn; 5% EUR 501-1,000mn; 1% EUR >1bn Denomination Among the 40 largest bond issues: 55% at 100,000; 35%

at 1,000; 5% 1,001–99,000; 5% >100,000

*by Moody’s/S&P/Fitch Source: Bloomberg; Dealogic; www.bondguide.de; UniCredit Research

ISSUANCE VOLUME OF UNRATED EUR BONDS REDEMPTION OF UNRATED BONDS ISSUED 2010-2014

Source: Bloomberg; Dealogic; www.bondguide.de; UniCredit Research

Review of the unrated bond market Surge in issuance In the last five years, continued low interest rates, a challenging access to bank debt,

diversification of funding sources, as well as investors’ hunt for yield, have led to a surge in the issuance of both rated and unrated corporate bonds. Since 2010, the total issuance of unrated EUR bonds is around EUR 82bn, driven by a significant level of opportunism and the rising demand for longer-term dated debt, which allow companies to lock in funding at historically low rates. According to S&P, midsize European companies (account for about one third of the region's economy and employment) have to raise up to EUR 3.5tn in debt between 2013 and 2018 (thereof EUR 2.7tn of existing loans; EUR 800bn for capex) as banks reduced their lending to the sector. This equates to about one third of total debt

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currently owed by non-financial companies in the region. While larger corporates have easier access to finance and much smaller companies are the focus of a variety of policy proposals, midsize businesses appear to be falling into the gap between them. Regarding the issuance of unrated bonds, activity in the segment also reflects more favorable terms and conditions, including lighter covenant packages offered by bonds as opposed to bank loans. However, Fitch noted that in the last three years, unrated issuance has remained stable at around 10% of all outstanding bonds, as the market for this issuance is capped due to both a lack of depth of the demand from retail investors and by institutional investor constraints (restricted by their mandates) to limit the amount of unrated bonds in their portfolio at 5-10%. In addition, appetite for unrated issues stagnated, given a lack of benchmarking and lower liquidity of bonds, as no rating means an absence from indices. Another reason might be the revival of bank lending. Fitch believes that the current market portions likely represent the upper limit of unrated issuance, largely driven by investor capacity and appetite constraints. While the German bond market continued to grow in 2014, Moody’s noted that growth was limited by banks coming back into the market, as lending activity rose on the back of strengthened bank balance sheets and low funding rates. Loan volumes to German non-financial corporates steadily increased last year as banks are stepping up lending activity on the back of improving financial stability, in particular, their funding access, capital and asset quality (please also refer to the appendix).

COUPONS OF UNRATED ISSUANCE (2010-2014) SIZE OF UNRATED EUR BOND ISSUES* (2010-2014)

*bonds issued in tranches are summated Source: Bloomberg; Dealogic; www.bondguide.de; UniCredit Research

No rating requirement Unrated bonds

In addition to diversifying their funding sources, companies without a rating are not exposed to the complexity and cost of acquiring a rating or to the negative consequences of having a public rating at low speculative levels. The reasons why companies (especially smaller corporates) proceed with unrated bond issuance are varied yet intertwined and tend to include low pricing, ongoing restrictive bank lending practices and relatively advantageous terms and conditions for bond issuance. The high level of investor appetite for unrated bonds allows companies to take advantage of these factors. The fear that a corporate will be rated below investment-grade levels, which negatively affects investor appetite for its debt, no longer appears to be prevalent, as investors have lowered their risk tolerance levels as they have adapted to an ever-lower-yield environment. Fitch believes that it is investor appetite for, and tolerance of, unrated bonds that is driving companies’ ability to forego ratings, especially when these companies are well-known or household names, which benefit from their familiarity to retail investors. In our survey, a significant portion of the unrated issuance (60%) over the last five years was under EUR 100mn, with a further 32% between EUR 101-500mn. There were only four issues with face value greater than EUR 1bn, and these were all placed (in tranches) by the same company: Germany’s SAP AG.

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Well known issuers Investment-grade profiles Bond features

However, according to S&P, the default rate of German mid-market companies (e.g. solar energy) highlights a potential mismatch of risk and price and shows how important it is for external third-party credit experts to provide analysis of small and medium-sized enterprises (SMEs). Large, high-profile issuers might be able to issue bonds without risk assessment in the form of a rating given their low credit risk. Some well-known names have been able to take advantage of their higher profiles among retail investors by successfully issuing unrated bonds. These include, for example, Germany’s adidas and Sixt, Italy’s Prada and Barilla and France’s Air France-KLM. Issuance in the last two years included well-known names, such as the following: Indesit (EUR 300mn in April 2013), DO&CO (EUR 150mn in February 2014), ProSieben Media AG (EUR 600mn in April 2014), Novomatic (EUR 200mn in June 2014), Christian Dior (EUR 500mn in June 2014), Symrise (EUR 500mn in July 2014), Iren (EUR 300mn in July 2014), adidas (total EUR 1bn in October 2014), Pirelli (EUR 600mn in October 2014), or Eurofins Scientific (EUR 500mn in January 2015). Chiefly a reflection of the size of the issuers themselves, these bonds fall significantly short of benchmark size, which is likely to affect the bonds’ liquidity and, therefore, institutional-investor appetite. S&P noted that, for medium and smaller mid-market companies, independent research becomes much more important because, on average, their credit risk is higher.

According to Fitch, a sizeable proportion of the larger issues of unrated bonds display credit profiles that could be classified as investment or near-investment grade. This is in spite of a significant level of opportunistic issuance by smaller, non-eurozone-domiciled corporates. Prada is an example of an unrated issuer with a strong credit profile. At the time of its EUR 130mn bond issue in August 2013, Prada’s credit metrics compared well to those of its larger peers, Kering (--/BBBs/--) or LVMH (--/A+s/--). Taking a broad look at the companies’ risk profiles – which are determined by their market positions within their respective industries – as well as some high-level financial parameters, such as leverage and EBITDA levels and margins, Fitch believes that it is not unlikely that a sizeable portion of the issuers might fall into investment-grade-rating categories if they were to be rated.

The key features of unrated bonds are not materially different from those of rated bonds – again, strong market appetite tends to blur the lines. Unrated bonds issued in the past five years have an average tenor of six years (excluding perpetual bonds), whereas as rated bonds from the same period have an average tenor of more than eight years. The average coupon in the period was around 4.9%; it decreased from 5.0% in 2010 to 4.6% in 2014. In our survey, the majority (91%) of unrated issues have a fixed-rate coupon, compared to around 75% in the general bond market.

SELECTED 10 LARGE UNRATED BONDS ISSUED (2010 – 2014) SPREAD DEVELOPMENT OF TOP 10 ISSUES VS. BB/BBB


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NUMBER OF TRANSACTIONS BY SECTOR* (2010-2014) 10 LARGEST UNRATED BOND ISSUERS (2010 – 2014)

*excluding the 140 bonds from other sectors (e.g. Chemicals); excl. SAP 2014 issues Source: Bloomberg; Dealogic; www.bondguide.de; UniCredit Research

Industries and Regions Industry focus We saw that around 11% of the unrated bond volumes between 2010 and 2014 are from

Construction/Building, followed by Oil/Gas, Retail (8% each), Healthcare and Electronics (7% each). However, if we look at the number of transactions, Oil/Gas and Transportation (4.5% each) represent only a smaller part, which implies that these companies are less frequent issuers (but at larger sizes) and that the sector is represented by fewer, larger corporates, which tend to be frequent issuers (thus rated) with significant capital-intensive requirements. The highest number of issues was again seen in Construction/Building (12%), followed by Utility/Energy (10%) and Real Estate/Property (7%). This is a reflection of the fact that these sectors also contain a large number of smaller companies, while other sectors have fewer, larger corporates.

UNRATED BOND VOLUME BY COUNTRY (2010 – 2014) UNRATED BOND VOLUME BY SECTOR (2010 – 2014)


Regional focus While the large European economies of Germany and France, continue to be the domicile of the majority of unrated issues, and the countries with the highest average unrated bond size, there has been a significant level of issuance from Benelux and the Nordics. In Benelux, Belgium accounted for 9% of the total unrated issuance volumes between 2010 and 2014 (Netherlands 3%, Luxembourg 0.7%). German corporates represented the largest share of total unrated market volume (21.7%), followed by France (21.6%), Finland (10%), Italy (9%) and Austria (8%). In the same period, issuers from outside

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100% = 82 bn EUR

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100 % = EUR 82bn




the eurozone also issued unrated EUR bonds, including the UK (1.7%), Switzerland, Norway, the US and Canada (<0.5% each). With regard to the largest contributor, the German bond-issuance market is expected to continue growing at a slow pace. Market conditions will, in Moody’s view, remain favorable – with low interest rates and significant liquidity in the market needing to be invested – and borrower-friendly terms will persist. Increasing concerns surrounding slowing macroeconomic growth in Europe and a gradual slowdown in the Chinese economy, with its negative impact on global trade, could negatively impact investor confidence, and windows for bond issuances may become shorter or less frequent. According to Moody’s, this may particularly affect the lowest-rated companies and those without much of a track record, while large and frequent issuers, including higher-rated sub-investment-grade issuers are likely to still be considered safe havens by investors.

NUMBER OF UNRATED ISSUES NUMBER OF BONDS BY SECTOR


Outlook Alternative funding markets rise

According to Moody’s, banks have been stepping up lending activity on the back of improving financial stability, notably in Germany. The rating agency expects this trend to continue in 2015 and forecasts that bond issuance levels will rise only moderately. According to S&P, the issuance of private funding by companies in Europe in many alternative funding markets grew to more than EUR 38bn in 2014, including private placements and direct lending. Issuing bonds via exchange platforms continues to be an increasingly open avenue for SMEs seeking funding below EUR 200mn. The French EUR private-placement market, for instance, has seen the emergence of unlisted deals, which has ushered in new and more-international borrowers. In addition, the European direct lending market (dedicated credit funds lend directly to sponsor-owned businesses) has grown to more than EUR 10bn spread across more than 200 deals last year. Moody’s noted that, with economic conditions – in southern Europe in particular – remaining difficult, German companies are also benefitting from increased lending activity by international banks that have refocused their activities within Europe to economically stronger countries, such as Germany. That refinancing rates are at historic lows has added to overall favorable lending conditions. In particular, financial stability is reflected in companies’ funding access, capital and asset quality. Larger companies usually target a diverse mix of funding sources, including bonds. Thus, Moody’s believes that the recent increase in bank lending activity can be attributed to the German Mittelstand, which values bank borrowing because of lower information-disclosure requirements and generally lower interest rates – at the expense of tighter documentation for longer-term financing. This preference is also reflected in specialized products, such as Schuldschein instruments, that are in high demand among German corporates – particularly as this market segment opens up to sub-investment-grade issuers and smaller ticket sizes. The rating agency also believes that some companies may

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use Schuldschein as a first step toward capital markets as a way to show their capital-market readiness, and as Schuldscheine are more flexible than loans. According to S&P, the main driver for growth among SMEs depends on greater capital expenditure, which will also boost demand for additional financing. Given currently low overall capex spending in Europe, it becomes clear that the risk-return equation does not seem to be balanced enough to warrant this spending. The rating agency sees expectations of relatively weak growth in the eurozone and other economic and geopolitical uncertainties as the main reasons for this hesitation among many companies in Europe. S&P sees other factors as supportive of additional investment. Among them are low oil prices, via their positive effect on additional consumption and corporate profitability, which eases costs for businesses and private consumers. The EUR’s slide vs. USD is making exports from Europe somewhat cheaper, and, due to loose monetary policy, liquidity for corporates is still available at low lending costs. It remains to be seen whether companies benefiting from lower oil prices can turn their cost savings into higher investments. However, companies related to the oil industry are bound to cut investment significantly if oil prices remain at low levels. Specific industries with a concentration of mid-market companies, such as France, the UK and Germany, have good prospects for further capex growth, such as in IT, Consumer and Healthcare.




Appendix

Bond issuance charts UNRATED BOND ISSUANCE EUR >50MN SINCE 2003 UNRATED ISSUANCE EUR >50MN BY COUNTRY

Source: Bloomberg, UniCredit Research

2003 NON RATED ISSUER BY COUNTRY (EUR >50MN) 2014 NON RATED ISSUER BY COUNTRY (EUR >50MN)

Source: Bloomberg, Bundesbank, UniCredit Research

LOAN VOLUME IN GERMANY GERMAN CORPORATES BY REVENUE SIZE

(Note: loans of all banks to German non-financial corporates) Source: Bloomberg, Bundesbank, UniCredit Research

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Market structure of German Mittelstand bonds

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UR

mn

A A- BBB+ BBB BBB- BB+ BB BB- B- NR

738

915

41

185

188

628

380

1,067

2,690

735279

153

226

583

0%

20%

40%

60%

80%

100%

2010 2011 2012 2013 2014

issu

ance

vol

ume

in %

Others (Hamburg,Munich,Vienna,Berlin) DÜS FVDÜS mstm Frankfurt Entry/Prime StandardFrankfurt FV (Open Market) Bondm

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014

Creditreform Euler Hermes NR S&P Feri Scope Rating

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014

<4 years 4 years 5 years 6 years >=7 years

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014

<=6% 6-7% 7-8% >=8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014

BBB+ und besser BBB BBB- BB+ und schwächer NR

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014

Utilities

Energy

Financial

Diversified

Communications

Technology

Consumer, Non-cyclical

Basic Materials

Consumer, Cyclical

Industrial




Selected large unrated* bond issues since 2010 ISIN Issuer Sector Country Date of issuance Maturity Coupon Size EUR Denomination DE000A1R0U23 SAP AG (rated A2/A since Sep 2014) Computers & Electronics Germany 11/06/12 11/13/19 2.125 750mn 1,000 DE000A1TM5X8 Hochtief AG Construction/Building Germany 03/14/13 03/20/20 3.875 750mn 1,000 XS0496644609 Vestas Wind Systems A/S Machinery Denmark 03/15/10 03/23/15 4.625 600mn 50,000 XS0530320281 SAP AG (rated A2/A since Sep 2014) Computers & Electronics Germany 07/29/10 08/06/13 2.25 600mn 1,000 XS0530321255 SAP AG (rated A2/A since Sep 2014) Computers & Electronics Germany 07/29/10 02/06/12 1.75 600mn 1,000 PTGALGOM0001 Galp Energia SGPS SA Oil/Gas Portugal 05/20/13 05/20/17 Floater 600mn 100,000 DE000A11QFA7 ProSiebenSat.1 Media AG Media/Telecoms Germany 04/10/14 04/15/21 2.625 600mn 1,000 FR0011965177 Air France-KLM SA Transportation France 06/04/14 06/18/21 3.875 600mn 100,000 XS1114155283 adidas AG Retail Germany 10/01/14 10/08/21 1.25 600mn 1,000 XS1139287350 Pirelli International PLC Auto/Truck Italy 11/13/14 11/18/19 1.75 600mn 100,000 FR0012332203 Mercialys SA Real Estate France 12/02/14 03/31/23 1.787 550mn 100,000 DE000A1R0U31 SAP AG (rated A2/A since Sep 2014) Computers & Electronics Germany 11/06/12 11/13/15 1.0 550mn 1,000 XS0500128326 SAP AG (rated A2/A since Sep 2014) Computers & Electronics Germany 03/30/10 04/10/17 3.5 500mn 1,000 FR0010874115 Rallye SA Retail France 03/15/10 03/24/14 5.875 500mn 50,000 PTGALJOE0008 GALP ENERGIA SGPS SA Oil/Gas Portugal 07/14/14 01/14/21 3.0 500mn 100,000 XS0503554627 Celesio Finance BV Healthcare Germany 04/16/10 04/26/17 4.5 500mn 1,000 AT0000A0MS58 voestalpine AG Metal & Steel Austria 01/25/11 02/05/18 4.75 500mn 1,000 XS0838764685 voestalpine AG Metal & Steel Austria 09/26/12 10/05/18 4.0 500mn 1,000 XS0592703382 Pirelli & C SpA Auto/Truck Italy 02/10/11 02/22/16 5.125 500mn 100,000 AT0000A0ZHF1 voestalpine AG Metal & Steel Austria 03/20/13 Perpetual 7.125 500mn 1,000 FR0011057439 Iliad SA Computers & Electronics France 05/26/11 06/01/16 4.875 500mn 100,000 FR0011073113 Societe d'Infrastructures Gazieres Utility & Energy France 06/24/11 07/12/18 5.375 500mn 100,000 DE000A1MA9X1 Hochtief AG Construction/Building Germany 03/19/12 03/23/17 5.5 500mn 1,000 XS1174211471 Eurofins Scientific Consumer Services Luxembourg 01/27/15 01/27/22 2.25 500mn 100,000 FR0011991371 Christian Dior Apparel & Textile Products France 06/19/14 06/19/19 1.375 500mn 100,000 DE000SYM7704 Symrise Chemicals Germany 07/10/14 07/10/19 1.75 500mn 1,000 XS0926848572 Hellenic Petroleum Oil/Gas Greece 05/10/13 05/10/17 8.0 500mn 100,000 FR0011502830 Plastic-Omnium Auto Parts France 05/29/13 02/29/20 2.875 500mn 100,000 FR0011257260 Bureau Veritas SA Professional Services France 05/15/12 05/24/17 3.75 500mn 100,000 FR0011348531 Lagardere SCA Publishing France 10/17/12 10/31/17 4.125 500mn 100,000 XS0918200998 Trafigura Beheer Oil/Gas Netherlands 04/19/13 Perpetual 7.625 500mn 200,000 FR0011374099 Air France-KLM SA Transportation France 12/06/12 01/18/18 6.25 500mn 100,000

*not rated by Moody’s/S&P/Fitch; SAP received a rating in September 2014 Source: Bloomberg; Dealogic; www.bondguide.de; UniCredit Research



UniCredit Research page 12

Key sources

Publications by rating agencies ■ Standard & Poor’s 26 January 2015: “Alternative lending markets in Europe are increasingly open to mid-market companies”

■ Moody’s 4 December 2014: “Slow but steady growth likely in 2015; bank lending revival limits 2014 issuance”

■ Fitch 31 July 2013: “Europe’s unrated bond issuers”

■ Standard & Poor’s 25 June 2013: “The ‘squeezed middle’”




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This analysis is for information purposes only and (i) does not constitute or form part of any offer for sale or subscription of or solicitation of any offer to buy or subscribe for any financial, money market or investment instrument or any security, (ii) is neither intended as such an offer for sale or subscription of or solicitation of an offer to buy or subscribe for any financial, money market or investment instrument or any security nor (iii) as an advertisement thereof. The investment possibilities discussed in this report may not be suitable for certain investors depending on their specific investment objectives and time horizon or in the context of their overall financial situation. The investments discussed may fluctuate in price or value. Investors may get back less than they invested. Changes in rates of exchange may have an adverse effect on the value of investments. Furthermore, past performance is not necessarily indicative of future results. In particular, the risks associated with an investment in the financial, money market or investment instrument or security under discussion are not explained in their entirety. This information is given without any warranty on an "as is" basis and should not be regarded as a substitute for obtaining individual advice. Investors must make their own determination of the appropriateness of an investment in any instruments referred to herein based on the merits and risks involved, their own investment strategy and their legal, fiscal and financial position. As this document does not qualify as an investment recommendation or as a direct investment recommendation, neither this document nor any part of it shall form the basis of, or be relied on in connection with or act as an inducement to enter into, any contract or commitment whatsoever. Investors are urged to contact their bank's investment advisor for individual explanations and advice. 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Regulatory authority: “BaFin“ – Bundesanstalt für Finanzdienstleistungsaufsicht, Lurgiallee 12, 60439 Frankfurt, Germany. b) UniCredit Bank AG London Branch (UniCredit Bank London), Moor House, 120 London Wall, London EC2Y 5ET, United Kingdom. Regulatory authority: “BaFin“ – Bundesanstalt für Finanzdienstleistungsaufsicht, Lurgiallee 12, 60439 Frankfurt, Germany and subject to limited regulation by the Financial Conduct Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS, United Kingdom and Prudential Regulation Authority 20 Moorgate, London, EC2R 6DA, United Kingdom. Further details regarding our regulatory status are available on request. c) UniCredit Bank AG Hong Kong Branch (UniCredit Bank Hong Kong), 25/F Man Yee Building, 68 Des Voeux Road Central, Hong Kong. Regulatory authority: Hong Kong Monetary Authority, 55th Floor, Two International Financial Centre, 8 Finance Street, Central, Hong Kong d) UniCredit Bank AG Singapore Branch (UniCredit Bank Singapore), Prudential Tower, 30 Cecil Street, #25-01, Singapore 049712 Regulatory authority: Monetary Authority of Singapore, 10 Shenton Way MAS Building, Singapore 079117 e) UniCredit Bank AG Tokyo Branch (UniCredit Tokyo), Otemachi 1st Square East Tower 18/F, 1-5-1 Otemachi, Chiyoda-ku, 100-0004 Tokyo, Japan Regulatory authority: Financial Services Agency, The Japanese Government, 3-2-1 Kasumigaseki Chiyoda-ku Tokyo, 100-8967 Japan, The Central Common Government Offices No. 7. POTENTIAL CONFLICTS OF INTERESTS Pirelli 3, 6a, 7; Symrise 4; Kering 3, 7; Vestas 3; ProSiebenSat.1 Media 4; SAP 3, 7; adidas 4; LVMH 3; Voestalpine AG 3, 4, 7; Key 1a: UniCredit Bank AG and/or a company affiliated with it (pursuant to relevant domestic law) owns at least 2% of the capital stock of the company. Key 1b: The analyzed company owns at least 2% of the capital stock of UniCredit Bank AG and/or a company affiliated with it (pursuant to relevant domestic law). Key 2: UniCredit Bank AG and/or a company affiliated with it (pursuant to relevant domestic law) belonged to a syndicate that has acquired securities or any related derivatives of the analyzed company within the twelve months preceding publication, in connection with any publicly disclosed offer of securities of the analyzed company, or in any related derivatives. Key 3: UniCredit Bank AG and/or a company affiliated (pursuant to relevant domestic law) administers the securities issued by the analyzed company on the stock exchange or on the market by quoting bid and ask prices (i.e. acts as a market maker or liquidity provider in the securities of the analyzed company or in any related derivatives). Key 4: The analyzed company and UniCredit Bank AG and/or a company affiliated (pursuant to relevant domestic law) concluded an agreement on services in connection with investment banking transactions in the last 12 months, in return for which the Bank received a consideration or promise of consideration. Key 5: The analyzed company and UniCredit Bank AG and/or a company affiliated (pursuant to relevant domestic law) have concluded an agreement on the preparation of analyses. Key 6a: Employees of UniCredit Bank AG Milan Branch and/or members of the Board of Directors of UniCredit (pursuant to relevant domestic law) are members of the Board of Directors of the Issuer. Members of the Board of Directors of the Issuer hold office in the Board of Directors of UniCredit (pursuant to relevant domestic law). Key 6b: The analyst is on the supervisory/management board of the company they cover. Key 7: UniCredit Bank AG Milan Branch and/or other Italian banks belonging to the UniCredit Group (pursuant to relevant domestic law) extended significant amounts of credit facilities to the Issuer. RECOMMENDATIONS, RATINGS AND EVALUATION METHODOLOGY Company Date Rec. Company Date Rec. Company Date Rec. CLSGR 11/03/2014 no

recommendation

SAPGR 02/02/2015 Marketweight

PCIM 24/09/2014 no recommendation

VOEST 14/10/2014 Restricted

Overview of our ratings You will find the history of rating regarding recommendation changes as well as an overview of the breakdown in absolute and relative terms of our investment ratings on our website http://www.disclaimer.unicreditmib.eu/credit-research-rd/Recommendations_CR_e.pdf.

Note on the evaluation basis for interest-bearing securities: Recommendations relative to an index: For high grade names the recommendations are relative to the "iBoxx EUR Benchmark" index family, for sub investment grade names the recommendations are relative to the "iBoxx EUR High Yield" index family. Marketweight: We recommend having the same portfolio exposure in the name as the respective iBoxx index. We expect that the average total return of the instruments of the issuer is equal to the total return of the index. Overweight: We recommend having a higher portfolio exposure in the name as the respective iBoxx index. We expect that the average total return of the instruments of the issuer is greater than the total return of the index. Underweight: We recommend having a lower portfolio exposure in the name as the respective iBoxx index. We expect that the average total return of the instruments of the issuer is less than the total return of the index. Outright recommendations: Hold: We recommend holding the respective instrument for investors who already have exposure. We expect that the total return of the instruments of the issuer is equal to the yield.

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Buy: We recommend buying the respective instrument for investors who already have exposure. We expect that the total return of the instruments of the issuer is greater than the yield. Sell: We recommend selling the respective instrument for investors who already have exposure. We expect that the total return of the instruments of the issuer is less than the yield. We employ three further categorizations for interest-bearing securities in our coverage: Restricted: A recommendation and/or financial forecast is not disclosed owing to compliance or other regulatory considerations such as a blackout period or a conflict of interest. Coverage in transition: Due to changes in the research team, the disclosure of a recommendation and/or financial information are temporarily suspended. The interest-bearing security remains in the research universe and disclosures of relevant information will be resumed in due course. Not rated: Suspension of coverage. 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or (iii) to whom it may otherwise lawfully be communicated (all such persons together being referred to as “relevant persons”). This communication must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this communication relates is available only to relevant persons and will be engaged in only with relevant persons. Notice to U.S. investors This report is being furnished to U.S. recipients in reliance on Rule 15a-6 ("Rule 15a-6") under the U.S. Securities Exchange Act of 1934, as amended. Each U.S. recipient of this report represents and agrees, by virtue of its acceptance thereof, that it is such a "major U.S. institutional investor" (as such term is defined in Rule 15a-6) and that it understands the risks involved in executing transactions in such securities. Any U.S. recipient of this report that wishes to discuss or receive additional information regarding any security or issuer mentioned herein, or engage in any transaction to purchase or sell or solicit or offer the purchase or sale of such securities, should contact a registered representative of UniCredit Capital Markets, LLC. Any transaction by U.S. persons (other than a registered U.S. broker-dealer or bank acting in a broker-dealer capacity) must be effected with or through UniCredit Capital Markets. The securities referred to in this report may not be registered under the U.S. Securities Act of 1933, as amended, and the issuer of such securities may not be subject to U.S. reporting and/or other requirements. Available information regarding the issuers of such securities may be limited, and such issuers may not be subject to the same auditing and reporting standards as U.S. issuers. The information contained in this report is intended solely for certain "major U.S. institutional investors" and may not be used or relied upon by any other person for any purpose. Such information is provided for informational purposes only and does not constitute a solicitation to buy or an offer to sell any securities under the Securities Act of 1933, as amended, or under any other U.S. federal or state securities laws, rules or regulations. The investment opportunities discussed in this report may be unsuitable for certain investors depending on their specific investment objectives, risk tolerance and financial position. In jurisdictions where UniCredit Capital Markets is not registered or licensed to trade in securities, commodities or other financial products, transactions may be executed only in accordance with applicable law and legislation, which may vary from jurisdiction to jurisdiction and which may require that a transaction be made in accordance with applicable exemptions from registration or licensing requirements. The information in this publication is based on carefully selected sources believed to be reliable, but UniCredit Capital Markets does not make any representation with respect to its completeness or accuracy. All opinions expressed herein reflect the author’s judgment at the original time of publication, without regard to the date on which you may receive such information, and are subject to change without notice. UniCredit Capital Markets may have issued other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. These publications reflect the different assumptions, views and analytical methods of the analysts who prepared them. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is provided in relation to future performance. UniCredit Capital Markets and any company affiliated with it may, with respect to any securities discussed herein: (a) take a long or short position and buy or sell such securities; (b) act as investment and/or commercial bankers for issuers of such securities; (c) act as market makers for such securities; (d) serve on the board of any issuer of such securities; and (e) act as paid consultant or advisor to any issuer. The information contained herein may include forward-looking statements within the meaning of U.S. federal securities laws that are subject to risks and uncertainties. Factors that could cause a company’s actual results and financial condition to differ from expectations include, without limitation: political uncertainty, changes in general economic conditions that adversely affect the level of demand for the company’s products or services, changes in foreign exchange markets, changes in international and domestic financial markets and in the competitive environment, and other factors relating to the foregoing. All forward-looking statements contained in this report are qualified in their entirety by this cautionary statement This document may not be distributed in Canada. CR e 3




UniCredit Research* Michael Baptista Global Head of CIB Research +44 207 826-1328 [email protected]

Dr. Ingo Heimig Head of Research Operations +49 89 378-13952 [email protected]

Credit Research

Luis Maglanoc, CFA, Head +49 89 378-12708 [email protected]

Credit Strategy & Structured Credit Research

Dr. Philip Gisdakis, Head Credit Strategy +49 89 378-13228 [email protected]

Dr. Christian Weber, CFA, Deputy Head Credit Strategy +49 89 378-12250 [email protected]

Dr. Tim Brunne Quantitative Credit Strategy +49 89 378-13521 [email protected]

Holger Kapitza Credit Strategy & Structured Credit +49 89 378-28745 [email protected]

Dr. Stefan Kolek EEMEA Corporate Credits & Strategy +49 89 378-12495 [email protected]

Manuel Trojovsky Credit Strategy & Structured Credit +49 89 378-14145 [email protected]

Financials Credit Research

Franz Rudolf, CEFA, Head Covered Bonds +49 89 378-12449 [email protected]

Valentina Stadler, Deputy Head Sub-Sovereigns & Agencies +49 89 378-16296 [email protected]

Florian Hillenbrand, CFA Covered Bonds +49 89 378-12961 [email protected]

Dr. Tilo Höpker Banks +49 89 378-12960 [email protected]

Luis Maglanoc, CFA Regulatory & Accounting Service +49 89 378-12708 [email protected]

Natalie Tehrani Monfared Regulatory & Accounting Service +49 89 378-12242 [email protected]

Emanuel Teuber Banks, Financial Services, Insurance +49 89 378-14245 [email protected]

Robert Vielhaber Sub-Sovereigns & Agencies +49 89 378-12004 [email protected]

Dr. Claudia Vortmüller Banks +49 89 378-12429 [email protected]

Corporate Credit Research

Stephan Haber, CFA, Co-Head Telecoms, Technology +49 89 378-15192 [email protected]

Dr. Sven Kreitmair, CFA, Co-Head Automotive & Mobility +49 89 378-13246 [email protected]

Jana Arndt, CFA Basic Resources, Industrial G&S, Construction & Materials +49 89 378-13211 [email protected]

Christian Aust, CFA Chemicals, Industrial Transportation, Paper & Packaging +49 89 378-12806 [email protected]

Mehmet Dere Retail, Travel & Leisure, Oil & Gas +49 89 378-11294 [email protected]

Olga Fedotova Russia/CIS (Banks, Oil & Gas, Basic Resources, Telecoms) +44 207 826-1376 [email protected]

Michael Gerstner Utilities, Hybrids +49 89 378-15449 [email protected]

Dr. Manuel Herold Consumers, Oil & Gas +49 89 378-12650 [email protected]

Alexander Rozhetskin Russia/CIS (Banks, Oil & Gas, Basic Resources, Telecoms) +44 207 826-7953 [email protected]

Jonathan Schroer, CFA Media/Cable, Logistics, Business Services +49 89 378-13212 [email protected]

Dr. Silke Stegemann, CEFA Health Care & Pharma, Food & Beverage, Personal & Household Goods +49 89 378-18202 [email protected]

Publication Address

UniCredit Research Corporate & Investment Banking UniCredit Bank AG Arabellastrasse 12 D-81925 Munich [email protected]

Bloomberg UCCR Internet www.research.unicredit.eu

*UniCredit Research is the joint research department of UniCredit Bank AG (UniCredit Bank), UniCredit Bank AG London Branch (UniCredit Bank London), UniCredit Bank AG Milan Branch (UniCredit Bank Milan), UniCredit Bulbank, Zagrebačka banka d.d., UniCredit Bank Czech Republic and Slovakia, Bank Pekao, ZAO UniCredit Bank Russia (UniCredit Russia), UniCredit Tiriac Bank (UniCredit Tiriac). CR 10

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