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Investment Research — General Market Conditions
Headlines
Bullish market sentiment prevails, boosted by ECB actions.
ECB surprisingly introduced negative deposit rates coupled with a liquidity boost
North Atlantic Drilling entering Rosneft agreement; Stena AB deliver solid results
Continued high activity in primary markets
Market commentary
The general bullish market sentiment was boosted by the ECB’s announcement on
Thursday resulting in the iTraxx main index continuing to tighten by a marked 6.8bp to
59bp during the week and the iTraxx Crossover tightening by a staggering 22.5bp to
231bp. Indeed the iTraxx main is at its tightest levels since January 2008 while the
Crossover index has not been tighter since June 2007. Such material spread compression
was clearly driven by the surprising steps taken by the ECB including cutting the refi and
deposit rates (taking the latter into negative territory) and boosting liquidity through a
new four-year targeted TLTRO. Introducing measures combining both negative rates and
rich liquidity is poised to drive down yields as investors seek to avoid being burnt by
placing excess liquidity at negative rates (the hot potato effect) with the central bank, thus
intensifying the hunt for yield.
North Atlantic Drilling (one of our high-yield top picks) announced an agreement with
Rosneft to pursue Russian growth opportunities at least through 2022. Consequently we
expect NADL’s four near-term available floater rigs to secure long-term contracts,
markedly strengthening the company’s backlog resulting in a spread tightening of around
70bp. Another of our high-yield top picks, Stena AB, reported solid Q1 14 results with
28% y/y EBITDA growth broadly anchored across the conglomerate’s business activities.
Coupled with a continuing decline in outstanding capex commitments to just SEK4.3bn
and a healthy liquidity, we expect further balance sheet deleverage to support the bonds
during the upcoming seasonally stronger Q2 and Q3.
Selected new issues during the week
Name Rating Coupon Maturity Currency Size Spread*
Danske Bank Cov.Bond A/Baa1 1.25% 7Y EUR 1,000m +13 DFDS NR FRN 5Y DKK 500m +163 Barclays Bank A-/A3 2.25% 10Y EUR 1,000m +80 Officine Maccaferri B2 5.75% 7Y EUR 200m +497
Note: Ratings are senior unsecured ratings from Moody's and S&P * Mid-swaps for fixed, discount margin for
floating. Source: Bloomberg, Danske Bank Markets
Primary markets continue to be highly active across both the capital structure and credit
qualities. Indeed new corporate EUR issue volume was up by 16.5% y/y in May. With
about EUR22bn worth of European corporate and SSA debt maturities in June, activity is
expected to continue at healthy levels in the near term. Also Swedish new issuances are
steaming ahead both within investment grade and high-yield (see next page).
6 June 2014
Senior Analyst Kasper From Larsen +45 45 12 80 47 [email protected]
Weekly Credit Update
Contents
Market commentary 1
Selected charts 3
Recently published research 5
Official and shadow ratings 6
iTraxx Europe (investment grade)
Source: Bloomberg, Danske Bank Markets
iTraxx Crossover (high yield)
Source: Bloomberg, Danske Bank Markets
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The Nordic region is no exception to the global hunt for yield in this environment where
we are promised low interest rates for an ever longer period of time. A prime example of
the change in investor behaviour and higher risk appetite is the growth of the high yield
market in Sweden. At the beginning of this year we forecast higher volumes of high yield
issuance in SEK compensating a flat to slightly lower volume of investment grade issues.
It seems the market is determined to exceed our expectations as high yield issuance has
skyrocketed in the first months of the year.
So far in 2014 almost SEK20bn of high yield (rated and unrated) has been issued,
compared with just over SEK16bn for the full year 2013. Unrated issuers dominate with
the only rated issue this year being SSAB’s five-year transaction in February. We think
this trend is likely to continue – at least in the near term – as there seems to be a hefty
pipeline of issuers wanting to come to the market before the summer holidays.
Non-financial high yield in SEK Non-financial investment grade in SEK
Source: Bloomberg, Danske Bank Markets Source: Bloomberg, Danske Bank Markets
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EUR investment-grade cash spreads (ASW) EUR high-yield cash spreads (ASW)
Source: Danske Bank Markets Source: Danske Bank Markets
iTraxx (Europe) vs CDX (US) Investment grade corporate yields
Source: Danske Bank Markets Source: Danske Bank Markets
Nordic corporates vs iTraxx Nordic banks 5y CDS spreads
Source: Danske Bank Markets Source: Danske Bank Markets
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Corporate BBB bond yield vs EuroSTOXX dividend yield 3M Libor OIS spreads
Source: Danske Bank Markets Source: Danske Bank Markets
Financials spread vs non-financials (Industrials), A-rated
Source: Danske Bank Markets
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Recently published research
Credit Update – Stena AB Q1 14 – BUY
Stena delivered a solid Q1 14 report with a broad-based 28% increase in EBITDA y/y.
With outstanding capex commitments of just SEK4.3bn, with the majority not due until
2016, we continue to believe Stena is likely to deleverage further in coming quarters.
Combined with strong strategic business positions and a solid liquidity, we believe this
will continue to support Stena bonds and we maintain our Buy recommendation.
Credit Update – BWG Homes ASA: IG status following acquisition
On 16 May 2014, OBOS made a voluntary offer to acquire all outstanding shares of
BWG Homes ASA for NOK15 per share (NOK14.75 adjusted for dividend). The
acquisition, should it be successful, will improve the credit rating of BWG’s three
outstanding bonds, although to what extent will depend on OBOS’s corporate rating and
the post-acquisition structure of BWG. Our recent note summarises the key
considerations for rating the outstanding bonds and concludes that, although an exact
shadow rating cannot be determined at this time, the bonds will in all likelihood achieve
investment grade status.
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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 Louis LandemanAmbu 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. HolmBwg Homes Asa BB Stable BB- Nils AspeliCargotec Oyj BBB- Stable Kasper F. LarsenCarlsberg Breweries A/S Baa2 Stable BBB Stable Brian Børsting SELLCermaq Asa BB Stable Knut-Ivar BakkenColor Group As BB- Stable B+ Kasper F. LarsenDanske Bank A/S A Neg Baa1 Pos A StableDlg Finance As BB- Stable Mads RosendalDfds A/S BB+ Stable Kasper F. LarsenDna Ltd BBB- Stable Kasper F. LarsenDnb Bank Asa A+ Stable A1 Neg T. Hovard / L. Holm HOLDDong Energy A/S BBB+ Stable Baa1 Stable BBB+ Stable Jakob Magnussen BUYDsv A/S BBB Stable Brian BørstingEg Holding B Stable Jakob MagnussenEika Boligkreditt As A- Stable Nils AspeliEika Gruppen As BBB Stable Nils AspeliElectrolux Ab BBB+ Neg Wr WD Brian Børsting HOLDElisa Oyj BBB Pos Baa2 Stable Kasper F. Larsen BUYEntra Eiendom As A- Stable Nils AspeliFinnair 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 LandemanHelgeland Sparebank Baa2 Neg T. Hovard / L. HolmHemso Fastighets Ab BBB+ Stable Wiveca SwartingHusqvarna 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 Pos Louis LandemanMetsa Board Oyj B+ Stable B2 Pos Mads RosendalMetso Oyj BBB Stable Baa2 Neg Mads Rosendal BUYMjolby-Svartadalen Energi Ab BBB+ Watch Louis LandemanNcc Ab BBB- Stable Louis LandemanNeste Oil Oyj BBB- Stable Jakob Magnussen HOLDNokia Oyj BB Pos Ba2 Stable BB Stable Kasper F. Larsen HOLDNokian Renkaat Oyj A- Stable Jakob MagnussenNordea Bank Ab AA- Neg Aa3 Neg AA- Stable T. Hovard / L. Holm SELLNorth Atlantic Drilling Ltd BB Stable BB- Sondre StormyrNorwegian Property Asa BBB- Stable Nils AspeliNykredit Bank A/S A+ Neg Baa2U Stable A Stable T. Hovard / L. Holm BUYOdfjell Se B+ Stable B Bjørn Kristian RøedOlav Thon Eiendomsselskap Asa BBB+ Stable Nils AspeliOlympic Shipping As B+ Stable B Åse HaagensenOutokumpu Oyj B- Pos Mads RosendalOrkla Asa BBB+ Pos Nils AspeliPohjola Bank Plc AA- Aa3 Neg A+ Stable T. Hovard / L. Holm SELLPostnord Ab BBB+ Stable Gabriel BerginProsafe Se BB Stable Åse HaagensenRamirent Oyj BB+ Stable Brian BørstingSaab Ab BBB+ Stable Wr Wiveca SwartingSampo 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 T. Hovard / L. Holm HOLDScania Ab A- Pos Mads Rosendal HOLDSchibsted Asa BBB Stable Nils AspeliSeadrill Ltd BB+ Stable BB Sondre Stormyr
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 OutlookSecuritas Ab BBB Stable Wr Brian Børsting HOLDSkandinaviska Enskilda Banken Ab A+ Neg A1 Neg A+ Stable T. Hovard / L. Holm BUYSkanska Ab BBB+ Stable Louis LandemanSkf Ab BBB+ Stable Baa1 Stable Mads Rosendal BUYSolstad Offshore Asa BB- Stable B+ Åse HaagensenSparebank 1 Nord Norge A2 Neg A Stable T. Hovard / L. Holm HOLDSparebank 1 Smn A2 Neg A- Stable T. Hovard / L. Holm HOLDSparebank 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 Louis LandemanStatkraft Sf A- Stable Aaa Stable Jakob Magnussen BUYStatnett Sf A+ Stable Wr Stable Jakob Magnussen HOLDStatoil Asa AA- Stable Aa2 Stable Jakob Magnussen SELLStena 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 BB- Stable Mads Rosendal HOLDSuomen Hypoteekkiyhdistys A- Stable T. Hovard / L. HolmSwedavia Ab A- Stable Gabriel BerginSwedbank Ab A+ Neg A1 Neg A+ Stable T. Hovard / L. Holm BUYSwedish Match Ab BBB Stable Baa2 Stable Brian Børsting HOLDSvenska Cellulosa Ab Sca A- Stable Baa1 Stable Mads Rosendal SELLSvensk 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 HOLDTallink Group As BB Stable BB- Jakob MagnussenTalvivaara Mining Co Plc C Mads RosendalTdc A/S BBB Stable Baa2 Stable BBB Stable Kasper F. Larsen HOLDTeekay Offshore Partners Lp BB- Stable B+ Kasper F. LarsenTele2 Ab BBB Stable Kasper F. LarsenTelefonaktiebolaget Lm Ericsson BBB+ Neg Baa1 Stable BBB+ Neg Kasper F. Larsen HOLDTelenor Asa A- Pos A3 Stable Kasper F. Larsen HOLDTeliasonera Ab A- Stable A3 Stable A- Stable Kasper F. Larsen SELLTeollisuuden Voima Oyj BBB Neg Wr BBB Stable Jakob Magnussen BUYThon Holding As BBB+ Stable Nils AspeliUpm-Kymmene Oyj BB Pos Ba1 Stable BB Stable Mads Rosendal HOLDVasakronan Ab BBB+ Stable Louis LandemanVattenfall Ab A- Stable A3 Stable A- Neg Jakob Magnussen HOLDVestas Wind Systems A/S BBB- Pos Kasper F. Larsen BUYVolvo Ab BBB Neg Baa2 Neg BBB Stable Mads Rosendal BUYWilh Wilhelmsen Asa BBB- Stable Bjørn Kristian RøedYit Oyj B+ Neg Louis Landeman
Danske Bank S&P Moody's Fitch Recomm.
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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]
Kasper From Larsen
High Yield, TMT (+45) 45 12 80 47 [email protected]
Bjørn Kristian Røed
Shipping (+47) 85 40 70 72 [email protected]
Nils Henrik Aspeli
Real Estate, Industrials (+47) 85408433 [email protected]
Wiveca Swarting
Real Estate, Construction (+46) 8 568 80617 [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 this research report is Kasper From Larsen, Senior Analyst.
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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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