Weekly credit update - Microsoft · 2016-09-13 · Weekly Credit Update 13 September 2016 ... DKK1.5bn of PerbNC5 Additional Tier 1 Capital (AT1) split ... • The weekly purchase

Weekly Credit Update

13 September 2016

Important disclosures and certifications are contained from page 33 of this report

Investment Researchwww.danskebank.com/CI

This document is intended for institutional investors and is not subject to all the independence and disclosure standards applicable to debt research reports prepared for retail investors.

Analysts

Lars Holm +45 45 12 80 [email protected]

Katrine Jensen+45 45 12 80 [email protected]

22

- General credit market news and current themes

- Credit indicators

- Scandi investment grade

Contents

- Coverage universe, credit ratings and recommendations

- Scandi high yield/unrated

33Source: Bloomberg, Danske Bank Markets (both charts)

What’s on our minds

- General credit market news

• Last week was a repeat of the previous two with the European credit indices trading broadly unchanged, as iTraxx Main ended the week where it started at index 68 and the iTraxx Crossover widening a meagre 4bp to 315.

• In the Nordic region Jyske Bank�s inaugural issuance of DKK1.5bn of PerbNC5 Additional Tier 1 Capital (AT1) split between SEK1.25bn at 3M STIBOR+5.80% and DKK0.5bn at 3M CIBOR+5.30%, respectively, is worth mentioning. Also the first issuances from non-state owned corporates with a negative yield took headlines and highlighted how compressed yields have become after the ECB has started to purchase bonds under the CSPP; Henkel AG managed to issue a 2Y senior unsecured bond and Sanofi a 3.25Y both with a yield of -0.05%.

• That said, Draghi failed to add further stimuli to the market at last week�s ECB meeting, but instead only promised that relevant committees would have a �full mandate� to redesign QE to secure �a smooth implementation� of the purchase programme. The reaction in the fixed income market was negative resulting amongst other things in a steepening of the German government bonds� yield curve (Bunds).

• For this week several important data releases are due ahead of the Fed's September meeting with especially the retail sales report being important for the monetary policy outlooks. The week has begun with what looks like a larger sell-off in equities, something that could spread to the credit markets and set the tone for the remainder of the week.

44

Weekly purchase volumes Purchased issues, split by country of risk

Source: ECB, Danske Bank Markets Source: ECB, Danske Bank Markets

CSPP UpdatePurchases of EUR2.4bn in the week ending 26 August

Buy NOKIA 2019 USD, trading at wide margin to Nokia 2019 EURPublished on 23 May 2016

• The weekly purchase volume jumped last week to a monthly run-rate of a substantial EUR10.6bn. This is the second highest week so far. In total the ECB has now purchased bonds under the CSPP totalling EUR22.9bn.

• In relation to total purchased volume, the average holding of each ISIN (dividing the total purchased amount by the number of ISINs held) has continued to rise to EUR39bn per ISIN.

• New issues purchased in past two weeks by the ECB are DGFP 0 3/8 02/07/25, DGFP 0 3/4 09/09/28, SUFP 0 1/4 09/09/24, KPN 0 5/8 04/09/25, KPN 1 1/8 09/11/28, CITCON 1 1/4 09/08/26.

• In terms of the split of purchases so far, bonds from German issuers represent a much larger share of purchased issues than the ECB�s benchmark would imply, based on outstanding market volumes. Over time, the purchases should reflect the market benchmark.

AT BE

DE

EE

ES

FIFR

IE

IT

LU

NL

PTSISKGBUSCH

BondRemaining

tenorZ-

spreadΔ since

announcment

EDENFP 1 3/8 03/10/25 8,5 88,14 -186,35

DGFP 1 05/13/26 9,7 31,16 N/A

DGFP 0 3/8 02/07/25 8,4 29,69 N/A

DGFP 0 3/4 09/09/28 12,0 37,15 N/A

SUFP 0 1/4 09/09/24 8,0 28,24 N/A

ADNA 3 1/8 02/27/20 3,5 25,82 -45,53

GEDISC 4 1/2 11/08/21 5,2 26,58 -40,84

ZAPAEN 2 7/8 10/14/18 2,1 23,86 -45,67

ROSW 0 7/8 02/25/25 8,5 11,58 -13,29

KPN 0 5/8 04/09/25 8,6 62,82 N/A

KPN 1 1/8 09/11/28 12,0 82,67 N/A

CITCON 1 1/4 09/08/26 10,0 86,00 N/A

DAIGR 2 04/07/20 3,6 34,61 16,23

BMW 2 09/04/20 4,0 19,65 -32,65

BMW 1 02/15/22 5,4 24,75 -44,35

DAIGR 2 04/07/20 3,6 34,61 16,23

BMW 2 09/04/20 4,0 19,65 -32,65

BMW 1 02/15/22 5,4 24,75 -44,35

SAPGR 1 3/4 02/22/27 10,5 8,89 -53,56

Purchased issues last week

0

5

10

15

20

25

30

35

40

45

0

500

1000

1500

2000

2500

3000

17/06/2016 17/07/2016 17/08/2016

Weekly purchase volume

Volume held per ISIN

5

Scandi HY/unrated

66

Chart 1. Relative value, indicative mid spreads Chart 2. Historical spread differential (Kemira 2019s vs 2022s)

Source: Bloomberg, Danske Bank Markets Source: Bloomberg, Danske Bank Markets

Buy KEMIRA 2022s 2.25% finance by selling KEMIRA 2019s 2.5% Differential close to widest point since issuance of the 2022s (published 8 September 2016)


Key arguments for the trade

• Unlock value by moving out the curve. The spread differential between the Kemira 2019s and 2022s has widened significantly since the end of 2015. A flattening of the Kemira curve indicates potential for at least 20bp tightening, in our view.

• The majority of rated European peers offer negative yields. As a result of the ECB�s Corporate Sector Purchase Programme, Kemira�s European chemical industry peers have traded significantly tighter in recent months. More than 75% of currently outstanding investment-grade rated EUR-denominated chemical industry bonds (1-7Y to maturity) have negative yields*. In our view, investors will increasingly look to unrated names such Kemira for positive yield.

* Based on Bloomberg <SRCH>GO, Industry: Chemicals, EUR, Years to maturity 1-7, Country of risk: Eurozone, Rating range: �A� to �BBB-�

• Sound business fundamentals, despite slight drag on Oil & Mining. Kemira�s business is supported by strong demand in its paper chemicals and municipal businesses (c.85% of revenues). As global pulp production capacity and resource efficiency needs continue to grow, this should result in a sound basis for demand going forward.

• Shale exposure is a small part of the business. Kemira has exposure to US tight oil (shale) production through its Oil & Mining division but the exposure is a relatively small part of overall revenues (15%). Lower oil prices have resulted in lower demand for this division in recent quarters. Still, cost cutting has to some extent offset the impact.

• See Credit Update - Kemira Q2 16 (MW) � EBITDA outperforms, outlook unchanged, 25 July.

• See Trade Idea - Buy Kemira 2022s, fund by selling Kemira 2019s, 8 September.

0

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Feb-

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-20

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Apr

-20

16

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-20

16

Jun-

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Jul-2

01

6

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-20

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Sep

-20

16

Spread between KEMIRA EUR 2.25% 2022 and KEMIRA EUR 2.5% 2019

SOLBBB (Baa2/BBB-)

2.75% '27 (mid)SOLBBB

(Baa2/BBB-) 1.625% '22 (mid)

LXSGR (Baa3/BBB-) 4.125% '18 (mid)

LXSGR (Baa3/BBB-) 2.625% '22 (mid)

KEMIRA (NR/NR) 2.5% '19 (bid)

KEMIRA (NR/NR) 2.25% '22 (ask)

CLNVX (Ba1/BBB-) 5.625% '17 (mid)

AKZANA (Baa1/BBB+)

2.625% '22 (mid)

AKZANA (Baa1/BBB+)

1.75% '24 (mid)

Industrials BBB-

Industrials BBB

0

20

40

60

80

100

120

140

0 1 2 3 4 5 6 7 8 9 10 11 12

Spread (EUR)*

Years to worst* Z-spreads, discount margin for floaters, swapped to indicated currency

Note: Fair value curve(s) based on Danske Bank Markets' (mid) peer group of European issuers

77

Recent trade ideas (high yield and unrated)

Source: Danske Bank Markets

See the end of this document for a list of our coverage including recommendations.

Type Trade IdeaOpened 08 Sep 2016

Opened 17 Aug 2016

Opened 23 May 2016

Opened 23 May 2016

Opened 02 May 2016

Opened 29 Mar 2016

Opened 14 Mar 2016

Opened 07 Mar 2016

Switch Switch to Volvo hybrids (call 20s or 23s) from the EUR Volvo senior curve

VLVY EUR senior curve prices in an upgrade, the hybrids do not.

Switch Buy Kemira 2022s, fund by selling Kemira 2019s

The spread differential between the Kemira 2019s and 2022s has widened significantly since the end of 2015. A flattening of the Kemira curve indicates potential for at least 20bp tightening, in our view.

Outright Buy Nokia USD 5.375% 2019 The USD denominated NOKIA 2019�s trade with a good pickup relative to both the EUR denominated NOKIA 2019�s as well as the �BBB-� industrials curve

Buy Nokia USD 5.375% 2019 outright and fund by selling Nokia EUR 6.75% 2019

The USD denominated NOKIA 2019�s trade with a good pickup relative to both the EUR denominated NOKIA 2019�s as well as the �BBB-� industrials curve

Outright Buy Kemira 2019s and 2022s (EUR)

The Kemira 2019s and 2022s trade with a wide differential to rated peers. Despite Kemira�s unrated status, we believe this differential is too large.

Outright Buy Nynas FRN 2018 (SEK) The Nynas 18's look very cheap relative to the B+ fair value curve

Outright Sell Stena 6.125% 2017 (EUR) Valuation no longer attractive after strong performance

Outright Buy DSV DKK 2020 and 2022s The 2022s and the 2020 bonds are trading with 120bp and 108bp spreads to the �BBB� industrial curve, respectively. Even taking into account the unrated status of the bonds and a relatively low liquidity, we believe this is very attractive.

Switch

88

Best and worst performers (Nordic coverage universe)- High yield/unrated

Source: Bloomberg, Danske Bank Markets (both charts)

1 month in local currencies YTD in local currencies

4,018

2,319

1,886

1,151

960

786

728

570

486

137

-177

-187

-193

-211

-222

-292

-332

-340

-386

-415

-1000010002000300040005000

Farstad Shipping ASA NOK 2017

Olympic Ship AS NOK 2017

Prosafe SE NOK 2017

Seadrill Ltd NOK 2018

Seadrill Ltd USD 2017

North Atlantic Drilling Ltd NOK 2018

Seadrill Ltd SEK 2019



Seadrill Ltd USD 2020

Golar LNG Partners LP USD 2020

BW Offshore Ltd NOK 2020

Ship Finance International Ltd NOK 2019


Ship Finance International Ltd NOK 2017


Prosafe SE NOK 2020

Prosafe SE NOK 2019


Prosafe SE NOK 2018

Change in local currencies (bp)

32,903

15,824

8,546

4,887

4,774

3,358

3,284

3,248

3,168

2,873

-169

-172

-181

-186

-196

-197

-205

-228

-341

-421

-50005000150002500035000

Prosafe SE NOK 2017



Seadrill Ltd NOK 2018

Prosafe SE NOK 2018


North Atlantic Drilling Ltd NOK 2018

Golden Close Maritime Corp Ltd USD�

Prosafe SE NOK 2019


Meda AB SEK 2019

SSAB AB SEK 2019

Odfjell SE NOK 2018

Hoegh LNG Holdings Ltd NOK 2017

Hoist Kredit AB EUR 2017

Victoria Park AB SEK 2018

SSAB AB EUR 2019

Outokumpu OYJ EUR 2019

Odfjell SE NOK 2017

Teekay Offshore Partners LP/Teekay�


99

Recent Nordic high yield/unrated issuance*

*Excluding increases in existing bond issues (taps)Source: Bloomberg, Danske Bank Markets

Selected new issues (High yield/unrated)

Date Issuer Coupon CCY Volume Maturity S&P / Mdy / Fitch ASW/DM09/09/2016 Orkla Asa NIBOR3M +85bps NOK 400 m Mar/23 / / 85

09/09/2016 Orkla Asa 2.35% NOK 200 m Sep/26 / / est. 81

08/09/2016 Atrium Ljungberg Ab STIB3M +88bps SEK 400 m Sep/18 / / 88

08/09/2016 Lillestrom Sparebank NIBOR3M +81bps NOK 200 m Nov/19 / / 81

08/09/2016 Tele2 Ab STIB3M +155bps SEK 1 000 m Mar/22 / / 155

08/09/2016 Odfjell Se NIBOR3M +600bps NOK 500 m Sep/19 / / 600

07/09/2016 Jyske Bank A/S (AT1) STIB3M +580bps SEK 1 250 m PERP / / 580

07/09/2016 Jyske Bank A/S (AT1) CIBO03M +530bps DKK 500 m PERP / / 530

07/09/2016 Bank Norwegian As (AT1) NIBOR3M +525bps NOK 210 m PERP / / 525

07/09/2016 Swedavia Ab 0.435% SEK 250 m Sep/20 / / est. 56

06/09/2016 Totens Sparebank NIBOR3M +87bps NOK 200 m Sep/21 / / 87

06/09/2016 Sparebanken Telemark NIBOR3M +85bps NOK 200 m Sep/21 / / 85

01/09/2016 Jaren Sparebank NIBOR3M +102bps NOK 250 m Sep/21 / / 102

01/09/2016 Tronderenergi As 2.68% NOK 200 m Sep/26 / / est. 128

30/08/2016 Fastpartner Ab STIB3M +450bps SEK 600 m Sep/20 / / 450

30/08/2016 Modum Sparebank NIBOR3M +79bps NOK 200 m Mar/20 / / 79

24/08/2016 Resurs Bank STIB3M +175bps SEK 400 m Aug/19 / / 175

24/08/2016 Nya Svensk Fastighets Fi STIB3M +85bps SEK 460 m Sep/18 / / 85

23/08/2016 Sparebank 1 Bv NIBOR3M +85bps NOK 225 m Aug/21 / / 85

22/08/2016 Vasakronan Ab 1.0075% SEK 200 m Dec/21 / / est. 101

15/08/2016 Bank Norwegian As NIBOR3M +74bps NOK 200 m May/19 / / 74

12/08/2016 Vasakronan Ab NIBOR3M +103bps NOK 700 m Aug/21 / / 103

11/08/2016 Sparebank 1 Ringerike NIBOR3M +100bps NOK 200 m Aug/22 / / 100

10/08/2016 Sparebank 1 Ringerike NIBOR3M +84bps NOK 375 m Feb/21 / / 84

09/08/2016 Lyse As NIBOR3M +108bps NOK 200 m Feb/22 / / 108

1010

Company news from the past week (high yield/unrated)


Name News Implication

SAS

After a relatively weak Q2 16, we believe the Q3 16 report showed an SAS back on track. Credit metrics were flattish q/q and SAS has kept its outlook for FY 2016. With SEK8.4bn in cash and cash equivalents, we believe the refinancing risk of the SAS 2017 bond (with a call date in September 2016) is low. SAS has hedged 59% of its expected fuel consumption for the coming 12 months, which limits the risk of sudden cost inflation should fuel prices start to rise sharply. Our main concern is that aggressive capacity additions will lead to even fiercer price pressure that could lower margins further.

Credit positive

Color Group

Color Group reported a H1 16 with a solid improvement in EBITDA and operating cash flow combined with declining leverage y/y. Color Group bonds are trading at a 40-75bp discount to a 'BB-' curve (swapped to NOK), which we believe is fair taking into account the unrated status and limited liquidity of the bonds. We continue to see Color Group as a strong operating entity and expect further deleveraging in H2 16 and 2017. However, we believe spreads already reflect this, which is the basis for our Marketweight recommendation.

Credit positive

Nynas

Nynas delivered a slightly disappointing Q2 report driven by delayed price pass through. Underlying volume growth remains strong, though, and clean comparable earnings fell only slightly. We believe this relates to temporary effects and continue to see the growth story as intact. Metrics deteriorated slightly but remain at solid levels. Overall, this was a slightly credit negative report from Nynas. We see bonds as attractively priced and assign an Overweight recommendation to the name.

Credit negative

Norwegian Air Shuttle

Norwegian (OW) reported another solid set of traffic numbers in August. Passenger traffic increased by 17% on the back of a 17% increase in capacity (mainly long haul) - and the load factor was 90%. Importantly average ticket prices only declined by 2% y/y despite the significant increase in capacity. Capacity increase is normally followed by lower average ticket prices to spur demand at the launch of new routes. Overall a credit positive set of traffic numbers. Also positive that after profit warnings from most European carriers NAS seems to be holding up well.

Credit positive

11

Scandi investment grade

1212

Chart 1. Relative value (EUR), indicative mid spreads Chart 2. Credit spread development

Source: Bloomberg, Danske Bank Markets Source: Bloomberg, Danske Bank Markets

Trade idea – Carlsberg revisitedPublished 30 August 2016


Key arguments for the trade

• On 27 May 2016 we launched a trade idea in which we recommended to buy the Carlsberg EUR2024 outright or fund it by selling the Carlsberg EUR2019 against. We revisit the trade idea below as we believe the fundamental case has improved further following the H1 16 report from Carlsberg.

• Carlsberg reported net debt to EBITDA of 2.2x in H1 16 � the lowest leverage level since Q3 2010.

• Carlsberg now has lower reported net debt to EBITDA than �BBB+� rated Heineken.

• Carlsberg�s leverage of 2.2x is still above the company target of <2.0x. We continue to believe it is a key priority for the relatively new management team to continue to strengthen the balance sheet and deliver on the leverage target.

• We believe that Carlsberg will reach the <2.0x leverage target as of end-2016. If so, we believe that Moody�s will remove the Negative Outlook on the Baa2 rating. We expect this to support spread levels - especially in the longer end of the curve.

• We continue to see attractive value in the EUR2024.

• See Trade recommendation - Carlsberg EUR 2024 revisited �BUY, 30 August

1313

Recent trade ideas (investment grade)


See the end of this document for a list of our coverage including recommendations

Recent ideasType Trade Idea

Opened 30 Aug 2016

Opened 30 Aug 2016

Opened 09 Aug 2016

Opened 27 Jun 2016

Opened 03 Jun 2016

Opened 03 Jun 2016

Opened 18 Apr 2016

Opened 29 Feb 2016Outright Buy INVSA EUR 4.875% 2021 Spread on the INVSA 2021 has widened recently and is too wide compared with average spreads for industrials with high (AA) ratings.

Outright Buy Danfoss 1.375% 2022 (EUR)

The spread on the DNFSDC 22s trades wider than the �BBB� fair value curve and is rated �BBB� with stable outlook by S&P.

Outright Buy SEB AT1 USD 5.75% call 2020

SEB's AT1 USD 5.75% call 2020 has underperformed closest peers recently resulting in about 50bp pick up to Swedbank's'20 or SHB's '21 and about 30bp to Nordea's '21

Outright Buy Maersk EUR 2021 Maersk EUR 2021 is trading wider than the BBB- industrial curve vs. Maersks BBB+/NO rating.

Switch Buy Maersk EUR 2021 and fund by selling Maersk EUR 2019

Pick-up is c. 40bp for around 1.5 years of maturity extension.

Buy Carlsberg EUR 2024 and fund it by selling Carlsberg EUR 2019 (revisited)

We recommended to buy the Carlsberg EUR2024 and fund it by selling the Carlsberg EUR2019. The fundamental case has improved further following the H1 16 report from Carlsberg.

Switch Buy DONGAS 3% call 2020 and fund by selling DONGAS 4.875% call 2018

The DONGAS 3% call 2020 have clearly underperformed the DONGAS 4.875% call 2018 in the past 6 months. This is unjustified biven the benign newsflow in DONG Energy

Outright Buy Carlsberg EUR 2024 (revisited)

We recommended to buy the Carlsberg EUR2024. The fundamental case has improved further following the H1 16 report from Carlsberg.

Switch

1414

Best and worst performers (Nordic coverage universe)- Investment grade

Source: Bloomberg, Danske Bank Markets (both charts)

1 week in local currencies 1 month in local currencies

5

4

4

4

4

4

4

4

4

4

-1

-1

-1

-1

-1

-1

-1

-2

-2

-6

-10-50510

DNB Bank ASA EUR 2021

Svenska Handelsbanken AB EUR 2020

Skandinaviska Enskilda Banken AB EUR 2021

Nordea Bank AB EUR 2020

Svenska Handelsbanken AB EUR 2021




AP Moeller - Maersk A/S EUR 2017


Swedbank AB EUR 2021

Danske Bank A/S SEK 2017

Danske Bank A/S SEK 2019

Swedbank AB SEK 2018

TDC A/S EUR 2027

Telia Co AB EUR 2027



Statkraft AS NOK 2025

SBAB Bank AB SEK 2018


8

7

6

6

6

6

6

6

5

5

-5

-5

-5

-6

-7

-9

-13

-15

-17

-24

-30-25-20-15-10-50510

Vattenfall AB EUR 2024

Telia Co AB EUR 2035

SKF AB EUR 2022

Statkraft AS EUR 2030

Svenska Cellulosa AB SCA EUR 2023

DONG Energy A/S EUR 2022

Citycon Treasury BV EUR 2022

Fortum OYJ EUR 2022

Statkraft AS EUR 2023

Svenska Cellulosa AB SCA EUR 2025

Fortum Varme Holding samagt med�


SpareBank 1 SR-Bank ASA EUR 2019

TDC A/S EUR 2027

SBAB Bank AB SEK 2018


Sampo Oyj SEK 2020

Fortum OYJ EUR 2021




1515

Selected new investment-grade issues**

Source: Bloomberg, Danske Bank Markets*Estimated**Excluding increases in existing bond issues (taps)

Date Issuer Coupon CCY Volume Maturity S&P / Mdy / Fitch ASW/DM09/09/2016 Galp Gas Natural Distrib 1.375% EUR 600 m Sep/23 (P)BBB- / / 140

08/09/2016 Partnerre Ireland Financ 1.25% EUR 750 m Sep/26 A- / A3 / BBB+ 105

08/09/2016 Iberdrola Intl Bv 0.375% EUR 700 m Sep/25 / Baa1 / BBB+e 32

07/09/2016 Thermo Fisher Scientific 0.75% EUR 1 000 m Sep/24 BBB / Baa2 / BBB 80

07/09/2016 Thermo Fisher Scientific 1.375% EUR 600 m Sep/28 BBB / Baa2 / BBB 100

07/09/2016 Ferrovial Emisiones Sa 0.375% EUR 500 m Sep/22 BBB / / BBBe 52

06/09/2016 Santander Consumer Bank NIBOR3M +70bps NOK 700 m Aug/19 / A3 / A- 70

06/09/2016 Sanofi 0.5% EUR 1 150 m Jan/27 AA / A1 / AA- 27

06/09/2016 Sanofi 0% EUR 1 000 m Jan/20 AA / A1 / AA- 17

06/09/2016 Sanofi 0% EUR 850 m Sep/22 AA / A1 / AA- 17

06/09/2016 Glencore Finance Europe 1.875% EUR 1 000 m Sep/23 BBB- / Baa3 / 195

06/09/2016 Commerzbank Ag 0.5% EUR 1 000 m Sep/23 BBB+ / Baa1e / BBB+e 62

06/09/2016 Rci Banque Sa 0.5% EUR 750 m Sep/23 BBB / Baa1e / 55*

06/09/2016 Vonovia Finance Bv EUR003M +38bps EUR 500 m Sep/18 BBB+ / / 38

06/09/2016 Henkel Ag & Co Kgaa 0% EUR 700 m Sep/21 A / A2 / A 17

06/09/2016 Henkel Ag & Co Kgaa 0% EUR 500 m Sep/18 A / A2 / A 19

05/09/2016 Cfcm Nord Europe (Tier 2) 2.125% EUR 300 m Sep/26 BBB / / WD 195

05/09/2016 Hemso Fastighets Ab 1% EUR 500 m Sep/26 A- / / 77

1616

Company news from the past week (investment grade)



Swedish banks

Head of the Swedish FSA, Erik Thedéen, held a speech at UBS's conference in Stockholm. The speech put a Swedish perspective on the upcoming 'Basel 4' rules and Mr. Thedéen is very much in favour of the banks' internal risk models and thus wants to avoid a one-fits-all solution. This is not a surprise as the Swedish FSA has been in favour of internal models all along despite its recent adjustments to corporate risk weights. For the Nordic banks this is still positive but time will tell how much of influence the Swedish FSA can have on the Basel Committee that is expected to publish the new rules at the end of 2016 or beginning of 2017. However, on a slightly different matter we found the following comment interesting in the light of Nordea's recent securitisation that got a lot of media focus: �Even more fundamentally, this may lead to structural changes that introduce new risks. For example, we are likely to see securitisation of low risk assets. This means that the assets that remain on banks� balance sheets will expose them to bigger risks without this being reflected in higher capital requirements�. One could read this as if the FSA is still looking into this transaction. On the other hand, he is stating this along with regulatory concerns if more standardised rules are introduced, so it might just be us reading too much into this.

Credit positive

Handelsbanken

SHB (MW) is once again making changes to its top management, which might be the new CEO setting up his own team but it is a bit surprising to us that the CFO steps down. Now former CFO, Ulf Riese, is very established in the investor community and no doubt this will be taken up negatively by the market. Furthermore, with the many regulatory changes coming up in the near term, we certainly view this as bad timing and speculation will likely arise as to the real reason for this change. Could have a minor negative influence on SHB's credits, in our view.

Credit negative

Swedish banks

According to Bloomberg, Hans Lindblad, director general of Swedish National Debt Office (SNDO), has stated in an interview that all MREL debt being subordinated would be �the ideal situation from a resolution perspective�. However, it was also made clear that the implications of this still need to be analysed, especially regarding refinancing needs. In this regard, SNDO will also look at the implications of the government�s plan to remove tax deductibility of subordinated debt. In our view, there are no surprises in this and as previously stated, our view is that it is unlikely that SNDO will let senior bond holders take losses and thus is likely to require a large share of the MREL debt to be subordinated. Further clarity on MREL requirements is expected end-2016, while the specifics of the subordination requirement are expected in the beginning of 2017.

Credit neutral

1717




SCA

SCA (UW): DN allegedly got information about the bid SCA got before it decided on the split-up of the company. The bid supposedly came from a consortium of investment funds including Nordic Capital and Skandia which made an offer between SEK40-50bn. Credit neutral as SCA has decided to go for the split-up.

Credit neutral

Norwegian banks

The Norwegian FSA published its response to the Norwegian Ministry of Finance�s request for evaluation of current requirements regarding new mortgage loans. While there are signs that lending practices have become stricter after the rules were introduced on 1 July 2015, the growth in household debt and house prices remains high and on the back of this the FSA suggests stricter rules. These include removing the flexibility to deviate from the requirements for 10% of the loans granted each quarter (or reduce it to 4%), introducing a maximum debt rate to gross income of five, reducing the maximum LTV for non-interest loans to 60% (from 70%), introducing amortisation requirements for LTVs above 60% (before 70%). It is suggested that the rules take effect from 1 January 2017, when the current rules expire. No regional differentiation is suggested. Stricter requirements would be positive from a credit perspective as it would dampen the growth in household debt and the risk of a housing bubble. At the same time too strict requirements could trigger a correction in housing prices and hence negatively impact an economy that is already suffering from the low oil price.

Credit positive

Swedish banksSwedish National Debt Office's presentation at the UBS Annual Nordic Financial Services Conference. In our view, there was nothing new in this presentation and the MREL requirements were still in line with the proposal from 26 April.

Credit neutral

Volvo

Volvo (MW): As indicated by Italian newspaper Il Sole, Volvo may be divesting its bus unit to a Chinese buyer. Using a valuation of 10xEBIT (SEK10.6bn) would bring down Volvo's adj. net debt to EBITDA from c. 1.2x to 0.9x and FFO to adj. net debt would rise to c. 99%. Whether the proceeds would be used for deleveraging remains to be seen, but if that is the case our thesis of positive rating action on Volvo could come to fruition. Volvo's credit metrics are already above S&P's requirements for an upgrade. The bus business is highly volatile and margins are the lowest of Volvo's four business divisions (Trucks, Buses, CE and Penta).

Credit positive

Danish banks

The Danish FSA was out with a press release on Wednesday stating that it had become member of the Basel Consultative Group. According to the FSA this is a step closer to where the decisions are taken regarding new regulation etc. and hence should be seen as a positive step in its efforts to protect the Danish mortgage system in particular. Positive news, especially for Nykredit, although difficult to assess the potential impact from this.

Credit positive

1818




Swedish Match

Swedish Match (OW) announced that it has divested 13% of the share capital in STSG with proceeds of SEK1.7bn. Swedish Match does not state how the proceeds are going to be used but with Swedish Match's long track record of share buybacks this could increase its potential share buyback. As such we see it as slightly credit negative albeit not surprising after the listing of STG. Over the next couple of years Swedish Match could be expected to divest the remaining shares in STG (18% of the share capital) and use proceeds for additional share buy backs. That said, Swedish Match has proven over and over again that it remains committed to its BBB/S rating and we believe Swedish Match will continue to scale the share buyback and the key credit metrics in accordance with that target. Hence we only see a limited negative) impact on spreads due to this news.

Credit negative

Statnett

Statnett saw solid operations in the first half of 2016. Group revenues improved 6% y/y due mainly to a higher asset base. Statnett further reduced its tariff surplus to NOK1bn. Group comparable EBITDA improved 11% y/y when excluding the one-off effect of the reclassification of the pension scheme. High investments left the group�s FCF at negative NOK1.9bn driving up net debt by 9% to NOK28.1bn. Subsequently, metrics are slightly weaker but still solid in terms of avoiding rating pressure. We maintain our Marketweight recommendation on Statnett�s illiquid NOK bonds.

Credit neutral

G4S

G4S (BBB-/Neg) A number of human rights groups are demanding an investigation into the decision to award G4S a contract regarding running a discrimination helpline after G4S has been hit by a number of badly executed contracts/ London Olympics, tagging scandal etc.). Overall the news itself is minor from a Group perspective but it follows persistently negative press for G4S and this could make the UK governments and governments around the world more reluctant to award G4S contracts. That said, G4S has a strong portfolio and order intake has been stable in recent quarters. Hence we do not believe headlines will impact bond spreads negatively.

Credit neutral

Dong

DONG Energy (MW) was found guilty in violating Danish competition law. This was done back in 2005-2006 by the company Elsam (which later merged with Dong) by exploiting monopoly positions in some periods and charging too high prices. Seems like the damage claims amount to around DKK900m. We have not seen anything about case costs and process interest. The verdict seems tougher than the market expected. DONG states that it disagreed with the verdict and that it can appeal the case to a higher court. Dong also states that it will not change the provision level of DKK298m plus interest on the back of the verdict, nor will it change full year guidance. Dong's appeal possibility makes any potential cash outflow unlikely to happen until at least two years from now, making the negative credit impact minor.

Credit negative

TDCTDC (MW): To cut 130 jobs according to Ritzau Finans. The job cuts are part of TDC�s new strategy and represent some 1.5% of the total workforce (8,071). A non-event from a credit perspective. Credit neutral

19Credit Indicators

Credit indicators

2020

Chart pack: euro spreads and returns

Source: Macrobond Financial, Danske Bank Markets [all charts]

Euro IG ASW, iBoxx indices

Euro HY ASW, Merrill Lynch indices

IG total return, iBoxx indices, 2014-01=100

HY total return, Merrill Lynch indices, 2014-01=100

iBoxx € Financials Subordinated ASW (rhs)

iBoxx € Non-Financials A ASW (lhs)

iBoxx € Financials A ASW (rhs)

iBoxx € Non-Financials BBB ASW (lhs)

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2121

Chart pack: relative value


iTraxx vs iBoxx

Euro vs US CDS indices - IG (Markit) Euro vs US HY bond indices (Merrill Lynch)

2222

Chart pack: general market development


European swap and government yields

Euro swap curve spread

3M Libor, US and euro area

EUR/USD basis swaps

2323

Chart pack: funds flow


Europe, net sales

Sweden, net sales

US, net sales

Norway, net sales

2424

Chart pack: macro


GDP y/y growth, calendar adjusted

Euro area y/y change in bank lending

Purchasing Manager Indices

Euro area lending standards

25

Coverage universe, credit ratings

and recommendations

2626

Our coverage 1 of 6

Source: Standard & Poor's, Moody's, Fitch, Danske Bank Markets

Ratings from S&P/Moody's/Fitch

Analyst(s)Company Rating Outlook Rating Outlook Rating OutlookAhlstrom Oyj M. Rosendal / J. MagnussenAkelius Residential Property Ab BBB- Stable L. Landeman / G. Bergin OVERWEIGHTAktia Bank Plc A- Neg A3 Pos L. Holm / K. JensenAlandsbanken Abp BBB Neg L. Holm / K. JensenAmbu A/S J. Magnussen / M. RosendalAp Moeller - Maersk A/S BBB Baa1 Stable B. Børsting/J. Magnussen MARKETWEIGHTArla Foods Amba G. Bergin / L. LandemanAtlas Copco Ab A Stable A2 Stable A Stable B. Børsting / M. Rosendal UNDERWEIGHTAvinor As AA- Stable A1 Stable G. Bergin / L. Landeman MARKETWEIGHTBalder L. Landeman / G. Bergin OVERWEIGHTBank 1 Oslo Akershus As L. Holm / K. JensenBank Norwegian As L. Holm / K. JensenBeerenberg Holdco Ii As Ø. MossigeBillerudkorsnas Ab M. Rosendal / L. LandemanBonum Pankki Oyj BBB Stable L. Holm / K. JensenBrage Finans As L. Holm / K. JensenBw Offshore Ø. MossigeCaruna Networks Oy BBB+ Stable J.Magnussen / L.Landeman OVERWEIGHTCarlsberg Breweries A/S Baa2 Neg BBB Stable B. Børsting / M. Rosendal MARKETWEIGHTCastellum Ab L. Landeman / G. Bergin MARKETWEIGHTCitycon Oyj BBB Stable Baa1 Stable L. Landeman / G. Bergin MARKETWEIGHTColor Group As B. Børsting / N. Ripa MARKETWEIGHTCom Hem Holding Ab BB Stable M. Rosendal / J. Magnussen OVERWEIGHTCorem Property Group Ab L. Landeman / G. Bergin MARKETWEIGHTDanfoss A/S BBB Stable J. Magnussen / B. Børsting MARKETWEIGHTDanske Bank A/S A Stable A2 Stable A StableDeep Sea Supply Plc Ø. MossigeDestia Group Oy L. Landeman / G. BerginDfds A/S B. Børsting / N. RipaDlg Finance As M. Rosendal / B. BørstingDna Ltd M. Rosendal / J. MagnussenDnb Bank Asa A+ Neg Aa2 Neg L. Holm / K. Jensen UNDERWEIGHT

Recomm.S&P Moody's Fitch

2727

Our coverage 2 of 6



Analyst(s)Company Rating Outlook Rating Outlook Rating OutlookDof Asa Ø. MossigeDof Subsea As Ø. MossigeDong Energy A/S BBB+ Stable Baa1 Neg BBB+ Stable J. Magnussen / L. Landeman MARKETWEIGHTDsv A/S B. Børsting / M. RosendalEg Holding J. Magnussen / N. RipaEidesvik Offshore Asa Ø. MossigeEika Boligkreditt As L. Holm / K. JensenEika Forsikring As L. Holm / K. JensenEika Gruppen As L. Holm / K. JensenEksportfinans Asa BBB Pos Ba3U Stable L. Holm / K. JensenElectrolux Ab BBB+ Stable Wr WD G. Bergin / B. Børsting MARKETWEIGHTElenia Oy BBB J. Magnussen / L. Landeman MARKETWEIGHTElisa Oyj BBB+ Stable Baa2 Stable M. Rosendal / J. Magnussen OVERWEIGHTFarstad Shipping Asa Ø. MossigeFastpartner Ab L. Landeman / G. BerginFelleskjopet Agri Sa B. Børsting / M. RosendalFingrid Oyj A+ Pos A1 Pos A+ Stable J. Magnussen / L. Landeman OVERWEIGHTFinnair Oyj B. Børsting / M. RosendalFortum Oyj BBB+ Stable Baa1 Stable BBB+ Stable J. Magnussen / L. Landeman UNDERWEIGHTFortum Varme Holding Samagt Med BBB+ Stable J. Magnussen / L. LandemanFred Olsen Energy Asa S. Stormyr / B.K. RøedG4S Plc BBB- Neg B. Børsting / M. Rosendal MARKETWEIGHTGetinge Ab L. Landeman / G. BerginGolar Lng Partners Lp B.K. Røed / J. MeyerGolden Close Maritime Corp Ltd S. Stormyr / B.K. RøedHavila Shipping Asa Ø. MossigeHeimstaden Ab L. Landeman / G. Bergin NOT RATEDHemso Fastighets Ab A- Stable L. Landeman / G. Bergin MARKETWEIGHTHexagon Ab L. Landeman / G. BerginHkscan Oyj M. Rosendal / B. BørstingHoegh Lng Holdings Ltd B.K. Røed / J. MeyerHoist Kredit Ab Ba1 Stable G. Bergin / L. LandemanHusqvarna Ab L. Landeman / G. Bergin


2828

Our coverage 3 of 6



Analyst(s)Company Rating Outlook Rating Outlook Rating OutlookIca Gruppen Ab G. Bergin / L. LandemanIkano Bank Ab L. Holm / K. JensenInvestor Ab AA- Stable Aa3 Stable G. Bergin / B. Børsting OVERWEIGHTIss A/S BBB Stable B. Børsting / M. Rosendal OVERWEIGHTJ Lauritzen A/S B.K. Røed / J. MeyerJefast Holding Ab L. Landeman / G. Bergin OVERWEIGHTJernhusen Ab G. Bergin / L. Landeman UNDERWEIGHTJyske Bank A/S A- Stable Baa1U Stable L. Holm / K. Jensen OVERWEIGHTKemira Oyj Wr M. Rosendal / L. LandemanKesko Oyj G. Bergin / L. LandemanKlaveness Ship Holding As B.K. Røed / J. MeyerKlovern Ab L. Landeman / G. Bergin OVERWEIGHTKongsberg Gruppen Ø. MossigeLantmannen Ek For G. Bergin / L. LandemanLoomis Ab B. Børsting / M. RosendalLuossavaara-Kiirunavaara Ab L. Landeman / G. BerginMeda Ab L. Landeman / G. BerginMetsa Board Oyj BB+ Pos Ba2 Stable M. Rosendal / L. Landeman OVERWEIGHTMetso Oyj BBB Stable Baa2 Stable B. Børsting / M. Rosendal MARKETWEIGHTNcc Ab L. Landeman / G. BerginNeste Oyj J. Magnussen / L. Landeman MARKETWEIGHTNibe Industrier Ab G. Bergin / L. LandemanNokia Oyj BB+ Pos Ba1 Stable BB+ Pos M. Rosendal / J. Magnussen OVERWEIGHTNordax Bank Ab L. Holm / K. JensenNordea Bank Ab AA- Neg Aa3 Stable AA- Stable L. Holm / K. Jensen UNDERWEIGHTNorth Atlantic Drilling Ltd S. Stormyr / B.K. RøedNorwegian Air Shuttle Asa B. Børsting / M. RosendalNorwegian Property Asa H. Syed/ B. EngebretsenNykredit Bank A/S A Stable Baa3U Stable A Stable L. Holm / K. Jensen MARKETWEIGHTNynas Group J. Magnussen / L. Landeman OVERWEIGHTObos Bbl H. Syed/ B. Engebretsen MARKETWEIGHTOcean Rig Udw Inc CCC- Neg Ca Neg S. Stormyr / B.K. Røed


2929

Our coverage 4 of 6



Analyst(s)Company Rating Outlook Rating Outlook Rating OutlookOcean Yield Asa Ø. MossigeOdfjell Se B.K. Røed / J. MeyerOlympic Ship As Ø. MossigeOp Corporate Bank Plc AA- Neg Aa3 Stable WD L. Holm / K. Jensen OVERWEIGHTOrava Residential Reit Plc L. Landeman / G. BerginOrkla Asa H. Syed/ B. EngebretsenOutokumpu Oyj B3 Pos M. Rosendal / L. LandemanPacific Drilling Sa CCC+ Neg Caa2 Neg S. Stormyr / B.K. RøedPetroleum Geo-Services Asa CCC+ Neg Caa1 Neg S. StormyrPostnord Ab G. Bergin / L. LandemanProsafe Se S. Stormyr / B.K. RøedRamirent Oyj B. Børsting / M. RosendalRem Offshore Asa Ø. MossigeSaab Ab Wr G. Bergin / L. LandemanSandnes Sparebank L. Holm / K. JensenSandvik Ab BBB Neg B. Børsting / M. Rosendal MARKETWEIGHTSas Ab B Stable Wr Stable B. Børsting / M. Rosendal OVERWEIGHTSbab Bank Ab A Neg A2 Stable L. Holm / K. Jensen MARKETWEIGHTScania Ab BBB+ Neg M. Rosendal / B. Børsting MARKETWEIGHTSeadrill Ltd S. Stormyr / B.K. RøedSecuritas Ab BBB Stable Wr B. Børsting / M. Rosendal MARKETWEIGHTShip Finance International Ltd Wr B.K. Røed / J. MeyerSiem Offshore Inc Ø. MossigeSkandinaviska Enskilda Banken Ab A+ Stable Aa3 Stable AA- Stable L. Holm / K. Jensen OVERWEIGHTSkanska Ab L. Landeman / G. BerginSkf Ab BBB Neg Baa2 Stable M. Rosendal / G. Bergin MARKETWEIGHTSognekraft As J. Magnussen / L. LandemanSolstad Offshore Asa Ø. MossigeSpar Nord Bank A/S L. Holm / K. JensenSparebank 1 Boligkreditt As L. Holm / K. JensenSparebank 1 Nord Norge A1 Stable A Stable L. Holm / K. Jensen MARKETWEIGHTSparebank 1 Smn A1 Stable A- Stable L. Holm / K. Jensen UNDERWEIGHT


3030

Our coverage 5 of 6



Analyst(s)Company Rating Outlook Rating Outlook Rating OutlookSparebank 1 Sr-Bank Asa A1 Neg A- Stable L. Holm / K. Jensen UNDERWEIGHTSparekassen Kronjylland L. Holm / K. JensenSponda Oyj L. Landeman / G. Bergin OVERWEIGHTSrv Group Oyj Louis LandemanSsab Ab B+ Stable M. Rosendal / L. Landeman MARKETWEIGHTSt1 Nordic Oy J. Magnussen / L. LandemanStatkraft Sf A- Neg Aaa Stable J. Magnussen / L. Landeman MARKETWEIGHTStatnett Sf A+ Stable Wr Stable J. Magnussen / L. Landeman MARKETWEIGHTStatoil Asa A+ Stable Aa3 Stable J. Magnussen / L. Landeman UNDERWEIGHTStena Ab BB- Neg B3 Stable B. Børsting / N. Ripa UNDERWEIGHTStockmann Oyj Abp M. Rosendal / G. BerginStolt-Nielsen Ltd B.K. Røed / J. MeyerStora Enso Oyj BB Pos Ba2 Pos WD M. Rosendal / L. Landeman UNDERWEIGHTStorebrand Bank Asa BBB+ Stable Nr Stable L. Holm / K. JensenStorebrand Livsforsikring Group BBB+ Stable Baa1 Stable L. Holm / K. JensenSunnfjord Energi As J. Magnussen / L. LandemanSuomen Hypoteekkiyhdistys BBB Neg L. Holm / K. JensenSvensk Fastighetsfinansiering Ab Louis LandemanSvenska Cellulosa Ab Sca A- Stable Baa1 Neg M. Rosendal / B. Børsting UNDERWEIGHTSvenska Handelsbanken Ab AA- Neg Aa2 Stable AA Stable L. Holm / K. Jensen MARKETWEIGHTSwedavia Ab G. Bergin / L. LandemanSwedbank Ab AA- Neg Aa3 Stable AA- Stable L. Holm / K. Jensen MARKETWEIGHTSwedish Match Ab BBB Stable Baa2 Stable B. Børsting / M. Rosendal OVERWEIGHTSydbank A/S Baa1 Stable L. Holm / K. Jensen OVERWEIGHTTallink Grupp As B. Børsting / J. MagnussenTdc A/S BBB- Stable Baa3 Stable BBB- Stable M. Rosendal / J. Magnussen MARKETWEIGHTTechnopolis Oyj L. Landeman / G. Bergin MARKETWEIGHTTeekay Lng Partners Lp Ø. MossigeTeekay Offshore Partners Lp Ø. MossigeTele2 Ab M. Rosendal / J. MagnussenTelefonaktiebolaget Lm Ericsson BBB+ Neg Baa1 Stable BBB+ Stable M. Rosendal / J. Magnussen MARKETWEIGHTTelenor Asa A Stable A3 Stable M. Rosendal / J. Magnussen MARKETWEIGHT


3131

Our coverage 6 of 6



Analyst(s)Company Rating Outlook Rating Outlook Rating OutlookTelia Co Ab A- Stable Baa1 Stable A- Stable M. Rosendal / J. Magnussen OVERWEIGHTTeollisuuden Voima Oyj BB+ Stable Wr BBB Neg J. Magnussen / L. Landeman OVERWEIGHTTopdanmark A/S L. Holm / K. JensenTryg Forsikring A/S L. Holm / K. JensenUpm-Kymmene Oyj BB+ Pos Ba1 Pos WD M. Rosendal / L. Landeman MARKETWEIGHTVasakronan Ab L. Landeman / G. Bergin MARKETWEIGHTVattenfall Ab BBB+ Neg A3 Neg BBB+ Stable J. Magnussen / L. Landeman MARKETWEIGHTVestas Wind Systems A/S J. Magnussen / N. Ripa OVERWEIGHTVictoria Park Ab L. Landeman / G. Bergin OVERWEIGHTVolvo Ab BBB Stable Baa2 Stable BBB Stable M. Rosendal / B. Børsting MARKETWEIGHTWelltec A/S B Neg B2 Neg S. StormyrWihlborgs Fastigheter Ab L. Landeman / G. Bergin UNDERWEIGHTWilh Wilhelmsen Asa B.K. Røed / J. MeyerYit Oyj L. Landeman / G. Bergin


3232

Fixed Income Credit Research team

Find the latest Credit Research: :

Danske Bank Markets: http://www.danskebank.com/danskemarketsresearch Bloomberg: DNSK<GO>

Thomas HovardHead of Credit Research+45 45 12 85 [email protected]

Pegah AhmarinejadReal Estate+46 8 568 [email protected]

Gabriel BerginStrategy, Industrials+46 8 568 [email protected]

Brian BørstingIndustrials+45 45 12 85 [email protected]

Lars Holm Financials +45 45 12 80 [email protected]

Jakob MagnussenUtilities, Energy+45 45 12 85 [email protected]

Øyvind MossigeOil services+47 85 40 54 [email protected]

Niklas RipaHigh Yield, Industrials+45 45 12 80 [email protected]

Knut-Ivar BakkenFish farming+47 85 40 70 [email protected]

Bendik EngebretsenIndustrials+47 85 40 69 14 [email protected]

Louis LandemanIndustrials, Real Estate +46 8 568 [email protected]

Bjørn Kristian RøedShipping +47 85 40 70 [email protected]

Mads RosendalIndustrials, TMT+45 45 14 88 [email protected]

Sondre Dale StormyrOffshore rigs +47 85 40 70 [email protected]

Katrine JensenFinancials+45 45 12 80 [email protected]

Henrik René AndresenCredit Portfolios+45 45 13 33 [email protected]

Haseeb SyedIndustrials+47 85 40 54 [email protected]

3333

Disclosures

This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S ('Danske Bank'). The authors of this research report are Lars Holm, Senior Analyst and Katrine Jensen, Analyst.

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General disclaimer

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