Moodys 4Q15 Earnings Call Notes

posted in: Notes | 0

Raymond McDaniel

There’s nothing in particular that we’d characterize as a red flag

“I wouldn’t say we’ve seen anything that we characterize as a bubble. There obviously are some parts of the market that have more leverage than others and obviously there is stress in the energy, metals and mining sectors. But looking at the market more broadly, there’s nothing that I would say we’ve identified as being a particular red flag.”

There’s a refinancing building coming from 2017-2019

“I’ve thought for a while that the second-half of the year offers more potential probably than the first-half of the year and in part, because we do have the refinancing build from 2017 through 2019 coming closer on the horizon. And also just because we’ve been through a recent period of really strong volatility in the markets, and I think markets looking for more stability in energy and seeing where spreads settle that’s going to encourage. The stability itself will encourage issuance in addition to the refinancing walls that will be coming closer.”

Long term rates have a greater impact on issuance

“I think it’s – first of all, some stability, so that companies feel that they have visibility in what their issuance would look like. Obviously, rates and spreads are relevant. I don’t think that movement on the short-term rates is going to be particularly impactful. It’s really looking more the long-term rates for the bond issuance. And it also has to do with economic momentum in the economy and refinancing needs. So if we have relatively wide spreads or volatility in the market, and we don’t see a lot of economic momentum to encourage capital expenditure and business expansion and we don’t have refinancing needs, then issuance is going to be more subdued.”

Linda Huber

January was the fourth highest volume month for investment grade issuance ever

“investment grade, for January we saw about $125 billion of issuance. And it was the fourth highest volume month ever. However, $46 million of that issuance came from one deal, the Amba’s [ph] deal. We are encouraged by approximately $200 billion in the visible M&A pipeline, but volatility is impacting the pace of that issuance. So the pipeline is healthy, but we do seem to have some backup in the issuance pipeline.”

High yield issuance has been soft

“Moving on to the speculative grade categories, high-yield bonds, January about $7 billion of issuance. The leverage market was soft in December. That tone has continued into January and that makes us cautious. $35 billion is in the forward pipeline, and again we see two classes of issuers, those with higher quality speculative grade names have access and those with lower ratings don’t; continuing headwinds coming from the commodities’ volatility issues and default rate concerns.”

Expect strength in structured finance driven by CMBS

“We are really looking at strength in multiple areas of structured finance in 2016, within offset coming from the CLO sector, which we think is going to be softer. And really, I think the most important driver in structured side is the refinancing that has to occur for commercial real estate.”

Michel Madelain

a number of metrics point to relatively high leverage in the system today

“Yes, maybe, I think you are right in pointing to the fact that a number of metrics point to relatively high leverage in the system today for this entity. I think the – what’s we’re more focused on obviously are the sort of indicators of credit stress. We’re looking at liquidity, covenant protections and default – prediction of defaults. And then, what we see is a slight uptick, I mean, we’ve seen a lot of things getting movement [ph] in energy and mining space. And we have a slight uptick in the other sectors, but they remain – compared to historical standards well controlled.”