Euro Credit Pilot - UniCredit Research

Euro Credit Pilot

Macro Research June 2021 Strategy Research Credit Research

Credit remains solid

“ ”

June 2021 Credit & Credit Strategy Research

Euro Credit Pilot

UniCredit Research page 2 See last pages for disclaimer

Contents

3 Inflation expectations are in the limelight

4 A lesson from history: credit risk premiums tend to tighten during inflationary periods

5 European credit and inflation expectations

8 Technicals: Issuers are unlikely to accelerate their prefunding

10 Credit quality trend: Improving momentum with rising stars outpacing fallen angels

11 Valuation & Timing: We have adjusted our forecast for NFI and financial seniors

12 Bottom line

13 Sector allocation: we have raised our recommendation on Basic Resources to overweight from marketweight

16 Fundamental Credit Views

16 Telecommunications (Marketweight) 18 Media (Marketweight) 19 Technology (Marketweight) 21 Automobiles & Parts (Overweight) 23 Utilities (Marketweight) 28 Oil & Gas (Overweight) 30 Industrial Goods & Services (Marketweight) 33 Basic Resources (Overweight) 34 Chemicals (Underweight) 36 Construction & Materials (Marketweight) 37 Health Care (Marketweight) 39 Personal & Household Goods (Marketweight) 41 Food & Beverage (Marketweight) 43 Travel & Leisure (Underweight) 44 Retail (Marketweight) 45 Banks (Marketweight) 49 Insurance (Marketweight) 52 Real Estate (Marketweight)

Summary ■ Inflation concerns will remain on investors’ radar screens in

2H. However, high inflation expectations are not necessarily a bad omen for credit. Notably, amid rising inflation expectations, high-yield non-financial bonds and bank AT1s, given their high yield buffers and short durations, are likely to outperform, while investment-grade non-financial seniors and SSAs are most vulnerable.

■ Macro Outlook: While we expect inflation pressure to remain temporarily constrained in 2H21, there is scope for yield volatility to adversely affect long-duration credit, in particular.

■ Credit Quality Trend: Credit quality is improving, with rising stars’ volume in iBoxx indices outpacing the volume of fallen angels YTD.

■ Market Technicals: We continue to see moderate supply in 2H, both in investment-grade and high-yield non-financial bonds, providing support to European credit.

■ Valuation & Timing: We have revised our spread forecast for iBoxx non-financial and financial seniors to 35bp respectively for the end of the year (from 20bp and 20-30bp respectively). We have also adjusted our spread forecast for NFI hybrids to 150bp from 170bp.

■ Sector Allocation & Recommendation Overview: We have revised our recommendation on Basic Resources to overweight from marketweight. This is supported by a strong outlook for commodities on the back of broader economic recovery and demand from government infrastructure programs. We have left other sector recommendations unchanged, i.e. we have an overweight recommendation on Automobiles & Parts and Oil & Gas and an underweight recommendation on Travel & Leisure and Chemicals.

Published on 17 June 2021 Cover picture @ Prajukpunt - Fotolia.com Gianfranco Arcovito, CFA, Credit Analyst Telecoms, Technology, Gaming (UniCredit Bank, Munich), +49 89 378-15449 [email protected] Christian Aust, CFA, Head of Corporate Credit Research, Senior Credit Analyst Industrials, Oil & Gas (UniCredit Bank, Munich), +49 89 378-17564 [email protected] Tobias Keller, Credit Analyst Banks (UniCredit Bank, Munich), +49 89 378-12960 [email protected] Dr. Stefan Kolek EEMEA Corporate Credit Strategist (UniCredit Bank, Munich), +49 89 378-12495 [email protected] Dr. Sven Kreitmair, CFA, Head of Credit Research, Credit Analyst Automotive & Mobility (UniCredit Bank, Munich), +49 89 378-13246, [email protected] Ulrich Scholz, CFA, FRM, Credit Analyst Utilities, Hybrids (UniCredit Bank, Munich) +49 89 378-4184, [email protected] Jonathan Schroer, CFA, Senior Credit Analyst Telecoms, Media/Cable (UniCredit Bank, Munich), +49 89 378-13212 , [email protected] Dr. Silke Stegemann, CEFA, Senior Credit Analyst Health Care & Pharma, Consumer (UniCredit Bank, Munich), +49 89 378-18202 [email protected] Natalie Tehrani Monfared, Senior Credit Analyst Regulatory & Accounting Service, Insurance, Real Estate (UniCredit Bank, Munich), +49 89 378-12242, [email protected] Dr. Michael Teig, Deputy Head of Financials Credit Research, Senior Credit Analyst Banks (UniCredit Bank, Munich), +49 89 378-12429, [email protected]

mailto:[email protected]











Euro Credit Pilot


Inflation expectations are in the limelight

Prices in major economies have increased substantially recently

CHART 1: EUROZONE CPI DATA

■ The latest inflation data revealed a substantial increase in inflation. Eurozone inflation, as measured by the EU’s harmonized index of consumer prices (HICP), came in at 2%, after registering 1.6% yoy, and US inflation reached 5% yoy, its highest level since September 2008. Increases in general prices are largely related to pent up demand as economies reopen after months-long lockdowns. In our view, these increases in inflation are temporary, and we expect eurozone inflation to peak at 2.4% yoy in 4Q21 and decline to 1.5% by 4Q22.

■ As we argue below, inflation is not a major problem for credit; as long as higher inflation goes hand-in-hand with positive economic growth, it leads to the deleveraging of corporate balance sheets.

■ Although we expect 5Y Bund yields to remain close to current levels for the rest of the year, temporary volatility cannot be excluded on the back of higher–than-expected inflation readings. Particularly, investment-grade senior bonds are trading at extremely tight yield levels. These do not offer any protective buffer and are positively correlated with inflation expectations. As we show below, interest-risk hedging is not warranted for high-yield and AT1 debt, where yields are negatively correlated with inflation expectations.

Source: Bloomberg, UniCredit Research

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Euro Credit Pilot


A lesson from history: credit risk premiums tend to tighten during inflationary periods Credit risk premiums tend to tighten during inflationary periods

CHART 2: MOODY’S BAA US CORPORATE SPREAD INDEX VS. US CPI INFLATION*

CHART 3: ITRAXX XO VS. EUR 5Y5Y INFLATION SWAP*

*Red shading indicates a period of rising inflation. Grey shading indicates a reaction by credit markets to monetary-policy tightening. Source: Moody’s, Bloomberg, UniCredit Research

*Red shading indicates a period of rising inflation. Source: IHS Markit, Bloomberg, UniCredit Research

■ History suggests that inflation does not pose a major problem for credit. As long as higher inflation goes hand-in-hand with economic growth, it leads to the deleveraging of corporate balance sheets. In a positive-growth environment, there is a higher likelihood of corporates passing on higher prices to consumers, which boosts EBITDA. The two major increases in inflation during the 1970s illustrate the relationship between inflation and credit risk premiums. As Chart 2 shows, US corporate-bond spreads actually tightened (red areas).

■ Fed policy tightening ended this period of increasing inflation expectations, although the US economy fell into a recession and spreads widened (gray shading). Although the comparison is not straightforward, as the US economy exhibited a double-digit inflation rate at that time. The lesson from the 1970s is that it is to a lesser degree inflation than monetary-policy tightening (with adverse ramifications on economic growth) that is negative for credit. Similarly, Chart 3 shows that, in the eurozone, recent periods of higher inflation expectations were accompanied by tighter spreads.

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Euro Credit Pilot


European credit and inflation expectations While senior IG NFI debt is most vulnerable to inflation risk, HY NFI debt and bank AT1s offer the best place to stay

CHART 4: IBOXX NFI IG SENIOR AND SUBS YTW VS. 5Y5Y INFLATION FORWARD SWAP*

CHART 5: IBOXX HY NFI AND BANK AT1 YTW VS. 5Y5Y INFLATION FORWARD SWAP*

*past 6M of daily values Source: IHS Markit, Bloomberg, UniCredit Research *past 6M of daily values Source: IHS Markit, Bloomberg, UniCredit Research

■ The impact of inflation expectations on corporate bonds depends mainly on their yield level and duration. We find that NFI IG senior credit is worst-positioned to cope with higher inflation expectations. As Chart 4 shows, the correlation between the latter and YTW is positive, meaning that higher inflationary expectations, as reflected in the 5Y5Y inflation swap, go hand-in-hand with tighter yields in the IG NFI senior credit. As such, investment-grade non-financials seniors are most vulnerable, especially given that we expect to see only limited spread tightening going forward. As Chart 4 also shows, the impact of inflation expectation on hybrids appears neutral.

■ The picture is different for iBoxx HY NFI bonds and bank AT1s (Chart 5) and financial senior bonds (Chart 6), where YTW is negatively correlated with 5Y5Y inflation swaps. These credit-market segments have much lower duration than NFI IG debt and, in the case of HY NFI debt and bank AT1s, higher yield levels. In addition, HY NFI bonds’ rating momentum has stabilized and started to improve; in the year to date, there have been EUR 9bn of rising stars compared to a mere EUR 4bn of fallen angels.

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Euro Credit Pilot


Financial bonds are well protected against higher inflation expectations

CHART 6: IBOXX FINANCIAL SENIOR AND SUBS VS. 5Y5Y INFLATION FORWARD SWAP*

■ Similarly, financial bonds’ yields (both seniors and subs) are negatively correlated with inflation expectations. However, this negative correlation is more pronounced and more consistent among bank AT1s (Chart 5) than financial seniors and subs (Chart 6), where, particularly at higher inflation swap rates (which reflect the most recent values), this relationship is pretty flat. Our preference is for EUR-denominated bank AT1s, which, in our view, at a 330bp ASW spread and 2.9% YTW, offer better value. We expect the ASW spread to end the year between 330bp and 350bp, implying that carry will be a key source of return.

■ From a fundamental point of view, the AT1s of most issuers should benefit from a still-fairly-strong credit-fundamental backdrop. European banks were in much better shape when the pandemic shock hit than they were going into the financial crisis. However, we note that, particularly in the wake of the outbreak of the pandemic (March-April), banks provided a lot of liquidity support to the corporate sector without state guarantees. Banks have been granted material regulatory relief regarding capital. The ECB has estimated that, taken together (excluding flexibility applied to the countercyclical buffer and the CRR quick fix), these relief measures almost doubled banks’ capital headroom. Capital conservation has also been supported by regulators’ recommendations that dividend distributions be suspended. As a consequence, the aggregate CET1 ratio of European banks reached a new all-time high of 15.5% on a fully loaded basis at the end of last year. We therefore think ample room for loss absorption is available to European banks, especially given that regulatory flexibility will remain in place until at least the end of next year. While we expect banks’ NPL ratios to rise gradually from their low levels (the aggregate NPL ratio was 2.6% at year-end 2020) going into 2H21 amid the phasing-out of government support measures, we expect this increase to be manageable.

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Euro Credit Pilot


EUR-denominated AT1s to benefit from our expectations of further moderate upside in equities

CHART 7: BANK AT1 SPREAD VS. STOXX EUROPE 600 BANKS*

■ From a more-medium-term perspective, we expect to see a steepening of the Bund yield curve in the 10Y-3M segment by 30bp by the end of next year. This is basically supportive of banks’ earnings outlooks. However, the impact of this should not be overestimated. First, the expected steepening is likely to be very moderate. Second, the regulatory framework foresees banks limiting the mismatch in assets’ and liabilities’ durations, which should contain the impact of a steeper curve on earnings outlooks. However, banks have a lot of deposits, whose pricing is sticky, and these are also affected by de facto long-term low interest rates (and, in the case of corporate deposits, negative interest rates). Against this backdrop, a steeper yield curve should be supportive of banks whose assets (loans) are long term.

■ Bank AT1s were closely correlated with the STOXX Europe 600 Banks index in the past (Chart 7). Our outlook for stable-to-slightly-firmer European equities by the end of the year, and given our marketweight recommendation on bank stocks, is supportive of a range-bound move in AT1 spreads in the coming months.

*past 6M of daily values Source: IHS Markit, Bloomberg, UniCredit Research

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Euro Credit Pilot


Technicals: Issuers are unlikely to accelerate their prefunding

CHART 8: INVESTMENT-GRADE NON-FINANCIAL ISSUANCE

CHART 9: HIGH-YIELD NON-FINANCIAL ISSUANCE

Source:IHS Markit, UniCredit Research Source: IHS Markit, UniCredit Research

■ We do not expect issuers to accelerate their primary-market activity in 2H. Most issuers are sitting on huge piles of cash reserves accumulated since the beginning of the pandemic, and to a large extent, they have prefunded upcoming maturities.

■ Despite low yield levels, further prefunding activities of maturities in the more-distant future are limited. Thus, we reiterate our forecast of up to EUR 250bn in gross new issuance from iBoxx NFI IG corporates and up to EUR 85bn from iBoxx NFI HY issuers this year. Besides prefunding, HY issuance is driven by inaugural bond issues, i.e. issues from corporates coming to the bond market for the first time, where the YTD volume of EUR 10bn exceeds that of IG NFIs (EUR 8bn) and makes up almost 20% of HY NFI issuance this year.

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Euro Credit Pilot


Market liquidity is likely to remain high, issuance is likely to remain low

CHART 10: REDEMPTIONS AND COUPON PAYMENTS AMONG IBOXX IG AND HY NFIS

CHART 11: FRN NON-FINANCIAL ISSUANCE

Source: UniCredit Research Source: UniCredit Research

■ With redemptions (including callable bonds) expected to rise in the coming quarters (Chart 10, which includes coupon payments), liquidity is likely to remain high. Given that corporates have, to a large extent, prefunded upcoming redemptions, this is likely to provide support to the secondary market.

■ As we expect yields to remain close to current levels, we do not expect investor demand for floaters to rise significantly. Corporates are likely to stick to fixed-coupon issuance to a large part, and demand for FRNs is likely to remain moderate given our yield forecasts. Issuance of FRNs has declined to close to historical lows (Chart 11), and we do not expect to see significant potential going forward.

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Euro Credit Pilot


Credit quality trend: Improving momentum with rising stars outpacing fallen angels Stay long fallen angels CHART 12: FALLEN ANGELS VS. RISING STARS

CHART 13: YTD PERFORMANCE OF FALLEN ANGELS VS.THAT OF NON-FALLEN ANGELS*

Source: Bloomberg, IHS Markit, UniCredit Research *spreads normalized to 100 at the beginning of the year Source: IHS Markit, UniCredit Research

■ Issuers’ credit quality has started to improve. While downgrades still outweigh upgrades in the IG and HY universe, downward dynamics are less pronounced than they were last year. Similarly, as Chart 12 shows, the volume of rising stars – issues moving from the high-yield to the investment-grade index – has picked up, and at EUR 9bn, it is at its highest level since 2018. At the same time, as rating momentum remains negative, we continue to see fallen angels. However, after a record-high EUR 47bn worth were created last year, the volume of fallen angels is less than EUR 5bn YTD; thus, it is lagging behind that of rising stars.

■ We expect up to EUR 15bn of fallen angels to be created this year and reiterate our hold recommendation on them. Fallen angels have consistently outperformed non-fallen angels YTD (Chart 13), a picture we have observed over the past year and after the recession of 2008-09. The reason remains the same: in terms of size, sector position and corporate policies, fallen angels remain IG names, and this is something investors attach value to despite their having been downgraded to below investment grade.

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Euro Credit Pilot


Valuation & Timing: We have adjusted our forecast for NFI and financial seniors

We see less scope for spread tightening by the end of the year

CHART 14: IBOXX NFI SENIOR AND SUBS AND IBOXX FINANCIALSENIORS

■ We have revised our spread forecast on iBoxx NFI and Financial seniors to 35bp respectively by the end of the year. This is different from our original expectation that spreads would tighten to 20bp and 20-30bp respectively by the end of the year.

■ Our main argument for spread tightening was technical. We expected the hunt for yield and the combination of ECB corporate-bond purchases with lower net bond supply to drive spreads to those levels. Although in the year to date, corporate purchases have run, on average, at EUR 7.3bn per month. Thus, they are roughly in line with our forecast (of up to EUR 8bn of net purchases per month), and net supply from investment-grade non-financials has declined sharply. Therefore, the impact on spreads has been less pronounced than we forecast. While we expect the aforementioned forces to remain valid throughout the year – and on the back of these, we still expect spreads to tighten – this is likely to happen to a lesser degree than we originally forecast.

■ We have also adjusted our spread forecast on NFI hybrids to 150bp from 170bp, as we expect this segment to benefit from the hunt for yield, stabilized credit metrics and lower expected issuance – notwithstanding hybrid-specific risk factors (e.g. non-call risk, extension risk) – although the latter is highly sector-dependent (e.g. in Utilities we still see scope for issuance).

■ We have left our spread forecasts for HY NFI, at 250bp, and for Bank AT1s, at 300-350bp.

Source: Bloomberg, UniCredit Research

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Euro Credit Pilot


Bottom line

Keep duration short

CHART 15: DURATION IN EUROPEAN CREDIT-MARKET SEGMENTS

■ Bottom line: we are not afraid of higher inflation. As long as it goes hand-in-hand with higher economic growth, it should be positive for European credit. However, investors need to differentiate between credit market segments, as some are more vulnerable to higher yield volatility than others.

■ Bonds with a short duration and a decent yield pickup are well-positioned to cope with higher inflation rates and yield volatility. Against this backdrop, we favor Bank AT1s and high-yield NFI credit. These have the shortest duration in the iBoxx universe (Chart 15) and offer a yield sufficient to absorb duration-related total-return losses. Investment-grade non-financial seniors are most vulnerable, especially given that we expect to see only limited spread tightening going forward.

■ Separately, we have revised our spread forecasts for non-financial and financial senior bonds to 35bp, from 20bp and 20-30bp respectively. We have left our spread forecasts for hybrids at 170bp and for HY NFIs at 250bp by the end of the year.

Source: IHS Markit, UniCredit Research

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Euro Credit Pilot


Sector allocation: we have raised our recommendation on Basic Resources to overweight from marketweight ■ Amid continuous economic rebound in 2H21, we have revised our recommendation on

Basic Resources to overweight from marketweight. Basic Resources should benefit from its cyclical nature. Our recommendation is supported by a strong outlook for commodities on the back of broader economic recovery and demand from government infrastructure programs. This is likely to keep sentiment upbeat, particularly towards metals that are supportive of a green transition (such as copper and nickel). Normalization of Chinese metal demand should lead to a stabilization of prices later in the year. At the same time, strong cash generation and robust balance sheets are likely to be maintained for the three names we cover in this sector despite increased shareholder remuneration.

■ We have left other sector recommendations unchanged, i.e. we have an overweight recommendation on Automobiles & Parts and Oil & Gas. Both sectors should benefit from above-average carry and from their cyclical natures. With respect to Oil & Gas, it should benefit from strong oil prices. We have left unchanged our underweight recommendation on Travel & Leisure and Chemicals. With respect to Travel & Leisure, we still think that visibility in the sector is limited. Notably, the business segment of the sector still needs to find its post-pandemic shape, and it still needs to be seen whether vaccination advances will be successful to a degree that will allow a return to pre-crisis travel and leisure activities. Regarding Chemicals, despite being cyclical, this sector is prone to correction given its tight spreads relative to most other cyclical sectors. We have a marketweight recommendation on all other sectors.

■ In terms of ratings, within the IG universe, our preference is for BBB rated credit and hybrids, which offer yield. With regard to bank credit, we reiterate our recommendation to hold AT1s, where we revised our spread forecast to 300-350bp (from 350bp) by the end of the year.

TABLE 1: SECTOR ALLOCATION

As of 16 June 2021 Current

recommendation iBoxx

weight YTD spread

change Current

spread level Macro allocation Sovereigns 58.9% +0.2 11.1 Sub-sovereigns MW 14.0% +0.7 6.6 Covered bonds MW 6.2% -2.1 2.2 Financials MW 8.4% -9.8 55.5 Non-financials OW 12.5% -9.9 50.3 Sector allocation NFI Telecommunications TEL MW 10.7% -6.4 52.8 Media MDI MW 2.1% -18.7 45.6 Technology THE MW 4.6% -7.9 38.9 Automobiles & Parts ATO OW 10.7% -25.2 53.6 Utilities UTI MW 16.4% -6.3 51.5 Oil & Gas OIG MW 8.6% -0.2 72.9 Industrial Goods & Services IGS MW 13.3% -13.7 43.8 Basic Resources BAS OW 1.0% -7.8 58.4 Chemicals CHE UW 3.4% -16.8 38.5 Construction & Materials CNS OW 2.4% -10.0 44.6 Health Care HCA MW 10.5% -6.4 50.9 Personal & Household Goods PHG MW 4.5% -8.1 48.6 Food & Beverage FOB MW 7.9% -7.2 40.9 Travel & Leisure TAL UW 2.4% -8.2 49.5 Retail RET MW 1.4% -15.1 47.0 Quality allocation NFI AAA UW 0.4% -10.9 17.4 AA UW 6.5% -3.7 25.6 A MW 32.8% -7.5 35.7 BBB OW 60.3% -13.8 61.1 Sector other Banks BAK MW Insurance INN MW Real Estate RES MW

Source: UniCredit Research


Euro Credit Pilot


Valuation & Timing: SPREAD FORECAST 2021 (forecast level, minimum and maximum level, in bp) Non-financial senior Financial senior

High yield Corporate hybrids and bank AT1s

Source: Bloomberg, IHS Markit, UniCredit Research

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Euro Credit Pilot


AVERAGE SECTOR ASW SPREAD VS. MODIFIED DURATION AND AVERAGE RATING (BUBBLE SIZE CORRESPONDS TO SIZE OF SECTOR, SECTORS [LS], HYBRIDS [RS])

Source: IHS Markit, UniCredit Research

Automobiles & Parts (BBB+)

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Euro Credit Pilot


Fundamental Credit Views

Telecommunications (Marketweight) Jonathan Schroer, CFA, Senior Credit Analyst (UniCredit Bank, Munich) +49 89 378-13212, [email protected]

Weight in iBoxx NFI: Current ASW spread: change mom/YTD: Euro STOXX TEL YTD:

10.7%

53bp -3.6/-7.5

+16.8%

Sector drivers: We have a marketweight recommendation on the telecoms sector. In 2021, we expect the sector to see a partial revenue recovery from the pandemic, but also rising capex, which many companies postponed in 2020. This combination should make deleveraging difficult. As a result, we think rating trends will also be skewed to the negative side, continuing the trend of recent years. The industry remains highly competitive and fragmented, making price increases difficult. We expect companies to post modest revenue and EBITDA increases in 2021, especially due to rising demand for fast broadband products. We also think the outlook for price increases in 2021 looks better due to a recovery in the consumer environment. Some European spectrum auctions for 5G licenses that were postponed in 2020 will continue into 2021, and we expect most 5G product launches to gather intensity in the coming years. However, we think 5G is unlikely to give the companies a revenue boost in the near term.

ESG risks: Most ESG rankings have focused on corporate governance and labor relations within the telecoms sector, with environmental risks playing a subordinate role. However, environmental considerations are significant as telcos account for around 2% of global electricity usage. Various technologies (including fiber and 5G) may help break the link between rising data consumption and energy use. For more information, see Sector Thinking – ESG analysis and green bonds in the telecoms sector, 6 July 2020. Market recap: In the year through 31 May, the iBoxx IG Telecoms index slightly underperformed the broader NFI market, with the spread tightening by 5bp, to 56bp, compared to the EUR iBoxx NFI index, which has tightened by 8bp, to 53bp. We think this reflects the expectation of a stable operating performance in the sector in 2021, but rising capex needs have been a source of credit pressure. Over the last three months, T was the top performer after the company announced a major reorganization of its media business that was credit positive. Long-dated telco bonds have underperformed, in particular long-dated TELIAS bonds, although the company’s 1Q21 report was unspectacular.

Debt ticker Issuer Rec Amount (weight)

within index Credit profile

trend* Rating Latest research (including link) ORAFP Orange OW 21,850 (13.9%) Stable –/BBB+s/BBB+s » Daily Credit Briefing - Orange: CEO discusses various divestment options - 27 May 2021

» Sector Report - IG/HY Telecoms: 2021 telecoms outlook - 5G cycle delayed, pandemic recovery in focus - 1 Feb 21 T AT&T MW 21,548 (13.7%) Stable Baa2/BBBs/BBB+s » Daily Credit Briefing - AT&T: S&P changes outlook to stable from negative - 19 May 2021 DT Deutsche Telekom MW 18,100 (11.5%) Stable Baa1/BB+s/BBB+s » Daily Credit Briefing - Deutsche Telekom: CEO discusses various divestment options - 27 May 2021

» Sector Report - IG/HY Telecoms: 2021 telecoms outlook - 5G cycle delayed, pandemic recovery in focus - 1 Feb 21 VZ Verizon Communications MW 17,385 (11.0%) Stable Baa1/BBB+s/A-s » Daily Credit Briefing - Verizon Communications: Agrees to sell media business - 4 May 2021

» Sector Thinking - Green Bonds/ESG: ESG analysis and green bonds in the telecoms sector- 6 July 2020 TELEFO Telefonica OW 16,100 (10.2%) Stable –/BBn/BBBs » Daily Credit Briefing - Telefonica: Reportedly receives offer for deep-sea cables - 1 Jun 2021

» Sector Report - IG/HY Telecoms: 2021 telecoms outlook - 5G cycle delayed, pandemic recovery in focus - 1 Feb 21 VOD Vodafone OW 10,810 (6.9%) Improving –/BBBs/BBBs » Daily Credit Briefing - Vodafone: FY20/21 results show improving trends, but capex to increase in FY21/22 - 19 May 2021

» Sector Report - IG/HY Telecoms: 2021 telecoms outlook - 5G cycle delayed, pandemic recovery in focus - 1 Feb 21 BRITEL BT UW 8,200 (5.2%) Weakening Baa2/BBBs/BBBs » Daily Credit Briefing - BT-Group: Altice acquires minority stake - 10 Jun 2021

» Sector Report - IG/HY Telecoms: 2021 telecoms outlook - 5G cycle delayed, pandemic recovery in focus - 1 Feb 21 TELNO Telenor UW 6,750 (4.3%) Weakening A3/A-s/– » Daily Credit Briefing - Telenor: 1Q21 results show EBITDA decline with Asia adding pressure - 4 May 2021

» Sector Report - IG/HY Telecoms: 2021 telecoms outlook - 5G cycle delayed, pandemic recovery in focus - 1 Feb 21 TELIAS Telia Company MW 5,153 (3.3%) Weakening Baa1/BBB+s/– » Daily Credit Briefing - Telia Company: 1Q21 figures in line despite continued drag from roaming revenue - 23 Apr 2021

» Sector Report - IG/HY Telecoms: 2021 telecoms outlook - 5G cycle delayed, pandemic recovery in focus - 1 Feb 21


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https://www.research.unicredit.eu/DocsKey/credit_docs_9999_180374.ashx?EXT=pdf&KEY=n03ZZLYZf5miJJA2_uTR8rgozm50o_VaC_0h27J8Q5k=&T=1


https://www.research.unicredit.eu/DocsKey/credit_docs_9999_180039.ashx?EXT=pdf&KEY=n03ZZLYZf5miJJA2_uTR8iDthuB6wyHd7cb2_rhe3f4=


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Euro Credit Pilot




trend* Rating Latest research (including link) AMXLMM America Movil MW 4,550 (2.9%) Weakening A3/BBB+n/A-p » Daily Credit Briefing - America Movil: 1Q21 results show growth slowdown, but tower spin-off is in focus - 29 Apr 2021 CKHGTH CK Hutchison Group

Telecom Holdings Ltd – 4,250 (2.7%) – Baa1/–/– Not covered

TLSAU Telstra UW 3,850 (2.4%) Stable A2/A-s/– » Sector Report - IG/HY Telecoms: 2021 telecoms outlook - 5G cycle delayed, pandemic recovery in focus - 1 Feb 2021 ETISLT Emirates

Telecommunications – 2,200 (1.4%) – Aa3/AA-s/A+s Not covered

VANTOW Vantage Towers – 2,200 (1.4%) – Baa3/BBB-s/– Not covered ETLFP Eutelsat UW 2,000 (1.3%) Stable Baa3/BBB-s/BBBs » Daily Credit Briefing - Eutelsat: 3Q20/21 results show further revenue decline, but in line with ... - 12 May 2021 NTT NTT – 2,000 (1.3%) – –/As/– Not covered KPN KPN MW 1,850 (1.2%) Stable Baa3/BBBs/BBBs » Daily Credit Briefing - KPN: EQT reportedly drops pursuit - 9 Jun 2021

» Sector Report - IG/HY Telecoms: 2021 telecoms outlook - 5G cycle delayed, pandemic recovery in focus - 1 Feb 21 SCMNVX Swisscom UW 1,500 (1.0%) Stable A2/As/– » Daily Credit Briefing - Swisscom: 1Q21 results in line with expectations, announces fiber partnership ... - 29 Apr 2021

» Sector Report - IG/HY Telecoms: 2021 telecoms outlook - 5G cycle delayed, pandemic recovery in focus - 1 Feb 21 TDFINF TDF Infrastructure – 1,400 (0.9%) – –/–/– Not covered PROXBB Proximus UW 1,100 (0.7%) Stable A1/An/– » Sector Flash - HY TMT: Benelux M&A could shift valuations and 1Q21 HY results preview - 5 May 2021

» Sector Report - IG/HY Telecoms: 2021 telecoms outlook - 5G cycle delayed, pandemic recovery in focus - 1 Feb 21 SESGFP SES MW 1,000 (0.6%) Stable Baa2/BBB-s/– » Daily Credit Briefing - SES Global: 1Q21 report shows easing revenue decline, but new buybacks planned - 7 May 2021 TELBSS Tele2 – 1,000 (0.6%) – –/BBBs/– Not covered TKAAV Telekom Austria OW 750 (0.5%) Stable Baa1/BBB+s/– » Daily Credit Briefing - Telekom Austria: 1Q21 results show growth slowdown, but tower spin-off is in focus - 29 Apr 2021

» Sector Report - IG/HY Telecoms: 2021 telecoms outlook - 5G cycle delayed, pandemic recovery in focus - 1 Feb 21 ODGR Telefonica Deutschland MW 600 (0.4%) Stable –/–/BBBs » Daily Credit Briefing - Telefonica Deutschland: 1Q21 results exceed consensus, putting upside pressure ... - 14 May 2021

» Sector Report - IG/HY Telecoms: 2021 telecoms outlook - 5G cycle delayed, pandemic recovery in focus - 1 Feb 21 CNUNZ Chorus – 500 (0.3%) – –/BBBs/– Not covered HTOGA OTE Hellenic Telecom MW 500 (0.3%) Stable –/BBBs/– » Sector Report - IG/HY Telecoms: 2021 telecoms outlook - 5G cycle delayed, pandemic recovery in focus - 1 Feb 2021 SGTOPT SingTel Optus – 500 (0.3%) – A3/A-n/A-s Not covered

*This is the analyst's opinion concerning the development (improving/stable/weakening/developing) of the issuer's credit profile over the next 3-6 months. This can be indicated by, among other things, the rating outlook or expected changes in the business profile or the financial profile, as indicated, for example, by credit protection ratios. Source: UniCredit Research

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https://www.research.unicredit.eu/DocsKey/credit_docs_2021_179108.ashx?EXT=pdf&KEY=n03ZZLYZf5kKmcnaBAVJA4Yowlp3VSZsZMhFkpJatxw=

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https://www.research.unicredit.eu/DocsKey/credit_docs_9999_180358.ashx?EXT=pdf&KEY=n03ZZLYZf5miJJA2_uTR8sjxjtVnysKkFLLzVNMtxYs=




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https://www.research.unicredit.eu/DocsKey/credit_docs_2021_179108.ashx?EXT=pdf&KEY=n03ZZLYZf5kKmcnaBAVJA4Yowlp3VSZsZMhFkpJatxw=


Euro Credit Pilot


Media (Marketweight) Jonathan Schroer, CFA, Senior Credit Analyst (UniCredit Bank, Munich) +49 89 378-13212, [email protected]

Weight in iBoxx NFI: Current ASW spread: change mom/YTD: Euro STOXX MDI YTD:

2.1%

46bp -3.1/-19.7

+15.5%

Sector drivers: The media sector is driven by the close link between advertising spending and GDP growth. The outlook for media companies should improve in 2H21 assuming that the COVID-19 crisis is brought under control. Companies with major exposure to advertising continue to be hit particularly hard by lockdowns and slower economic activity. The pandemic has accelerated structural challenges that were already underway in traditional advertising as more business migrates to digital and subscription revenue models. Traditional media companies have thus been required to invest in new distribution channels, often leading to acquisitions at elevated multiples. Bertelsmann, WPP and Publicis are more advertising-driven and therefore more cyclical. Wolters Kluwer, RELX, SES, Eutelsat and Comcast are less cyclical.

ESG risks: S&P considers the media sector to have the lowest ESG exposure among its ranking of different industries. The most significant ESG risks for media companies pertain to data privacy, especially with regard to how client data is used for marketing purposes, and corporate governance concerns. Governance risks include executive compensation, reporting transparency and corporate complexity. Market recap: Media outperformed the NFI from the start of the year through March as the sector benefitted from optimism about a global recovery from the pandemic. However, the outlook for 2021 looks complicated, especially in Europe, where vaccine rollouts have been slow, and we do not expect a recovery to 2019 levels until 2022, at the earliest. From the start of the year through 31 May, the EUR iBoxx IG Media index significantly outperformed the EUR iBoxx NFI, with a spread tightening of 18bp, to 48bp, compared to tightening of 8bp, to 53bp, for the NFI index. In the last three months, longer-dated media bonds have outperformed, with no clear differentiation by issuer. CMCSA bonds underperformed despite reporting strong results in 1Q21 and may be lagging because they receive no benefit from EU stimulus.



trend* Rating Latest research (including link) CMCSA Comcast OW 5,350 (16.8%) Stable A3/A-s/A-s » Daily Credit Briefing - Comcast: DAZN rejects cooperation attempt from Sky - 10 Jun 2021 RELLN RELX Group UW 4,350 (13.7%) Weakening Baa1/BBB+s/BBB+s » Daily Credit Briefing - RELX Group: 1Q21 trading statement confirms weak outlook for Exhibitions - 23 Apr 2021 VIVFP Vivendi UW 4,050 (12.7%) Weakening Baa2/–/BBBn » Daily Credit Briefing - Vivendi: Considering further 10% UMG stake sale - 19 May 2021 PUBFP Publicis MW 3,350 (10.5%) Stable Baa2/BBBs/– » Daily Credit Briefing - Publicis Groupe: Moody's raises outlook to stable - 29 Apr 2021 WPPLN WPP UW 3,350 (10.5%) Stable Baa2/BBBs/– » Daily Credit Briefing - WPP Group: 1Q21 trading statement shows growth rebound - 29 Apr 2021 BERTEL Bertelsmann UW 3,132 (9.9%) Weakening Baa2/BBBs/– » Daily Credit Briefing - Bertelsmann: To merge media units - 18 May 2021

» Daily Credit Briefing - Confirms acquisition of Simon & Schuster - 26 November 2020 WKLNA Wolters Kluwer OW 2,200 (6.9%) Stable Baa1/BBB+s/– » Daily Credit Briefing - Wolters Kluwer: 1Q21 report shows return to pre-pandemic growth - 6 May 2021 DECFP JCDecaux – 1,950 (6.1%) – Baa3/BBB-n/– Not covered INFLN Informa – 1,850 (5.8%) – Baa3/BBB-n/BBB-s Not covered OMC Omnicom – 1,000 (3.1%) – Baa1/BBB+s/– Not covered DISCA Discovery Communications – 600 (1.9%) – Baa3/BBB-s/BBB-s Not covered ITVLN ITV – 600 (1.9%) – Baa3/BBB-n/– Not covered








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Euro Credit Pilot


Technology (Marketweight) Gianfranco Arcovito, CFA, Credit Analyst (UniCredit Bank, Munich) +49 89 378-15449; [email protected]

Weight in iBoxx NFI: Current ASW spread: change mom/YTD: Euro STOXX THE YTD:

4.7%

39bp -2.4/-9.2

+17.3%

Sector drivers: We have a marketweight recommendation on the technology sector. Our recommendation is mainly based on the following factors: 1. the sector has become increasingly non-cyclical – although still growth-oriented – in recent years; 2. the digital transformation in other sectors has been increasing demand for technological components and software solutions; 3. the steady increase in the weight of this sector in bond indices supports its overall economic significance. Technology credit is currently trading tighter than the iBoxx NFI. However, this is somewhat mitigated by the better average rating of the iBoxx Technology index (A+) compared to that of the iBoxx NFI (A-). Credit in the technology sector has some of the longest durations within TMT and overall. Some sub-segments of the technology sector tend to exhibit more cyclicality than others, for example the semiconductor, conventional-software and hardware businesses are subject to discretionary spending. Structural growth drivers in some sub-sectors (e.g. cloud-software and IT-services) not only support volume growth but also affect M&A strategies. Therefore, we expect M&A activity in the sector to remain high. Examples of this are large acquisitions by Capgemini (Altran), IBM (Red Hat) and Infineon (Cypress). A particular mention must go to SAP, which acquired Qualtrics in 2018 and undertook a partial IPO in January, benefiting from a supportive environment and valuations for technology companies.

ESG: The sector is less exposed to environmental considerations than other industries, although energy efficiency will remain a focus for hardware manufacturers, especially those exposed to wireless connectivity and semi-conductors. We see room for improvement in this field, possibly extended to software as a way of optimizing efficiency and reducing consumption. Market recap: Since the start of the year through the end of May, the EUR iBoxx IG Technology index tightened by 7bp to 41bp, in line with the EUR iBoxx NFI, which tightened by 8bp to 53bp. The technology sector continues to trade tight relative to the EUR iBoxx NFI but benefits from structurally higher growth generated by technology companies and credit tends to be shielded by ongoing solid cash generation. Other factors to consider include the development of trade talks between the US and China with the new US administration. In some cases, trade tensions might have positive repercussions on some names in our coverage, such as Ericsson and Nokia, which are benefiting from restrictions being imposed on Huawei. At this point in time, we do not think that the new US administration will relax those restrictions and we do not expect a substantial change of heart in other countries either.



trend* Rating Latest research (including link) IBM IBM MW 14,000 (20.0%) Stable A2/A-s/– » Daily Credit Briefing - IBM: S&P downgrades to A- - 7 May 2021

» Sector Flash - Technology: Enterprise software: Mission-critical is key - 24 July 2020 AAPL Apple – 9,300 (13.3%) – Aa1/AA+s/– Not covered SAPGR SAP MW 8,700 (12.4%) Stable A2/As/– » Daily Credit Briefing - SAP: Confirms preliminary figures; cloud revenue and backlog underpin growth - 23 Apr 2021

» Sector Flash - Technology: Enterprise software: Mission-critical is key - 24 July 2020 FIS Fidelity National Information

Services – 6,750 (9.7%) – Baa2/BBBs/BBBp Not covered

CAPFP Cap Gemini MW 6,700 (9.6%) Stable –/BBBs/– » Daily Credit Briefing - CapGemini: 3Q20 revenue in line with consensus expectations - 27 Oct 2020 ASML ASML UW 4,500 (6.4%) Stable A3/–/A-s » Daily Credit Briefing - ASML: Strong 1Q21 sustained by software upgrades to increase production capacity - 21 Apr 2021 DSYFP Dassault Systemes – 3,650 (5.2%) – –/A-s/– Not covered IFXGR Infineon MW 2,900 (4.1%) Improving –/BBB-p/– » Daily Credit Briefing - Infineon: 1Q21 results exceed consensus, guidance increased again - 5 May 2021 AMSSM Amadeus IT MW 2,750 (3.9%) Weakening Baa2/BBB-n/– » Daily Credit Briefing - Amadeus IT: Weak 1Q21 results, but management notes progress in March and April - 10 May 2021 MSFT Microsoft – 2,300 (3.3%) – Aaa/AAAs/AAAs Not covered PRXNA Prosus – 1,600 (2.3%) – –/BBB-p/– Not covered FISV Fiserv – 1,500 (2.1%) – Baa2/BBBs/– Not covered WLNFP Worldline SA – 1,500 (2.1%) – –/BBBs/– Not covered ERICB Ericsson S 1,000 (1.4%) Improving Ba1/BBB-s/BBB-s » Sector Flash - Telecoms: Current themes in the mobile infrastructure and equipment sector - 17 May 2021



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Euro Credit Pilot




trend* Rating Latest research (including link) ATOFP AtoS – 750 (1.1%) – –/BBB+s/– Not covered ORCL Oracle – 750 (1.1%) – Baa2/An/BBB+n Not covered DXC DXC Technology – 650 (0.9%) – Baa2/BBB-s/BBBs Not covered EEFT Euronet Worldwide – 600 (0.9%) – Ba1/BBBn/BBBn Not covered



Euro Credit Pilot


Automobiles & Parts (Overweight) Dr. Sven Kreitmair, CFA, Head of Credit Research (UniCredit Bank, Munich) +49 89 378-13246, [email protected]

Weight in iBoxx NFI: Current ASW spread: change mom/YTD: Euro STOXX ATO YTD:

10.7%

54bp -6.7/-26.1

+22.2%

Sector drivers: Expectations, as reflected in current company ratings in the sector, are for a recovery of 7-12% yoy in global light-vehicle sales in 2021 and approximately 4-6% yoy in 2022. Industry-specific forecast risks for this scenario are currently supply-chain disruptions like semiconductor shortages, increased raw material prices and subsequent waves of COVID-19 and the resulting lockdowns. In January-April 2021, global car sales were up by 32.4% yoy given base effects from a weak, pandemic-impacted 2020. In the same period, sales in China (+49.6%) again outperformed, followed by the US (+30.0%) and Europe (+23.1%). Given that the recovery towards 2017 global sales figures is expected to take several years, capex plans and capacities at manufacturers and part suppliers have mostly been adjusted, which has led to cost-cutting announcements (including headcount cuts) in the sector. As a result of increased leverage and reduced capacity utilization, consolidation and M&A could again become a topic in the industry, for example at smaller auto-parts suppliers with high powertrain exposure. Captive finance and financial services operations are likely to experience higher residual-value risk and more credit losses but should (as in past crisis periods) display more credit-profile resilience than other segments of the industry. Climate change topics and green policy support, in particular in Europe but also in China, will keep up the growth for electrified vehicles; in the US, the topic is meanwhile also high on the agenda with President Biden’s climate plan. Many countries have pledged to phase out the combustion engine over the coming years, auto manufacturers aim to reduce emissions and EV shares have already increased substantially since 2020, in particular in Europe. Auto parts suppliers are indirectly exposed to climate transition risks through their auto manufacturer customers, in particular if they produce auto parts for combustion engines. Digitalization is another important transformation trend in the auto sector. Trends like connected, shared and autonomous vehicles offer significant business opportunities but come with their own challenges, like necessary technologies, updated infrastructures, 5G standards or questions regarding data ownership or system security.

ESG considerations: Key issues in this sector center around electrification and connected, shared, autonomous vehicle trends. S&P’s qualitative sector listing of the relative environmental exposure (greenhouse gas emissions, waste, pollution and land use) for the auto and auto parts sectors is above average (across all industry sectors), with auto manufacturers having higher exposure and auto suppliers lower exposure. S&P thinks social risks will intensify in the next decade due to changing consumer preferences for transportation as a service and new mobility options that will disrupt car ownership. Market recap: The main outperformers over the last month have been the bonds issued by Nissan and VW (hybrids). The major underperformers have been the senior bonds of Aptiv, as well as longer-dated and better-rated bonds.



trend* Rating Latest research (including link) VW Volkswagen OW 49,400 (30.6%) Stable A3/BBB+s/BBB+p » Daily Credit Briefing - Volkswagen: Headlines about possible IPOs of Porsche and battery division - 1 Jun 2021

» Sector Report - Automobiles & Parts/German automakers: Charging batteries - 18 March 2021 DAIGR Daimler OW 30,300 (18.8%) Stable A3/BBB+p/BBB+p » Daily Credit Briefing - Daimler: Sees Automotive EBIT margin now at the upper end of the forecast range ... - 10 May 2021

» Sector Report - Automobiles & Parts/German automakers: Charging batteries - 18 March 2021 BMW BMW MW 21,750 (13.5%) Stable A2/An/– » Daily Credit Briefing - BMW: Partial release of provision with respect to EU antitrust proceedings - 24 May 2021

» Sector Report - Automobiles & Parts/German automakers: Charging batteries - 18 March 2021 STLA Stellantis MW 11,400 (7.1%) Stable Baa3/BBB-s/– » Daily Credit Briefing - Stellantis: 70.5%-owned second-hand car group Aramis plans IPO in 2021 - 1 Jun 2021

» Credit Comment - Stellantis: Positive margin outlook at high available liquidity - 3 Mar 2021 RCIBK RCI Banque OW 8,350 (5.2%) Stable Baa2wn/BBBn/– » Daily Credit Briefing - RCI Banque: FY20 results rather resilient, with low funding needs in 2021 - 16 Jun 2021

» Sector Report - Automotive Credit Conference Handbook - 14 June 2021 TOYOTA Toyota Motor Corp OW 7,050 (4.4%) Stable A1/A+s/A+s » Daily Credit Briefing - Toyota: FY21/22 guidance indicates recovery in credit metrics - 12 May 2021

» Sector Report - Automotive Credit Conference Handbook - 14 June 2021


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Euro Credit Pilot




trend* Rating Latest research (including link) FCABNK FCA Bank MW 5,650 (3.5%) Stable Baa1/BBBs/BBB+n » Daily Credit Briefing - FCA Bank: No dividend payment in FY20 and CET1 was up by 120bp to 15.4% - 14 Jun 2021

» Italian Credit Compendium - Moving along the path to recovery MLFP Michelin UW 4,000 (2.5%) Stable –/A-s/A-s » Daily Credit Briefing - Michelin: Sales in 1Q21 up by 8.3% (before FX) and FY21 guidance confirmed - 27 Apr 2021 HNDA Honda – 3,800 (2.4%) – A3/A-n/As Not covered GMFIN GM Financial MW 3,500 (2.2%) Stable Baa3/BBBn/BBB-s » Daily Credit Briefing - GM Financial/GM: Expects 1H21 results to be significantly better than prior guidance - 4 Jun 2021

» Sector Report - Automotive Credit Conference Handbook - 14 June 2021 CONGR Continental MW 3,225 (2.0%) Stable Baa2/BBBn/BBBs » Daily Credit Briefing - Continental: Excluding Vitesco, FY21 guidance is for FCF of EUR 1.1-1.5bn - 7 May 2021

» Sector Report - Automotive Credit Conference Handbook - 14 June 2021 NSANY NISSAN MOTOR CO., LTD. – 2,000 (1.2%) – Baa3/BBB-n/– Not covered PSABFR PSA Banque France MW 2,000 (1.2%) Stable A3/BBB+n/– » Daily Credit Briefing - PSA Banque France: Resilient FY20 credit metrics, but set-up of Stellantis's ... - 11 Jun 2021

» Sector Report - Automotive Credit Conference Handbook - 14 June 2021 BWA BorgWarner – 1,500 (0.9%) – Baa1/BBBn/BBB+s Not covered RBOSGR Robert Bosch UW 1,500 (0.9%) Stable –/As/– » Daily Credit Briefing - Robert Bosch: FY20 liquidity up to EUR 25.7bn and adjusted gross leverage ... - 26 Apr 2021 HOG Harley-Davidson – 1,250 (0.8%) – Baa3/–/BBB+n Not covered APTV Aptiv MW 1,200 (0.7%) Stable Baa2/BBBs/BBBs » Daily Credit Briefing - Aptiv: Unused USD 2.4bn excess cash position at the end of 1Q21 - 7 May 2021

» Sector Report - Automotive Credit Conference Handbook - 14 June 2021 MGCN Magna OW 1,150 (0.7%) Stable A3/A-n/– » Daily Credit Briefing - Magna International: Net leverage down to 1.74x in 1Q21, above own target of 1-1.5x - 7 May 2021 GM GM MW 750 (0.5%) Stable Baa3/BBBn/BBB-s » Daily Credit Briefing - General Motors (exFinSvcs): Expects 1H21 results to be significantly better than ... - 4 Jun 2021 KNOGR Knorr Bremse UW 750 (0.5%) Stable A2/As/– » Daily Credit Briefing - Knorr Bremse: 2021 guidance confirmed after solid 1Q21 results - 14 May 2021 ALV Autoliv MW 500 (0.3%) Stable Aa3/BBBp/– » Daily Credit Briefing - Autoliv: 1Q21 leverage ratio back at the company's long-term target range - 26 Apr 2021 HELLA Hella MW 500 (0.3%) Stable Baa1/–/– » Daily Credit Briefing - Hella: Hueck family reportedly weighing stake sale - 28 Apr 2021

» Sector Report - Automotive Credit Conference Handbook - 14 June 2021

*This is the analyst’s opinion concerning the development (improving/stable/weakening/developing) of the issuer’s credit profile over the next 3-6 months. This can be indicated by, among other things, the rating outlook or expected changes in the business profile or the financial profile, as indicated, for example, by credit protection ratios. Source: UniCredit Research

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Euro Credit Pilot


Utilities (Marketweight) Ulrich Scholz, CFA, FRM, Credit Analyst (UniCredit Bank, Munich) +49 89 378-41847, [email protected]

Weight in iBoxx NFI: Current ASW spread: change mom/YTD: Euro STOXX UTI YTD:

16.4%

52bp -3.3/-7.4

+2.0%

Sector drivers: After energy demand weakened in 2020, there has been a recovery in volumes and prices in the current year. At the same time, CO2 prices have reached record levels. Power-generation companies with less-efficient coal power plants will continue to face margin pressure. Within fossil generation, the profitability of gas-fired plants relative to coal-fired plants is expected to further improve. In such a scenario, generators will try to accelerate their transformation strategy and their expansion in renewables. Due to variations in the complexity of approval processes for renewables across Europe, international expansion and regional diversification are increasing. Network operators are facing network-expansion obligations with corresponding investment intensity. To keep credit ratings stable, these transformational processes will require mitigation measures in some cases. The European Green Deal triggers green-bond financing: The EU’s aim to become the world’s first climate-neutral bloc by 2050 will require further increases in capex in renewable-energy generation and electricity networks. The sector’s focus is on investment in renewable energy (in order to replace climate-damaging fuels with more-climate-friendly ones), innovative transport and distribution-network infrastructure and energy efficiency. Most of the 27 EU member states aim to become carbon-neutral by 2050 (Poland has a temporary exemption). Achieving an interim target to reduce greenhouse gases (GHG) by 40% by 2030 will require EUR 260bn of additional investment a year, according to European Commission estimates. In mid-September last year, the European Commission (EC) announced that it would raise its GHG-reduction target to at least 55% by 2030. In April, the EC said that it had reached a provisional agreement to achieve this target. The resulting capex requirements should keep utility companies’ demand for sustainable funding high.

M&A risks: Besides internal growth initiatives, we assume that many utility companies in our coverage are also considering opportunistic M&A transactions. First, in the renewables segment, delays in greenfield projects might be compensated for by M&A deals. Second, utility companies with international growth ambitions might consider M&A transactions to expand outside their home markets. Third, multi-utilities within our coverage could continue to consolidate with smaller players in their respective areas. COVID-19 impact: Though energy volumes and prices are still below pre-COVID-19 levels, we expect to see a significant recovery from 2020’s levels. At the same time, we assume that COVID-19-related one-off charges and bad-debt provisions will come down yoy. Besides the past year’s capacity upgrades in the sector, this will be another major earnings driver in 2021. Market recap: EUR 22.0bn of utility benchmark bonds were issued in the first five months of 2021. This is a 7% increase over EUR 20.6bn issued in the same period in 2020. In the year to date, the iBoxx UTI Sen index has tightened by 8bp to 42bp, while the iBoxx UTI Sub index has tightened to by 13bp to 137bp. Over the last month, bonds in the iBoxx UTI Sub index have widened by 4bp, to 137bp, while bonds in the iBoxx UTI Sen index are unchanged at 42bp.



trend* Rating Latest research (including link) ENGIFP Engie MW 19,885 (8.1%) Stable Baa1/BBB+s/A-s » Daily Credit Briefing - Engie: Accelerating renewables expansion to achieve net zero carbon emissions ... - 19 May 2021

» Sector Report - Corporate Hybrids: Moderate further spread tightening despite high new issue activity - 25 Mar 2021 ENELIM Enel OW 18,321 (7.5%) Stable Baa1/BBB+s/A-s » Italian Credit Compendium - Moving along the path to recovery - 12 May 2021

» Sector Report - Corporate Hybrids: Moderate further spread tightening despite high new issue activity - 25 Mar 2021 EOANGR E.ON MW 16,850 (6.9%) Improving Baa2/BBBs/BBB+s » Daily Credit Briefing - E.ON: Outlook 2021 and medium-term delivery plan confirmed - 11 May 2021

» Daily Credit Briefing - E.ON: 2020 results match guidance and confirm progress in debt reduction - 24 Mar 2021 IBESM Iberdrola MW 16,285 (6.6%) Stable Baa1/BBB+s/BBB+s » Daily Credit Briefing - Iberdrola: Alliance with Cummins to develop green hydrogen projects in Iberia - 25 May 2021

» Sector Report - Corporate Hybrids: Moderate further spread tightening despite high new issue activity - 25 Mar 2021 EDF EDF OW 14,092 (5.7%) Weakening A3/BBB+s/A-n » Daily Credit Briefing - EDF: May shut down two more UK nuclear power plants - 14 Jun 2021

» Sector Report - Corporate Hybrids: Moderate further spread tightening despite high new issue activity - 25 Mar 2021 RTEFRA RTE MW 8,900 (3.6%) Stable A3/BBB+s/A-n » Sector Report - Utilities: French utilities - the risks and benefits of a new political landscape - 11 Dec 2017

SEVFP Suez MW 8,303 (3.4%) Weakening Baa1/–/– » Daily Credit Briefing - Suez: Veolia and Suez sign combination agreement - 17 May 2021 » Sector Report - Corporate Hybrids: Moderate further spread tightening despite high new issue activity - 25 Mar 2021



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Euro Credit Pilot




trend* Rating Latest research (including link) VIEFP Veolia Environnement OW 7,600 (3.1%) Weakening Baa1/BBBs/BBBs » Daily Credit Briefing - Veolia Environnement: Veolia and Suez sign combination agreement - 17 May 2021

» Sector Report - Corporate Hybrids: Moderate further spread tightening despite high new issue activity - 25 Mar 2021 TENN Tennet MW 7,350 (3.0%) Stable A3/A-s/– » Daily Credit Briefing - Tennet: Proceeds from green bond issue will back grid expansion plans - 10 Jun 2021

» Sector Report - Corporate Hybrids: Moderate further spread tightening despite high new issue activity - 25 Mar 2021 SRGIM Snam MW 6,654 (2.7%) Stable Baa2/BBB+s/BBB+s » Daily Credit Briefing - Snam: Strategy and full-year guidance confirmed - 14 May 2021

» Daily Credit Briefing - Snam: Raises original 2021 net profit guidance by around 3.5% - 19 Mar 2021 EDPPL EDP OW 6,150 (2.5%) Improving Baa3/BBBs/BBBs » Daily Credit Briefing - EDP: Net debt increase largely due to cash capex and working capital

optimization - 14 May 2021 » Sector Report - Corporate Hybrids: Moderate further spread tightening despite high new issue activity - 25 Mar 2021

NTGYSM Naturgy MW 5,892 (2.4%) Stable Baa2/BBBn/BBBs » Daily Credit Briefing - Naturgy: Resilient 1Q results despite ongoing FX weakness - 29 Apr 2021 » Sector Report - Corporate Hybrids: Moderate further spread tightening despite high new issue activity - 25 Mar 2021

ENBW EnBW MW 5,600 (2.3%) Stable Baa1/A-s/BBB+s » Daily Credit Briefing - EnBW: Downgrade to Baa1 with stable outlook by Moody's - 19 May 2021 » Sector Report - Corporate Hybrids: Moderate further spread tightening despite high new issue activity - 25 Mar 2021

TRNIM Terna MW 5,550 (2.3%) Stable Baa2/BBB+s/– » Daily Credit Briefing - Terna: Committed to delivering on 2021-2025 Industrial Plan - 13 May 2021 » Daily Credit Briefing - Terna: 2021 guidance in line with business plan - 25 Mar 2021

IGIM Italgas OW 4,100 (1.7%) Stable Baa2/–/BBB+s » Daily Credit Briefing - Italgas: Strategic plan to 2027 with stronger focus on network digitization - 16 Jun 2021 » Daily Credit Briefing - Italgas: 2020 results match expectations with capex at new all-time highs - 12 Mar 2021

NGGLN National Grid T 3,750 (1.5%) – –/BBB+s/BBB-s Coverage in transition

SSELN SSE T 3,550 (1.4%) – Baa1/BBB+s/BBBs Coverage in transition » Daily Credit Briefing - SSE: EU antitrust approves innogy takeover by E.ON with conditions, as expected - 18 Sep 2019

FUMVFH Fortum Oyj MW 3,500 (1.4%) Weakening Baa2/BBBn/BBBn » Daily Credit Briefing - Fortum: EBITDA growth includes strong contribution from Uniper - 13 May 2021 » Daily Credit Briefing - Fortum: 2021-2025 business plan targets confirmed - 15 Mar 2021

ACEIM Acea OW 3,400 (1.4%) Stable Baa2/–/BBB+s » Daily Credit Briefing - Acea: Double-digit EBITDA growth and stable net leverage - 13 May 2021 » Daily Credit Briefing - Acea: EBITDA growth supported by regulated activities and is above guidance - 11 Mar 2021

EUROGR Eurogrid MW 3,250 (1.3%) Stable –/BBB+s/– » Daily Credit Briefing - Eurogrid: Higher capex budget for 2021-25 due to accelerated grid expansion - 10 Mar 2021 » Sector Report - Our thoughts on 2021: Transformation strategies driving capex to record levels while ... - 27 Jan 2021

VATFAL Vattenfall UW 3,000 (1.2%) Stable A3/BBB+s/– » Daily Credit Briefing - Vattenfall: Support from higher achieved prices and increased hydropower production - 30 Apr 2021 » Sector Report - Corporate Hybrids: Moderate further spread tightening despite high new issue activity - 25 Mar 2021

VGASDE Vier Gas Transport MW 3,000 (1.2%) Stable –/A-n/– » Vier Gas Transport GmbH – Initiation of coverage - 19 Feb 2021

CTEFRA CTE MW 2,920 (1.2%) Stable –/A-s/– » Sector Report - Utilities: French utilities - the risks and benefits of a new political landscape - 11 Dec 2017

REESM Red Electrica MW 2,900 (1.2%) Stable Baa1/A-s/A-s » Daily Credit Briefing - Red Electrica: 1Q results reflect application of the remuneration parameters ... - 28 Apr 2021 » Daily Credit Briefing - Red Electrica: 2020 results reflect the application of new regulatory parameters - 24 Feb 2021

ORSTED Orsted UW 2,867 (1.2%) Stable –/BBB+s/BBB+s » Daily Credit Briefing - Orsted: Objective to reach 50GW of installed capacity by 2030 - 3 Jun 2021 » Sector Report - Corporate Hybrids: Moderate further spread tightening despite high new issue activity - 25 Mar 2021

ESBIRE Electricity Supply Board – 2,800 (1.1%) – A3/A-s/– Not covered






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Euro Credit Pilot




trend* Rating Latest research (including link) CHGRID State Grid – 2,600 (1.1%) – A1/A+s/A+s Not covered

ENEXIS Enexis – 2,500 (1.0%) – Aa3/A+wn/– Not covered

IREIM Iren MW 2,500 (1.0%) Stable –/–/BBBs » Daily Credit Briefing - Iren: Growth driven by energy and waste activities - 14 May 2021 » Daily Credit Briefing - Iren: Higher 2021 capex budget reflects organic growth leveraging - 26 Mar 2021

ELIATB Elia Transmission Belgium SA – 2,350 (1.0%) – Not covered

ENGSM Enagas UW 2,350 (1.0%) Stable Baa2/BBB+n/BBB+n » Sector Flash - Utilities: Role of gas and nuclear activities in EU taxonomy rules yet to be decided - 27 Apr 2021 » Daily Credit Briefing - Enagas: 2020 results slightly below consensus - 23 Feb 2021

ENAPHO EP Infrastructure OW 2,350 (1.0%) Stable Baa3/BBBs/BBB-s » Sector Flash - Utilities: Role of gas and nuclear activities in EU taxonomy rules yet to be decided - 27 Apr 2021 » Daily Credit Briefing - EP Infrastructure: Successful issuance of EUR 500mn 10Y senior bond - 03 Mar 2021

FIREIT 2i Rete Gas OW 2,330 (0.9%) Stable Baa2/BBBs/– » Italian Credit Compendium - Moving along the path to recovery - 12 May 2021 » Daily Credit Briefing - 2i Rete Gas: Proceeds from bond issue to support growth initiatives - 2 Feb 2021

CEZCP CEZ MW 2,225 (0.9%) Stable Baa1/A-s/A-s » Daily Credit Briefing - CEZ: CEZ targets CZK 80-85bn in EBITDA in 2030, which implies a CAGR of 3.4-4.1% - 21 May 2021 » Daily Credit Briefing - CEZ: 2021 EBITDA guidance reflects planned disposals - 17 Mar 2021

STATK Statkraft MW 2,200 (0.9%) Weakening A3/A-s/BBB+s » Daily Credit Briefing - Statkraft: High Nordic power prices lead to all-time high underlying EBIT - 7 May 2021 » Daily Credit Briefing - Statkraft: Hydro reservoir filling in the Nordics normalized in early 2021 - 19 Feb 2021

FLUVIU FLUVIUS – 2,150 (0.9%) – A3/–/– Not covered

STEDIN Stedin – 2,000 (0.8%) – –/A-s/– Not covered

CDTFIN Cadent Gas – 1,875 (0.8%) – –/BBB+s/BBB-s Not covered

ANVAU AusNet Services – 1,760 (0.7%) – A3/A-s/BBB+s Not covered

HERIM Hera MW 1,641 (0.7%) Stable Baa2/BBB+s/– » Daily Credit Briefing - Hera: Increased cash generation reduces leverage - 14 May 2021 » Daily Credit Briefing - Hera: Focus on sustainable growth initiatives confirmed - 25 Mar 2021

YANTZE China Three Gorges Corporation

– 1,350 (0.6%) – A1/As/A+s Not covered

AQUASM FCC Aqualia – 1,350 (0.6%) – –/–/BB+p Not covered

NEGANV Nederlandse Gas – 1,150 (0.5%) – A1/AA-s/– Not covered

NATUEN NorteGas – 1,125 (0.5%) – –/BBB-s/– Not covered

CZGRID Czech Gas Networks OW 1,100 (0.4%) Stable –/BBB+s/BBBs » Sector Report - Our thoughts on 2021: Transformation strategies driving capex to record levels while ... - 27 Jan 2021 » Sector Report - Czech/Slovak utilities: supportive regulation and modest investment requirements - 30 October 2020

ERGIM ERG MW 1,100 (0.4%) Stable –/–/BBB-s » Daily Credit Briefing - ERG: Business plan with re-leveraging while remaining committed to IG rating - 17 May 2021 » Daily Credit Briefing - ERG: Increasing profitability and investment activity in 2021 - 15 Mar 2021

SO Southern – 1,100 (0.4%) – Baa1/An/BBB+s Not covered

RENEPL REN – 1,050 (0.4%) – Baa3/BBBs/BBBs Not covered


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Euro Credit Pilot




trend* Rating Latest research (including link) TEREGA Terega – 1,050 (0.4%) – Baa3/–/– Not covered

VIESGO Viesgo – 1,050 (0.4%) – –/BBB-s/– Not covered

ALLRNV Alliander (Nuon) T 1,000 (0.4%) – Aa3/AA-wn/– Coverage in transition » Daily Credit Briefing - Alliander: Recommendation changes – 3 Apr 2018

CHGDNU CGNPC International – 1,000 (0.4%) – A2/A-s/As Not covered

ENGALL Engie Alliance – 1,000 (0.4%) – Baa1/BBB+s/– Not covered

SPPEUS Eustream MW 1,000 (0.4%) Stable Baa2/–/A-s » Sector Report - Utilities: Our thoughts on 2021 - Transformation strategies driving capex to record ... - 27 Jan 2021 » Daily Credit Briefing - Eustream: Nebt debt reduction despite decline in transported volumes - 30 Nov 2020

PLNIJ PLN – 1,000 (0.4%) – Baa2/BBBn/BBBs Not covered

REDEXS Redexis Gas – 1,000 (0.4%) – Baa3/–/– Not covered

STATNE Statnett – 1,000 (0.4%) – A2/A+s/– Not covered

VERAV Verbund UW 1,000 (0.4%) Stable A3/As/– » Daily Credit Briefing - Verbund: Completion of acquisition of 51% stake in GCA - 1 Jun 2021 » Daily Credit Briefing - Verbund: New green SLB is a novelty in the green financing segment - 25 Mar 2021

ELIASO Elia – 700 (0.3%) – –/BBB+s/– Not covered

AUSGF Ausgrid – 650 (0.3%) – Baa1/BBBs/– Not covered

CKINF CK Infrastructure Holdings – 600 (0.2%) – –/As/A-s Not covered

GALPNA Galp Gas Natural Distribuicao

– 600 (0.2%) – –/BBB-s/– Not covered

ORGAU Origin Energy – 600 (0.2%) – Baa2/BBBn/BBBs Not covered

AEMSPA A2A MW 500 (0.2%) Stable Baa2/BBBs/– » Daily Credit Briefing - A2A: LGH minority shareholders accept merger proposal - 15 Jun 2021 » Daily Credit Briefing - A2A: Confirms its confidence in its 2021-2030 business plan - 19 Mar 2021

ACQUIU Acquirente Unico – 500 (0.2%) – –/BBBs/– Not covered

BEIENT Beijing Enterprises – 500 (0.2%) – Baa1/BBB+s/– Not covered

BOGAEI Bord Gais Eireann – 500 (0.2%) – A2/As/– Not covered

CNGEST Canal de Isabel II Gestion – 500 (0.2%) – Baa1/–/BBB+s Not covered

CARUNA Caruna Networks – 500 (0.2%) – –/BBB+s/– Not covered

ELEVER Elenia Verkko Oyj – 500 (0.2%) – Not covered

EWE EWE MW 500 (0.2%) Stable Baa1/–/– » Daily Credit Briefing - EWE: Higher capex to be carbon-neutral by 2035 - 29 Apr 2021 » Daily Credit Briefing - EWE: Outlook change to stable by Moody's - 10 Feb 2021

NTPCIN NTPC – 500 (0.2%) – Baa3/BBB-s/BBB-n Not covered

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Euro Credit Pilot




trend* Rating Latest research (including link) SGSPAA SGSP – 500 (0.2%) – A3/A-s/– Not covered TPEPW Tauron Polska Energia – 500 (0.2%) – –/–/BBB-s Not covered



Euro Credit Pilot


Oil & Gas (Overweight) Christian Aust, CFA, Head of Corporate Credit Research (UniCredit Bank, Munich) +49 89 378-17564, [email protected]

Weight in iBoxx NFI: Current ASW spread: change mom/YTD: Euro STOXX OIG YTD:

8.6%

73bp -0.8/-1.0

+13.0%

Sector drivers: On the back of a YTD average Brent price of above USD 64/bbl and our year-end 2021 forecast of USD 60/bbl, we expect all covered Oil & Gas producers to generate sufficiently positive cash flow, allowing them to reduce leverage and remunerate shareholders via dividends and share buybacks without exerting pressure on metrics. We note that most shareholder-remuneration policies are now linked to certain oil-price levels or the achievement of a certain net-debt or gearing target. On balance, however, we project that the sector will maintain its focus on cash flow and cost-preservation measures in FY21.

ESG considerations: European oil and gas producers have set ambitious targets to reduce net carbon emissions. While many producers aim to achieve net zero carbon emissions by 2050 (or before), we note that near-term initiatives are mainly focused on scope 1 and 2 emissions. COVID-19 has accelerated the energy transformation towards greener energy and the generation of electricity from renewable sources. The transformation also puts pressure on European oil and gas companies to diversify away from traditional, core upstream oil and gas production, also via (medium) M&A or asset rotation. Regulators’ (including central banks), investors’ and the general public’s scrutiny of the European oil and gas industry with regard to necessary improvement of environmental, social and governance (ESG) factors will only tighten, in our view. Rating agencies also started to incorporate the longer-term risk from the energy transition into sector ratings in 1Q21 (although not in a consistent fashion, in our view). Market recap: Since the end of March, the iBoxx EUR Oil & Gas index has widened by 1bp and has thus underperformed the 5bp tightening of the iBoxx EUR NFI index. This underperformance was mainly driven by long-dated sector bonds.



trend* Rating Latest research (including link) TOTAL TotalEnergies MW 28,300 (22.0%) Improving –/As/AA-s » Daily Credit Briefing - Total: Moody's actions highlight differing approaches - 25 Mar 2021 BPLN BP OW 18,219 (14.2%) Improving A2/A-n/As » Daily Credit Briefing - BP: Only moderate share buybacks despite strong 1Q21 performance - 28 Apr 2021 ENIIM ENI UW 17,400 (13.5%) Improving Baa1/A-n/A-s » Daily Credit Briefing - ENI: Less-impressive recovery in 1Q21 - 30 Apr 2021

» Sector Report - Oil & Gas: European Oil & Gas update - 19 Nov 2019 RDSALN Shell OW 15,250 (11.9%) Improving Aa2/A+s/AA-s » Daily Credit Briefing - Royal Dutch Shell: Better-than-expected 1Q21 results - 29 Apr 2021

» Sector Report - Oil & Gas: European Oil & Gas update - 19 Nov 2019 OMVAV OMV MW 10,250 (8.0%) Improving A3/–/A-n » Daily Credit Briefing - OMV: Slovenian retail assets to change hands for EUR 0.35bn EV - 9 Jun 2021 EQNR Equinor MW 6,850 (5.3%) Improving Aa2/AA-s/– » Daily Credit Briefing - Equinor: Moody's stabilizes outlook on Aa2 rating - 12 Apr 2021 GAZPRU Gazprom – 6,000 (4.7%) – Baa2/BBB-/BBBs Not covered SLB Schlumberger – 4,900 (3.8%) – –/An/– Not covered XOM Exxon Mobil Corporation – 4,500 (3.5%) – Aa2/AA-n/– Not covered WNTRDE Wintershall – 4,000 (3.1%) – Baa2/–/– Not covered REPSM Repsol MW 3,600 (2.8%) Improving Baa2/BBBs/BBBs » Daily Credit Briefing - Repsol: Stable net debt in 1Q21 as excess cash is distributed to shareholders - 30 Apr 2021

» Sector Report - Oil & Gas: European Oil & Gas update - 19 Nov 2019 APAAU APT Pipelines – 2,350 (1.8%) – Baa2/BBBs/– Not covered BGGRP BG Energy MW 1,575 (1.2%) Improving –/A+s/– See Shell CEPSA Cia Espanola de Petroleos – 1,500 (1.2%) – Baa3/BBB-s/BBB-s Not covered MOLHB MOL MW 1,400 (1.1%) Improving Baa3/BBB-s/BBB-s » Daily Credit Briefing - MOL: Slovenian retail assets to change hands for EUR 0.35bn EV - 9 Jun 2021 PKNPW PKN Orlen N/A 1,250 (1.0%) – Baa2/–/BBB-wp Was restricted and not yet re-evaluated




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Euro Credit Pilot




trend* Rating Latest research (including link) AKERBP Aker BP – 750 (0.6%) – Baa3/BBB-p/BBB-s Not covered KMI Kinder Morgan – 500 (0.4%) – Baa2/BBBs/BBBs Not covered



Euro Credit Pilot


Industrial Goods & Services (Marketweight)

Jana Schuler, CFA, Senior Credit Analyst (UniCredit Bank, Munich) +49 89 378-13211, [email protected]

Christian Aust, CFA, Head of Corporate Credit Research (UniCredit Bank, Munich) +49 89 378-17564, [email protected]

Weight in iBoxx NFI: Current ASW spread: change mom/YTD: Euro STOXX IGS YTD:

13.3%

44bp -3.5/-14.7

+13.3%

Sector drivers: The industrial goods and services sector includes names that are active across various industries. The businesses of most of the companies that make up this sector are highly dependent on cyclical economic developments and are exposed to end-markets at different stages of the economic cycle. UniCredit economists expect GDP in the eurozone to recover by 4.0% in 2021. The US economy is expected to return to 6.5% growth. Chinese GDP growth is likely to rebound by 8.5%.

ESG considerations: ESG risk in the iBoxx EUR Industrial Goods & Services index is as diverse as the names included in the index. Companies range from airport and motorway concession operators (focused on one or a few countries with ESG risk mainly with respect to the governance component) to large, global capital goods manufacturers (including truck manufacturers). We note that Moody’s regards the COVID-19 pandemic, which affects all companies in the sector, to be a social risk under its ESG framework. Market recap: The iBoxx IGS index has tightened by 7bp since the end of March, thereby performing in line with the iBoxx NFI, which has tightened 6bp in the same timeframe.



trend* Rating Latest research (including link) SIEGR Siemens MW 16,750 (8.4%) Stable A1/A+s/As » Daily Credit Briefing - Siemens: Full-year outlook raised again with strong 2Q results - 7 May 2021 DGFP Vinci MW 13,875 (6.9%) Stable A3/A-s/A-s » Daily Credit Briefing - Vinci: 1Q21 trading update - 23 Apr 2021 AIRFP Airbus OW 9,000 (4.5%) Improving A2/An/BBB+n » Daily Credit Briefing - Airbus: Strong FCF in 1Q21, full-year outlook confirmed - 29 Apr 2021 ABESM Abertis UW 8,674 (4.3%) Stable –/BBB-n/BBBn » Daily Credit Briefing - Abertis Infraestructuras: 1Q21 traffic update showing differences between ... - 23 Apr 2021 FRPTT La Poste – 8,500 (4.2%) – Aa2/As/AAn Not covered ADPFP Paris Airport – 7,900 (3.9%) – –/An/A-n Not covered GE General Electric – 6,865 (3.4%) – Baa1/BBB+wn/BBBs Not covered ARRFP APRR MW 6,600 (3.3%) Stable –/A-s/A-s » Daily Credit Briefing - Autoroutes Paris-Rhin-Rhone: Stable net debt in FY20 and no short-term ... - 26 Feb 2021 SUFP Schneider Electric MW 6,600 (3.3%) Stable A3/A-s/– » Daily Credit Briefing - Schneider: Raises full-year outlook with strong and broad-based growth in 1Q21 - 27 Apr 2021 DPWGR Deutsche Post DHL MW 5,700 (2.8%) Improving A3/–/BBB+s » Daily Credit Briefing - Deutsche Post DHL: Provides details on increased 2021 guidance and expects ... - 5 May 2021 CKHH Hutchison Whampoa – 5,000 (2.5%) – A2/As/A-s Not covered SWFP Sodexo – 3,800 (1.9%) – –/BBB+n/– Not covered HOFP Thales – 3,800 (1.9%) – A2/BBB+s/– Not covered FDX FedEx – 3,500 (1.7%) – Baa2/BBBs/– Not covered HITTFP HIT – 3,450 (1.7%) – Baa3/BBB-n/BBBn 100% owned by Abertis, see Abertis HTHROW BAA – 3,150 (1.6%) – Not covered DE Deere & Co. – 3,150 (1.6%) – A2/As/As Not covered LUCSHI Schiphol Airport – 3,150 (1.6%) – A1/An/– Not covered ITW ITW – 3,100 (1.5%) – A2/A+s/– Not covered CNHI CNH Industrial UW 3,000 (1.5%) Improving Baa3/BBBs/BBB-s » Daily Credit Briefing - CNH Industrial: Traton is reportedly exploring capital increase - 15 Jun 2021

» Italian Credit Compendium - Moving along the path to recovery - 12 May 2021 HON Honeywell – 3,000 (1.5%) – A2/As/As Not covered







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Euro Credit Pilot




trend* Rating Latest research (including link) TRAGR Traton MW 3,000 (1.5%) Weakening Baa1/–/– » Daily Credit Briefing - TRATON: Traton is reportedly exploring capital increase - 15 Jun 2021

» Credit Flash - Traton: Initiation of coverage / new truck bonds delivered - 19 Mar 2021 TCLAU Transurban – 2,950 (1.5%) – Baa1/BBB+n/– Not covered VLVY Volvo MW 2,750 (1.4%) Stable A3/A-s/BBB+s » Sector Report - Automotive Credit Conference Handbook - 14 Jun 2021 ETN Eaton Corporation – 2,550 (1.3%) – –/A-s/BBB+n Not covered UPS UPS – 2,400 (1.2%) – A2/A-s/– Not covered MMM 3M Company – 2,350 (1.2%) – A1/A+n/– Not covered ABBNVX ABB MW 2,250 (1.1%) Stable A3/A-s/A-s » Daily Credit Briefing - ABB: Strong prospects for FY21 - 27 Apr 2021 SKGID Smurfit Kappa OW 2,250 (1.1%) Stable Baa3/BBB-s/BBB-s » Daily Credit Briefing - Smurfit Kappa: 1Q21 trading update - 30 Apr 2021 EDENFP Edenred – 2,100 (1.0%) – –/BBB+s/– Not covered ISSDC ISS – 2,100 (1.0%) – Baa3/BBB-n/– Not covered JCI Johnson Controls – 1,888 (0.9%) – –/BBB+n/– Not covered SMDSLN DS Smith MW 1,850 (0.9%) Stable –/BBB-s/– » Daily Credit Briefing - DS Smith: Positive full-year pre-close trading update - 30 Apr 2021 RCFFP Teleperformance – 1,850 (0.9%) – –/BBB-s/– Not covered TEL Tyco Electronics – 1,650 (0.8%) – Baa1/–/A-s Not covered LRFP Legrand – 1,600 (0.8%) – A3/A-s/– Not covered EMR Emerson Electric – 1,500 (0.7%) – A2/As/– Not covered SCANIA Scania OW 1,500 (0.7%) Improving » Daily Credit Briefing - Scania: Traton is reportedly exploring capital increase - 15 Jun 2021

» Credit Flash - Traton: Initiation of coverage / new truck bonds delivered - 19 Mar 2021 ALOFP Alstom MW 1,450 (0.7%) Stable Baa2/–/– » Daily Credit Briefing - Alstom: 3Q trading update shows expected improvement, outlook confirmed - 19 Jan 2021 SAFFP Safran – 1,400 (0.7%) – –/BBB+s/– Not covered LIGHT Signify – 1,275 (0.6%) – Baa3/BBB-s/– Not covered SMINLN Smiths Group – 1,250 (0.6%) – Baa2/BBB+s/– Not covered WURTH Würth MW 1,250 (0.6%) Improving » Daily Credit Briefing - Würth: Recommendation change to marketweight (from restricted) - 6 Jun 2018 SYDAU Sydney Airport – 1,200 (0.6%) – Baa1/–/– Not covered ECL Ecolab – 1,150 (0.6%) – Baa1/A-s/A-s Not covered BABLN Babcock International – 1,100 (0.5%) – –/BBBn/– Not covered DOV Dover Corporation – 1,100 (0.5%) – Baa1/BBB+s/– Not covered FCCSER FCC Servicios Medio

Ambiente – 1,100 (0.5%) – –/–/BBB-s Not covered

RTOLN Rentokil – 1,100 (0.5%) – –/BBBs/– Not covered ATIM ASTM MW 1,050 (0.5%) Weakening Baa2wn/–/BBB-n » Daily Credit Briefing - ASTM SpA: Expected downgrade to BBB- with negative outlook by Fitch - 11 Jun 2021 RMGLN Royal Mail – 1,050 (0.5%) – –/BBBn/– Not covered ADRIT Aeroporti di Roma OW 1,000 (0.5%) Improving Baa3/BB+d/BBB-wp » HY & Xover Update - Aeroporti di Roma: Positive outlook also at Moody's - 8 Jun 2021


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Euro Credit Pilot




trend* Rating Latest research (including link) APH Amphenol – 1,000 (0.5%) – Baa1/BBB+s/– Not covered ATCOA Atlas Copco T 1,000 (0.5%) – A2/A+s/A+s Coverage in transition

» Daily Credit Briefing - Atlas Copco: Coverage in transition - 28 Sep 2017 AZJAU Aurizon – 1,000 (0.5%) – Baa1/BBB+s/– Not covered BXBAU Brambles – 1,000 (0.5%) – Baa1/BBB+s/– Not covered DSVDC DSV – 1,000 (0.5%) – A3/A-s/– Not covered POSIM Poste Italiane – 1,000 (0.5%) – Baa3/BBBs/– Not covered DPWDU DP World – 750 (0.4%) – Baa3/–/BBB-s Not covered ERFFP Eurofins Scientific N/A 750 (0.4%) – Baa3/–/BBB-s Was Restricted and not yet re-evaluated

» Daily Credit Briefing - Eurofins Scientific: Provides trading update for April - 7 Jun 2021 MAERSK Maersk T 750 (0.4%) – Baa2/BBBp/– Coverage in transition

Coverage in transition SGSNVX SGS Nederland Holding B.V. – 750 (0.4%) – A3/–/– Not covered PSGSM Prosegur – 700 (0.3%) – –/BBBs/– Not covered BPOST bpost – 650 (0.3%) – –/As/– Not covered PH Parker-Hannifin – 612 (0.3%) – Baa1/BBB+s/BBB+s Not covered CASHSM Prosegur Cash – 600 (0.3%) – –/BBBs/– Not covered SANEFP SANEF – 600 (0.3%) – Baa1/BBB-n/BBBn Not covered, see Abertis MELAIR Australia Pacific Airports – 550 (0.3%) – Baa1/BBB+n/– Not covered ADENVX Adecco T 500 (0.2%) – Baa1/BBB+s/– Coverage in transition

Coverage in transition ALFASS Alfa Laval – 500 (0.2%) – –/BBB+s/– Not covered AMCR Amcor – 500 (0.2%) – Baa2/BBBs/– Not covered AVY Avery Dennison – 500 (0.2%) – Baa2/BBBs/– Not covered DAAFIN DAA (Dublin Airport) – 500 (0.2%) – Not covered EXPNLN Experian – 500 (0.2%) – Baa1/A-s/– Not covered MAN ManpowerGroup – 500 (0.2%) – Baa1/BBBs/– Not covered MTXGR MTU Aero Engines – 500 (0.2%) – Baa3/–/BBBn Not covered NIDEC Nidec Corp – 500 (0.2%) – A3/–/– Not covered RTX Raytheon Technologies Corp – 500 (0.2%) – Baa1/A-n/– Not covered URENCO Urenco – 500 (0.2%) – Baa1/BBB+s/– Not covered XYL Xylem – 500 (0.2%) – Baa2/BBBn/BBBs Not covered


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Euro Credit Pilot


Basic Resources (Overweight) Jana Schuler, CFA, Senior Credit Analyst (UniCredit Bank, Munich) +49 89 378-13211, [email protected]


Weight in iBoxx NFI: Current ASW spread: change mom/YTD: Euro STOXX BAS YTD:

1.0%

58bp -2.1/-8.5

+12.5%

Sector drivers: Sentiment towards China, the world’s largest commodity consumer, remains the main thing to watch for mining companies. The outlook for commodities has turned increasingly positive in 2021, backed by a brighter macroeconomic backdrop. Metal prices have surged in recent months, which should allow for yoy higher prices, on average, with many metals seen at multi-year highs. Downside risk stems mainly from a slowdown in demand from China in the short term. Longer-term, commodities such as copper and nickel should benefit from the trend towards a green economy. Currently strong operating conditions should boost cash generation in our covered universe, which we expect to be mainly used for capex and shareholder remuneration as well as for a strengthening of balance sheets towards the companies’ rating requirements (though mostly achieved already). Prospects remain good for our covered paper and paper-based packaging producers due to a better demand and pricing outlook. However, headwinds are increasing on the cost side, in particular for pulp and recovered paper (OCC), which could add pressure to margins in 1H21. For more information, see our Sector Flash – Paper and paper-based packaging: good prospects and value.

ESG considerations: In the mining sector, there is increasing focus on and pressure for more-sustainable commodity portfolios. In particular thermal coal mining is under pressure. Commodities that should benefit from the energy transition include copper (higher need due to decarbonization), cobalt and nickel (both driven by electric-vehicle demand). The paper and packaging sector in particular should benefit from the trend towards more-sustainable packaging solutions. Market recap: The iBoxx EUR Basic Resources index has tightened by 2bp since the end of March, slightly underperforming the 5bp tightening of the iBoxx Non-Financials index.



trend* Rating Latest research (including link) GLENLN Glencore OW 5,400 (36.8%) Improving Baa1/BBB+s/– » Daily Credit Briefing - Glencore: Strong FY20 results with net debt back in target range - 16 Feb 2021 BHP BHP Billiton MW 2,810 (19.2%) Stable Aa3/As/As » Daily Credit Briefing - BHP Billiton: Net debt to remain at lower end of target range despite record ... - 16 Feb 2021 AALLN Anglo American MW 1,850 (12.6%) Improving Baa2/BBBs/BBBs » Daily Credit Briefing - Anglo American: To demerge South African thermal coal operations - 9 Apr 2021 MNDILN Mondi MW 1,850 (12.6%) Stable Baa1/BBB+s/– » Daily Credit Briefing - Mondi Packaging: Robust 1Q21 results highlight good packaging demand and cost ... - 6 May 2021 UPMFH UPM-Kymmene – 1,250 (8.5%) – Baa1/BBBs/– Not covered NHYNO Norsk Hydro – 500 (3.4%) – Baa3/BBBs/– Not covered POHANG POSCO – 500 (3.4%) – Baa1/BBB+s/– Not covered STERV Stora Enso – 500 (3.4%) – Baa3/–/BBB-s Not covered




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Euro Credit Pilot


Chemicals (Underweight) Christian Aust, CFA, Head of Corporate Credit Research (UniCredit Bank, Munich) +49 89 378-17564, [email protected]

Weight in iBoxx NFI: Current ASW spread: change mom/YTD: Euro STOXX CHE YTD:

3.4%

39bp -6.9/-17.7

+10.5%

Sector drivers: Chemicals earnings recovery (also in base chemicals) in FY21 should continue to be driven by an expected increase in demand from cyclical end-markets such as the automotive and industrial markets as COVID-19 vaccines are rolled out, and by growth in China. Furthermore, we expect still-solid demand from healthcare/pharma end markets in FY21. With the anticipated increase in volumes and prices, in combination with continued focus on cost/capex discipline in the sector, we expect to see clearly improved FCF generation (despite increased investments in a circular economy). Furthermore, we also see potential for further (also larger) portfolio adjustments, in line with growth and/or transformation strategies of Chemical companies. Consequently, we expect M&A risk and shareholder remuneration to return in the sector. With currently tight ASW spread levels of IG-rated Chemicals’ senior bonds, we keep our underweight recommendation for the sector.

ESG considerations: We note that the sector remains highly exposed to ESG topics, as chemical producers focus on innovations/materials to support a circular/sustainable economy (e.g. the reduced use of plastics) and on lowering overall emissions of greenhouse gases. The latter includes a focus on reducing carbon dioxide in chemical production, given increasing costs associated with emissions of carbon dioxide and rising environmental awareness among all parts of the society. Furthermore, the sector faces considerable risks from more-stringent environmental regulation (and potential litigation) due to the waste, pollution and toxicity associated with it. Market recap: Since the end of March, the iBoxx EUR Chemicals index has slightly outperformed the broader iBoxx EUR NFI. While the Chemicals index tightened 8bp, to 39bp, and therefore remains tight overall, in our view, the NFI tightened by 5bp, to 50bp, over the same period. Among the best-performing sector bonds were HAOHUA, SYNNVX, ALB, EMN and FIRMEN issues.



trend* Rating Latest research (including link) BASGR BASF MW 7,750 (15.2%) Stable A3wn/An/As » Daily Credit Briefing - BASF: Raises full-year guidance following strong start to the year - 29 Apr 2021 AIFP Air Liquide MW 5,700 (11.2%) Stable A3/A-p/– » Daily Credit Briefing - Air Liquide: Outlook raised to positive at Moody's - 5 May 2021 LIN Linde MW 3,950 (7.7%) Stable A2/As/– » Daily Credit Briefing - Linde: Lifts outlook after strong start to year - 7 May 2021 DSM DSM MW 3,250 (6.4%) Stable A3/A-s/– » Daily Credit Briefing - DSM: Recovery in Materials supports more-positive full-year outlook - 5 May 2021 AKZANA Akzo Nobel MW 2,500 (4.9%) Stable Baa1/BBB+s/BBB+s » Daily Credit Briefing - AkzoNobel: Expecting pressure from raw materials in 2Q/3Q21 - 21 Apr 2021 EVKGR Evonik MW 2,500 (4.9%) Stable Baa2/BBB+s/– » Daily Credit Briefing - Evonik: Outlook range narrowed after solid 1Q21 results - 6 May 2021 GIVNVX Givaudan – 2,300 (4.5%) – Baa1/A-s/– Not covered DOW Dow Chemical – 2,250 (4.4%) – Baa2/BBBs/BBB+s Not covered AKEFP Arkema MW 2,100 (4.1%) Stable Baa1/BBB+s/– » Daily Credit Briefing - Arkema: Raises guidance on strong demand from construction/DIY markets - 6 May 2021 SOLBBB Solvay OW 1,850 (3.6%) Improving Baa2/BBBs/BBBs » Daily Credit Briefing - Solvay: Lifts full-year targets after better-than-expected cash generation in 1Q21 - 5 May 2021 HAOHUA ChemChina – 1,700 (3.3%) – Baa2/BBBp/A-wp Not covered COVEGR Covestro MW 1,500 (2.9%) Stable Baa2/–/– » Daily Credit Briefing - Covestro: Strong 1Q21 results confirmed, focus on use of excess cash flows - 28 Apr 2021 FIRMEN Firmenich – 1,500 (2.9%) – Not covered LXSGR Lanxess MW 1,500 (2.9%) Stable Baa2/BBBs/– » Daily Credit Briefing - Lanxess: Targets upper end of outlook range after broadly stable results in 1Q21 - 12 May 2021 SYNNVX Syngenta OW 1,400 (2.7%) Improving Ba2/BBB-p/BBBs » Daily Credit Briefing - Syngenta: Syngenta Group with strong key figures for 1Q21 - 29 Apr 2021 IFF International Flavors &

Fragrances – 1,300 (2.5%) – Baa3/BBBn/BBBn Not covered

CE Celanese – 1,250 (2.4%) – Baa3/BBB-p/– Not covered EMN Eastman Chemical – 1,250 (2.4%) – Baa3/BBBs/BBB-s Not covered PPG PPG Industries – 1,200 (2.4%) – A3/BBB+n/A-n Not covered














Euro Credit Pilot




trend* Rating Latest research (including link) APD Air Products and Chemicals,

Inc. – 1,000 (2.0%) – A2/As/– Not covered

LYB LyondellBasell – 1,000 (2.0%) – Baa2/BBB-s/BBBs Not covered WLK Westlake Chemical – 700 (1.4%) – Baa2/BBB-s/BBBn Not covered BNRGR Brenntag OW 600 (1.2%) Improving Baa2/BBBs/– » Daily Credit Briefing - Brenntag: Outlook maintained following strong 1Q21 results - 11 May 2021 ALB Albemarle – 500 (1.0%) – Baa3wn/BBBs/BBBs Not covered LGCHM LG Chem – 500 (1.0%) – –/BBB+s/– Not covered




Euro Credit Pilot


Construction & Materials (Marketweight)

Jana Schuler, CFA, Senior Credit Analyst (UniCredit Bank, Munich) +49 89 378-13211, [email protected]


Weight in iBoxx NFI: Current ASW spread: change mom/YTD: Euro STOXX CNS YTD:

2.4%

45bp -3.4/-11.0

+19.9%

Sector drivers: The building materials sector showed resilient performance in FY20. Prospects for 2021 are for a recovery in Europe, which was impacted more by lockdown restrictions in FY20 (Euroconstruct expects construction output to grow by 4.1% after -7.8% in 2020) and growth in spending in the US. This should be mainly driven by infrastructure spending (supported by stimulus programs) and residential markets. Furthermore, a stronger push for energy-efficient renovation should boost the renovation segment in Europe in the coming years. ESG considerations: The focus in the sector, in particular for cement companies, is on reducing greenhouse emissions. The cement industry is the third-largest industrial energy consumer and second-largest industrial CO2 emitter globally. The International Energy Agency (IEA) has defined a low-carbon technology roadmap to help the cement industry meet the requirements of the Paris Agreement. According to the IEA, the main areas where carbon emissions can be cut in cement production to support the sustainable transition of the sector are as follows:

1. improving energy efficiency, 2. switching to lower-carbon fuels (i.e. a higher share of biomass and waste materials), 3. reducing the clinker-to-cement ratio (i.e. increasing the use of blended materials and the market deployment of blended cements), and 4. advancing process and technology innovations (such as the integration of carbon capture in cement production). Carbon pricing schemes are being put in place all around the world and, as a result, the cost of polluting will become an increasing burden in the years ahead. Market recap: The iBoxx EUR Construction & Materials index has tightened by 6bp since the end of March, largely in line with the iBoxx NFI (-5bp).



trend* Rating Latest research (including link) HEIGR HeidelbergCement OW 7,150 (19.5%) Improving Baa2/BBBs/– » Daily Credit Briefing - HeidelbergCement: Sells U.S. West region for USD 2.3bn, pro forma leverage at ... - 25 May 2021 SGOFP Saint-Gobain MW 6,744 (18.4%) Stable –/BBBs/BBBs » Daily Credit Briefing - Saint-Gobain: Trading update indicates continued strong performance in 2Q21 - 4 Jun 2021 LHNVX LafargeHolcim OW 6,269 (17.1%) Improving Baa2/BBBp/BBBs » Daily Credit Briefing - LafargeHolcim: Raises full-year profit guidance - 23 Apr 2021 CRHID CRH MW 3,950 (10.8%) Stable –/BBB+s/BBB+s » Daily Credit Briefing - CRH: Solid trading update - 28 Apr 2021 ENFP Bouygues UW 2,450 (6.7%) Stable A3/A-n/– » Daily Credit Briefing - Bouygues: Sells remaining Alstom stake - 3 Jun 2021 FERSM Ferrovial – 2,280 (6.2%) – –/BBBs/BBBs Not covered DNFSDC Danfoss – 1,900 (5.2%) – –/BBBs/– Not covered HOTGR Hochtief UW 1,500 (4.1%) Stable –/BBB-s/– » Daily Credit Briefing - HOCHTIEF: Resilient 1Q results but strategic uncertainties remain - 12 May 2021 NK Imerys – 1,100 (3.0%) – Baa3/BBB-s/– Not covered SIKASW Sika – 1,000 (2.7%) – Not covered ACSSCE ACS SCE – 750 (2.0%) – –/BBB-s/– Not covered BZUIM Buzzi Unicem MW 500 (1.4%) Stable –/BBB-s/– » Daily Credit Briefing - Buzzi Unicem: Confirms cautious outlook after solid 1Q21 trading update - 10 May 2021 MHK Mohawk Industries – 500 (1.4%) – Baa1/BBB+n/BBB+s Not covered CIMAU CIMIC – 500 (1.4%) – Baa2/–/– Not covered




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Euro Credit Pilot


Health Care (Marketweight) Dr. Silke Stegemann, CEFA, Senior Credit Analyst (UniCredit Bank, Munich) +49 89 378-18202, [email protected]

Weight in iBoxx NFI: Current ASW spread: change mom/YTD: Euro STOXX HCA YTD:

10.5%

51bp -5.9/-7.6

+10.3%

Sector drivers: The COVID-19 pandemic has highlighted the pharma industry’s defensive nature. While attention has been mainly focused on COVID-19 vaccine research, pharmaceutical companies are also developing new medicines and testing existing ones for the treatment of COVID-19. Antibody and plasma-derived therapies appear to be leading the field in the race to develop COVID-19 medication. In 1Q21, large pharma companies were a mixed bag, with Pfizer and AstraZeneca the standouts among peers due to their COVID-19 vaccines. Most pharma companies reiterated or raised their guidance, suggesting hopes of a recovery from the pandemic from mid-year. Potential M&A activity remains on the agenda despite high valuations. Price drags will persist and are not limited to the US, where clarity on a potential healthcare reform by the Biden Administration is needed. We think that global policy efforts aimed at lowering drug pricing will constrain profitability growth for all pharma companies in the coming years. This is particularly true in the US – although the impact will depend on the policies enacted. S&P’s outlook on the pharmaceuticals industry in 2021 (23 February 2021) is negative. The agency expects downgrades to exceed upgrades but its view is more focused on the US pharma market. Moody’s (December 2020) has a positive outlook on the global pharmaceuticals industry. It expects EBITDA to grow by 4-6%, and oncology and immunology drugs to be key drivers of sector growth. Fitch (December 2020) has a stable outlook on the global pharmaceuticals industry, supported by the industry’s non-cyclical nature and favorable demand characteristics.

ESG considerations: We note that the health-care sector faces below-average exposure to ESG topics. Environmental factors have not affected the credit quality of health-care companies very often. Extreme weather and supply disruptions can affect some manufacturers, but to date this has rarely caused credit deterioration. The manufacture of pharmaceutical products, medical devices, and life science products does involve hazardous substances and can produce byproducts that could harm the environment. Environmental remediation and failure to comply with regulations can be costly or cause plant shutdowns, which could affect product supply. Some pharmaceutical manufacturers and distributors are exposed to opioid litigation, which is a social risk. In developed countries, aging populations are putting cost pressure on health-care systems. Improving health outcomes while raising the cost effectiveness of therapies are increasingly becoming twin goals for health-care companies. In some markets, including the US, the public debate focuses on the accessibility and affordability of medicines and quality care, alongside price transparency. Social risks around drug pricing and affordability in Western Europe are less controversial due to high levels of regulatory involvement, and often the nationwide setting of drug formularies and price lists.

Market recap: In May 2021, the iBoxx Health Care index slightly underperformed the iBoxx Non-Financials.



trend* Rating Latest research (including link) BAYNGR Bayer MW 19,300 (12.1%) Improving Baa2/BBBs/BBB+s » Daily Credit Briefing - Bayer: Fitch confirms its BBB+ rating and stable outlook - a positive surprise - 2 Jun 2021 SANFP Sanofi OW 16,210 (10.2%) Improving A1/AAs/A+s » Daily Credit Briefing - Sanofi: Sanofi and Glaxo SmithKline start phase-III trial for COVID-19 vaccine ... - 28 May 2021 MDT Medtronic – 16,000 (10.1%) – A3/As/– Not covered TMO Thermo Fisher – 10,440 (6.6%) – Baa1/BBB+p/BBB+s Not covered DHR Danaher – 10,150 (6.4%) – Baa1wn/BBB+p/– Not covered TACHEM Takeda Pharmaceutical – 8,100 (5.1%) – Baa2/BBB+s/– Not covered MRKGR Merck KGaA OW 7,050 (4.4%) Improving Baa1/As/– » Daily Credit Briefing - Merck KGaA: Fitch confirms its BBB+ rating and stable outlook - a positive surprise - 2 Jun 2021 NOVNVX Novartis MW 7,050 (4.4%) Stable –/AA-s/AA-s » Sector Flash - Health Care: Proposal to waive intellectual property rights for COVID-19 vaccines - 7 May 2021 FREGR Fresenius OW 6,900 (4.3%) Improving Baa3/BBBs/BBB-s » Daily Credit Briefing - Fresenius SE & Co. KGaA: 1Q21 results - confirmation of guidance for 2021 is a ... - 6 May 2021 GSK GlaxoSmithKline UW 5,950 (3.7%) Stable –/As/A-s » Daily Credit Briefing - GlaxoSmithKline: Sanofi and Glaxo SmithKline start phase-III trial for COVID-19 ... - 28 May 2021 VTRS Viatris – 5,850 (3.7%) – Baa3/BBB-s/BBBs Not covered ABBV AbbVie – 4,684 (2.9%) – Baa2/BBB+s/– Not covered SYK Stryker – 4,350 (2.7%) – Baa1/A-n/– Not covered LLY Eli Lilly – 3,700 (2.3%) – A2/A+n/– Not covered FMEGR FMC MW 3,500 (2.2%) Weakening –/BBBs/BBB-s » Daily Credit Briefing - Fresenius Medical Care: 1Q21 results - confirmation of guidance for 2021 is a ... - 6 May 2021


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Euro Credit Pilot




trend* Rating Latest research (including link) ABT Abbott Laboratories – 3,460 (2.2%) – A2/A+p/– Not covered PHIANA Philips – 3,250 (2.0%) – –/BBB+s/A-s Not covered BDX Becton, Dickinson and

Company – 3,000 (1.9%) – Baa3/BBBs/BBB-p Not covered

JNJ Johnson & Johnson – 3,000 (1.9%) – Aaa/AAAn/– Not covered MRK Merck & Co. UW 2,500 (1.6%) Stable A1/A+s/A+s » Daily Credit Briefing - Merck & Co: Encouraging signs with respect to its potential COVID-19 drug - 8 Mar 2021 BAX Baxter International – 2,100 (1.3%) – Baa1/A-s/A-s Not covered AZN AstraZeneca MW 1,700 (1.1%) Improving A3/BBB+wp/BBB+s » Daily Credit Briefing - AstraZeneca: We keep our marketweight recommendation after solid 1Q21 report - 3 May 2021 ROSW Roche MW 1,650 (1.0%) Improving –/AAs/AAs » Daily Credit Briefing - Roche: 1Q21 trading update with strong diagnostics results but pharma suffers ... - 21 Apr 2021 MOLNLY Molnlycke – 1,500 (0.9%) – –/BBB-s/– Not covered ZBH Zimmer Biomet – 1,500 (0.9%) – Baa3/BBBs/BBBs Not covered BMY Bristol-Myers Squibb – 1,150 (0.7%) – A2/A+n/A-n Not covered MCK McKesson – 1,100 (0.7%) – Baa2/BBB+s/BBB+s Not covered BSX Boston Scientific Corporation – 900 (0.6%) – Baa2/BBBs/BBBs Not covered AMGN Amgen OW 750 (0.5%) Improving Baa1/A-s/BBB+s » Sector Flash - Pharmaceuticals: Fast-track approval of COVID-19 vaccine at risk - 16 Oct 2020 PFE Pfizer MW 750 (0.5%) Stable A2wn/A+s/An » Sector Flash - Health Care: Proposal to waive intellectual property rights for COVID-19 vaccines - 7 May 2021 LUNDC H Lundbeck A/S – 500 (0.3%) – –/BBB-s/– Not covered LONNVX Lonza – 500 (0.3%) – Not covered PKI PerkinElmer – 500 (0.3%) – Baa3/BBBs/BBBs Not covered

*This is the analyst's opinion concerning the development (improving/stable/weakening/developing) of the issuer’s credit profile over the next 3-6 months. This can be indicated by, among other things, the rating outlook or expected changes in the business profile or the financial profile, as indicated, for example, by credit protection ratios. Source: UniCredit Research

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Euro Credit Pilot


Personal & Household Goods (Marketweight) Silke Stegemann, CEFA, Senior Credit Analyst (UniCredit Bank, Munich) +49 89 378 18202, [email protected]

Weight in iBoxx NFI: Current ASW spread: change mom/YTD: Euro STOXX PHG YTD:

4.5%

49bp -6.4/-9.1

+17.9%

Sector drivers: Companies in this sector, and producers of luxury goods in particular, are highly dependent on GDP growth, (un)employment, consumer confidence, exchange rates and now COVID-19. However, luxury-goods makers’ pricing, volume and cost savings drove revenue and earnings beats in 1Q21. Further store re-openings across Europe and the gradual revival of tourism suggest a recovery for luxury goods companies. During the pandemic, there was a shift in how, when and why consumers purchase luxury goods. The market share of online shopping doubled to 23% in 2020 from 12% in 2019. According to Bain & Company (18 November 2020), there is upside potential for luxury goods companies in 2021, with growth assumed to be in the range of 12-19%, depending on macroeconomic conditions, the evolution of COVID-19 infection rates and new vaccines and medications, and the speed at which the global travel industry returns. In 2021, the market is expected to recover 50% of the profit loss of 2020 but to remain below 2019 levels. We estimate that LVMH’s credit ratios will recover quickly after its acquisition of Tiffany. We assume that both Kering’s and LVMH’s action plans to adjust their cost base will help to pave the way for further deleveraging.

ESG considerations: We consider environmental risks for the PHG sector to be average from a credit perspective, compared to other industries. The global anti-plastic movement is a result of inherent environmental risks, but these have so far not translated into far-reaching or quantifiable government policy. Over the medium to long term, it is possible that sudden regulatory action on waste management will lead to the industry bearing the cost of switching to more environmentally friendly packaging or paying for the treatment of product waste before such costs can be passed on to end consumers. However, many companies are already taking steps in this direction. Another environmental risk is posed by microplastics in products that make their way into groundwater. The tobacco industry has the highest social risk in the sector given widespread awareness of the adverse health effects of smoking and its impact on health-care costs and resources. Market recap: In May, the iBoxx Personal & Household Goods index widened by around 5bp, slightly underperforming the iBoxx Non-Financials index.



trend* Rating Latest research (including link) MCFP LVMH MW 9,150 (13.3%) Stable A1/A+n/– » Daily Credit Briefing - LVMH: Strong start to 2021 - 15 Apr 2021 EFFP EssilorLuxottica MW 8,500 (12.3%) Stable A2/As/– » Italian Credit Compendium - Moving along the path to recovery - 12 May 2021 BATSLN BAT T 7,900 (11.5%) – –/BBB+s/BBBs Coverage in transition

» Daily Credit Briefing - British American Tobacco: Releases 2H19 pre-close trading update - 28 Nov 2019 PM Philip Morris T 6,850 (9.9%) – A2/As/As Coverage in transition

» Daily Credit Briefing - Philip Morris International: Strong 2Q19 results - 19 Jul 2019 PG Procter & Gamble – 6,350 (9.2%) – Aa3/AA-s/– Not covered CFRVX Richemont – 6,000 (8.7%) – –/A+n/– Not covered MO Altria – 4,250 (6.2%) – A3/BBBs/BBBs Not covered IMBLN Imperial Brands T 3,650 (5.3%) – Baa3/BBBs/BBBs Coverage in transition

» Daily Credit Briefing - Imperial Brands: Moody's and S&P confirm ratings and outlook after weak trading ... - 30 Sep 2019 ESSITY Essity MW 2,300 (3.3%) Stable Baa1/BBB+s/– » Daily Credit Briefing - Essity: Solid financial profile to handle short-term uncertainties - 14 Jun 2021 KERFP Kering OW 2,200 (3.2%) Improving –/A-s/– » Daily Credit Briefing - Kering: LVMH-backed private equity firm L Cattertona and Financiere Agache, the ... - 1 Mar 2021 JAPTOB Japan Tobacco – 2,050 (3.0%) – A1/A+s/– Not covered VFC VF Corporation – 1,850 (2.7%) – Baa1wn/A-s/– Not covered RKTLN Reckitt Benckiser – 1,700 (2.5%) – A3/A-s/– Not covered WHR Whirlpool – 1,600 (2.3%) – –/BBBs/BBBs Not covered ADSGR adidas OW 1,500 (2.2%) Improving A2/A+s/– » Daily Credit Briefing - adidas: Strong finish in 4Q20 and strong growth in 2021 expected - 10 Mar 2021

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Euro Credit Pilot




trend* Rating Latest research (including link) CL Colgate-Palmolive – 1,500 (2.2%) – Aa3/AA-s/– Not covered PVH PVH – 1,125 (1.6%) – Baa3/BBB-n/– Not covered KMB Kimberly-Clark – 500 (0.7%) – A2/As/– Not covered



Euro Credit Pilot


Food & Beverage (Marketweight) Dr. Silke Stegemann, CEFA, Senior Credit Analyst (UniCredit Bank, Munich) +49 89 378-18202, [email protected]

Weight in iBoxx NFI: Current ASW spread: change mom/YTD: Euro STOXX FOB YTD:

7.9%

41bp -4.4/-8.3

+8.9%

Sector drivers: The Food & Beverage sector will continue to be impacted by the COVID-19 pandemic. However, we assume that growth will accelerate in 2H21, but the extent of the rebound hinges largely on the pace at which customers return to on-premise venues such as bars and restaurants. Assuming widespread vaccinations lead to broad reopening in 3Q21, beverage sales would benefit from a return to more-normal consumption trends. European beverage companies must deal with a changing sales mix (more e-commerce) due to COIVD-19 in 2021 by promoting the right brand for each market and occasion. This will likely be a draw on cash flow until social-distancing rules are properly eased. We assume that developing markets, despite their greater volatility, will remain the growth engine for the global beverage industry. We assume that cost-cutting will support financial flexibility in 2021. In 2020, beverage companies started to cut variable costs such as those associated with marketing and advertising and postponed capex spending, reduced workforces and stopped dividend payments. The demand for more-profitable premium products will remain strong. We expect alcoholic-drink companies, particularly in the beer industry, to launch more low-alcohol alternatives to their brands as part of the general health and wellness trend. In general, the Food & Beverage sector is one of the least-cyclical sectors in the iBoxx NFI. The main drivers in this sector are commodity prices, GDP growth and, to a lesser extent, consumer sentiment. Over the medium term, we anticipate that brewers will undertake only bolt-on acquisitions rather than big M&A deals.

ESG considerations: Environmental risks for the Food & Beverage sector are about average, from a credit perspective, compared to other industries. Concerns stem from environmentally unfriendly plastic packaging and waste treatment. Social risks are above average, as consumers’ focus on health and wellness is causing important shifts and loss of market share for goods such as carbonated non-alcoholic beverages, beer and cereals. In agribusiness, exposure to environmental risks is above average, particularly due to extreme-weather-related volatility and disease outbreaks.

In May, the iBoxx Food & Beverage index performed in line with the iBoxx NFI.



trend* Rating Latest research (including link) ABIBB Anheuser-Busch InBev MW 18,555 (15.7%) Improving Baa1/BBB+n/BBBs » Daily Credit Briefing - Anheuser-Busch InBev: 2020 results in line with expectations - 25 Feb 2021 KO Coca-Cola – 11,357 (9.6%) – Baa1wn/–/BBB+s Not covered UNANA Unilever T 10,250 (8.6%) – –/A+s/As Coverage in transition

» Daily Credit Briefing - Unilever: 1H19 results broadly in line with market expectations - 29 Jul 2019 NESNVX Nestlé T 10,200 (8.6%) – Aa3/AA-s/– Coverage in transition

» Daily Credit Briefing - Nestlé: Disposal of US ice-cream business is credit positive - 13 Dec 2019 BNFP Danone T 8,700 (7.3%) – Baa1/BBB+s/– Coverage in transition

» Daily Credit Briefing - Danone: We keep our marketweight recommendation despite narrowed sales guidance ... - 21 Oct 2019

HEIANA Heineken MW 8,300 (7.0%) Stable Baa1/BBB+n/– » Daily Credit Briefing - Heineken: 2020 results above market expectations but credit metrics will remain ... - 12 Feb 2021 CCE Coca-Cola Enterprises – 7,750 (6.5%) – Baa1wn/–/BBB+s Not covered PEP PepsiCo – 6,250 (5.3%) – A1/A+s/– Not covered DGELN Diageo MW 6,000 (5.1%) Stable –/A-s/A-s » Daily Credit Briefing - Diageo: Better-than-expected operating performance but leverage to remain above ... - 1 Feb 2021 RIFP Pernod Ricard MW 5,250 (4.4%) Stable Baa1/BBB+s/BBB+s » Daily Credit Briefing - Pernod-Ricard: Strong 9M20/21 trading update - 22 Apr 2021 MDLZ Mondelez T 4,500 (3.8%) – Baa1/BBBs/BBBs Coverage in transition

» Daily Credit Briefing - Mondelez International: Strong 2Q19 organic revenue growth and guidance increase - 5 Aug 2019


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Euro Credit Pilot




trend* Rating Latest research (including link) ASABRE Asahi Group – 3,600 (3.0%) – Baa1/As/BBBs Not covered CARLB Carlsberg MW 3,250 (2.7%) Improving Baa2/–/BBB+s » Daily Credit Briefing - Carlsberg Breweries: Strong 1Q21 trading update but already reflected in CARLB ... - 29 Apr 2021 CCHLN Coca Cola HBC OW 2,400 (2.0%) Improving Baa1/BBB+s/– » Daily Credit Briefing - Coca Cola HBC: Strong 3Q20 trading update - 12 Nov 2020 K Kellogg – 1,800 (1.5%) – Baa2/BBBs/– Not covered KYGID Kerry Group – 1,700 (1.4%) – Baa2/BBB+s/– Not covered BRTFOD Bright Food – 1,300 (1.1%) – Baa3/BBBs/A-s Not covered ADM Archer-Daniels-Midland – 1,250 (1.1%) – A2/As/As Not covered FEMSA FEMSA – 1,200 (1.0%) – –/A-n/As Not covered GIS General Mills – 1,100 (0.9%) – Baa2/BBBs/– Not covered BG Bunge – 800 (0.7%) – Baa3/BBBs/– Not covered TAP Molson Coors – 800 (0.7%) – Baa3/BBB-n/BBB-n Not covered BACARD Bacardi – 650 (0.5%) – –/BBB-s/BBB-n Not covered SIGMA Sigma Alimentos – 600 (0.5%) – Baa3/BBB-s/BBBs Not covered CARGIL Cargill Inc – 500 (0.4%) – A2/As/As Not covered SZUGR Südzucker MW 500 (0.4%) Improving Baa3/–/– » Daily Credit Briefing - Südzucker: Encouraging outlook for FY20/21 and focus on its investment-grade rating - 21 May 2021



https://www.research.unicredit.eu/DocsKey/credit_docs_9999_178460.ashx?EXT=pdf&KEY=n03ZZLYZf5miJJA2_uTR8jumZJzTPYRlMs-giTnKLAk=

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Euro Credit Pilot


Travel & Leisure (Underweight) Dr. Silke Stegemann, CEFA, Senior Credit Analyst (UniCredit Bank, Munich) +49 89 378-18202, [email protected]

Weight in iBoxx NFI: Current ASW spread: change mom/YTD: Euro STOXX TAL YTD:

2.4%

50bp -2.6/-8.9

+1.5%

Sector drivers: The Travel & Leisure sector has a diverse structure and remains driven by macroeconomic factors such as GDP growth and discretionary consumer spending. McDonald's (13.6% index weight) benefits from its global scale and strong financial position, which we believe will help it to weather a period of significant stress associated with the COVID-19 pandemic and the global economic downturn. Deutsche Bahn (45.7% index weight) is a vertically integrated rail and logistics group that owns and operates the German national rail transportation network. Deutsche Bahn is one of the largest rail and logistics companies in the world. Passenger numbers and cargo volumes have been impacted since the coronavirus started to spread in Germany in March 2020. Travel restrictions have significantly reduced passenger traffic in Germany, which went down by 80-90% in April but started to recover in May. However, following an increase in infections towards year-end 2020 and a re-imposition of restrictions, passenger volumes dropped by 41.2% in FY20. Passenger transport is expected to recover in 2021, however, DB expects it to remain significantly below 2019 levels. DB Group’s adjusted revenue amounted to EUR 39.9bn (down by 10.2% yoy). In the long-distance segment, DB Regio, DB Cargo and DB Arriva recorded declines in adjusted revenue in 2020, whereas DB Schenker, the group's international logistics subsidiary, bucked the trend with adjusted revenue of EUR 17.7bn (up by 3.4%). DB Schenker, which ensured stable supply chains for essential goods globally, recorded adjusted EBIT of EUR 711mn (up by 32.2%), its highest EBIT on record. DB recorded an operating adjusted loss of EUR 2.9bn in 2020 (EBIT FY19: profit of EUR 1.8bn), of which the long-distance segment accounts for a loss of EUR 1.7bn.

ESG considerations: Environmental risks for airlines and shipping companies are above average compared with those of other industries, especially in the long term, due to the additional costs they will face, mostly related to the increasing regulation of GHG emissions. The exposure to social risk in credit ratings is above average for leisure companies compared to other industries, with safety risks or perceived travel threats posing the biggest credit risk for many leisure segments. Market recap: After being among the worst performers in 2020, given the direct impact of COVID-19 and related travel restrictions around the globe, the iBoxx EUR Travel & Leisure index performed in line with the iBoxx EUR Non-Financials index in May.



trend* Rating Latest research (including link) DBHNGR Deutsche Bahn MW 16,900 (45.7%) Weakening Aa1/AA-n/AAs » Daily Credit Briefing - Deutsche Bahn: Operating loss of EUR 2.9bn in FY20; adjusted revenue down by 10.2% yoy MCD McDonald's MW 5,050 (13.6%) Stable Baa1/BBB+s/– » Daily Credit Briefing - McDonald’s: Slightly weaker 2Q20 results than expected but sales recovery in ... - 29 Jul 2020 BKNG Booking.com – 4,450 (12.0%) – A3/A-n/– Not covered RYAID Ryanair – 3,650 (9.9%) – –/BBBn/BBBn Not covered EZJLN easyJet – 2,700 (7.3%) – Baa3/BBB-n/– Not covered CPGLN Compass Group – 1,750 (4.7%) – A3/An/– Not covered IHGLN InterContinental Hotels – 1,000 (2.7%) – –/BBB-n/– Not covered CESDRA Ceske drahy – 500 (1.4%) – Baa2/–/– Not covered JINJII Pterosaur Capital Co Ltd

(JINJIANG INTERNATIONAL) – 500 (1.4%) – Not covered

WIZZLN Wizz Air Finance Co BV – 500 (1.4%) – Baa3/–/– Not covered



https://www.research.unicredit.eu/DocsKey/credit_docs_9999_179650.ashx?EXT=pdf&KEY=n03ZZLYZf5miJJA2_uTR8ozlXv_biILPz7CPkI5TAwA=&

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Euro Credit Pilot


Retail (Marketweight) Gianfranco Arcovito, CFA, Credit Analyst (UniCredit Bank, Munich) +49 89 378 15449, [email protected]

Silke Stegemann, CEFA, Senior Credit Analyst (UniCredit Bank, Munich) +49 89 378 18202, [email protected]

Weight in iBoxx NFI: Current ASW spread: change mom/YTD: Euro STOXX RET YTD:

1.4%

47bp -4.1/-16.1

+16.9%

Sector drivers: Food retail is one of the few segments for which sales are at a record high due to the coronavirus crisis. After strong growth in 2020, we assume that earnings growth in 2021 will be somewhat limited as tough economic conditions and restrictions make customers more price sensitive. Carrefour and Casino are likely to need to keep prices low to avoid losing market share as Aldi and Lidl’s cheaper private-label products have become more competitive in relative terms. The pandemic has also accelerated the penetration of e-commerce, but growth rates exhibited in 2020 are unlikely to be repeated in 2021, although the shift of the channel mix towards online is expected to continue at a slower pace. In terms of format, Hypermarkets will likely underperform, at least in the first half of the year, due to the ongoing restrictive measures, although they should recover part of the loss once normalization starts with the advance of the vaccination campaign. We continue to see threats to the food retail segment from a rise in unemployment, and a decline in consumer confidence and spending if uncertainty continues. The European beauty market has shown the lowest cyclicality during the past 10 years and high resilience during recessions – throughout COVID-19 however, Beauty (overall) declined significantly more than GDP – yet still less than Apparel (source Euromonitor).

ESG: The environmental risks for the retail sector are weighted towards their inherent exposure to the direct and indirect impact of climate change and emissions, as well as their use of plastics. Emissions regulations are a long-term environmental risk as the complexity of logistics has increased for most retailers. Retail's exposure to social risk arises from customer brand perceptions, preferences, and demographics. Retailers must adapt their product offering and distribution strategies as buying patterns shift for environmental and health reasons or for the sake of community wellbeing. All in all, the retail industry has an average exposure to environmental and social risk factors. Market recap: The spread of the iBoxx Retail index tightened to around 48bp over the last month, outperforming the iBoxx NFI index.



trend* Rating Latest research (including link) CAFP Carrefour MW 5,000 (24.0%) Improving Baa1/BBBn/– » Daily Credit Briefing - Carrefour: Expands its footprint in Brazil - 24 Mar 2021 ELOFR Auchan OW 3,206 (15.4%) Improving –/BBB-s/– » Daily Credit Briefing - Auchan: 2020 results with net debt reduction, as expected - 8 Mar 2021 ADNA Ahold – 2,950 (14.2%) – Baa1/BBBs/BBB+s Not covered TSCOLN Tesco MW 2,250 (10.8%) Improving Baa3/BBB-s/BBB-s » Daily Credit Briefing - Tesco: A strong start to 2021 - 30 Apr 2021 WMT WalMart – 1,650 (7.9%) – Aa2/AAs/AAs Not covered VPARKI Vinci Park – 1,450 (7.0%) – –/BBB-n/– Not covered ATDBCN Alimentation Couche-Tard – 750 (3.6%) – Baa2/BBBs/– Not covered WBA Walgreens Boots Alliance MW 750 (3.6%) Stable Baa2/BBBn/BBB-n » HY & Xover Update - Walgreens Boots Alliance: Strong FY20/21 results as expected - 28 May 2021 EXPE Expedia – 650 (3.1%) – Baa3/BBB-n/BBB-n Not covered WESAU Wesfarmers – 650 (3.1%) – A3/A-s/– Not covered HMBSS H&M Finance BV – 500 (2.4%) – Not covered MEOGR METRO H 500 (2.4%) – –/BBB-n/– » Daily Credit Briefing - METRO: 1Q20/21 quarterly statement, guidance 20/21 confirmed - 11 Feb 2021 SYY Sysco – 500 (2.4%) – Baa1/BBB-s/BBBn Not covered




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https://www.research.unicredit.eu/DocsKey/credit_docs_9999_180262.ashx?EXT=pdf&KEY=n03ZZLYZf5miJJA2_uTR8uECClQY1Q7LSZD3nAXrR08=

https://www.research.unicredit.eu/DocsKey/credit_docs_9999_179211.ashx?EXT=pdf&KEY=n03ZZLYZf5miJJA2_uTR8n32m-ffm5AThsG0Jbuyers=


Euro Credit Pilot


Banks (Marketweight)

Franz Rudolf, CEFA, Head of Financials Credit Research, (UniCredit Bank, Munich) +49 89 378-12449, [email protected]

Florian Hillenbrand, CFA, Credit Analyst (UniCredit Bank, Munich), +49 89 378-12004, [email protected]

Dr. Michael Teig, Deputy Head of Financials Credit Research (UniCredit Bank, Munich) +49 89 378-12429, [email protected]

Tobias Keller, Senior Credit Analyst (UniCredit Bank, Munich) +49 89 378-12960, [email protected]

Current ASW spread SEN: T1: Euro STOXX BAK YTD:

41.1bp 41.8bp

+25.4%

Sector drivers: 1Q21 results were constructive from a credit perspective, exceeding consensus expectations (Bloomberg) in most cases. European banks were in much better prudential shape when the pandemic shock hit than they were going into the financial crisis. Banks have been granted material regulatory relief regarding capital. The ECB estimated that taken together (excluding the flexibility on the countercyclical buffer and the CRR quick fix) relief measures almost doubled banks’ capital headroom. Capital conservation has also been supported by regulators’ recommendations to suspend dividend distributions. As a consequence, the aggregate CET1 ratio of European banks reached a new all-time high of 15.5% on a fully loaded basis at the end of last year. We therefore think there is ample room available for loss absorption, especially considering that the regulatory flexibility will remain in place until at least the end of next year. Accumulated loan-loss provisions, together with sound capital positions, constitute a decent buffer against credit losses in 2021 and beyond. We still expect cost-of-risk to remain high in 2021 but to be lower than in 2020. FY21 should still be a transition year before banks’ cost of risk returns in line with its long-term average. Last year’s sharp decline in economic activity has, in general, not resulted in an NPL increase so far. While we expect banks’ NPL ratios to rise gradually from their low levels (the aggregate NPL ratio was 2.6% at the end of 2020) going into 2H21 amid the phase-out of government support measures, we expect this increase to be manageable. The low underlying profitability of banks remains an issue, and we see further cost reductions and consolidation as an ongoing trend in the industry. On the funding side, large TLTRO take-up will support net interest income but also put pressure on lending margins for corporate loans. We remain constructive on bank credit.

Market recap: Amid the vaccination-rollout gaining pace and a brightening economic backdrop, spreads of bank paper have continued the positive trend observed in the first quarter and further tightened during April and May, albeit only slightly. During these two months, spreads of AT1s tightened by around 5bp and those of Tier-2s by approximately 2bp. The development of senior spreads was also slightly positive; both senior preferred and senior non-preferred debt tightened by approximately 2bp. Going into 2H21, we expect spreads to move broadly sideways. Following blackout periods, with somewhat muted issuance activity in April, issuance picked up again across the entire capital structure in May. Financial issuers took advantage of the benign market backdrop, locking in still-low funding levels, with various issuers filling up their TLAC/MREL and capital stacks. We expect most banks to have received their MREL letters by end-1H21 and to fine-tune their MREL issuance subsequently until the beginning of 2022, when they will have to fulfill binding overall and subordinated MREL targets. Since the beginning of the year, around 20% of issuance from financial institutions has been in environmental, social and governance (ESG) format. The increased demand for ESG investments is not just changing the landscape of debt markets; it is driving product innovation, with the pandemic spurring the growth of social bonds and of other types of sustainable debt. Despite the growth of social bonds, we observe that green-labelled instruments still show the strongest pricing dynamic.



trend* Rating Latest research (including link) BNP BNP Paribas MW 40,240 (5.7%) Stable Aa3/A-n/An » Daily Credit Briefing - BNP Paribas: Experiences setback in CHF loan disputes - 11 Jun 2021 BFCM Credit Mutuel MW 30,462 (4.3%) Stable Aa3/An/A+n » Daily Credit Briefing - Banque Fédérative du Crédit Mutuel: Net profit of EUR 857mn in 1H20, down ... - 31 Jul 2020 ACAFP Credit Agricole MW 25,503 (3.6%) Stable –/A+n/A+n » Daily Credit Briefing - Credit Agricole: Expanding its business in southern Europe - 4 Jun 2021 BPCEGP BPCE MW 24,300 (3.4%) Stable A1/A+n/A+n » Sector Report - French banks in 1Q21: Catching up to pre-COVID levels - 21 May 2021 SOCGEN Société Générale MW 23,350 (3.3%) Stable A1/An/A-s » Sector Report - French banks in 1Q21: Catching up to pre-COVID levels - 21 May 2021 GS Goldman Sachs MW 23,000 (3.2%) Stable A2wp/BBB+s/As » Daily Credit Briefing - Goldman Sachs: 1Q21 profit rises sharply thanks to strong trading and deal-making - 15 Apr 2021 JPM JPMorgan Chase MW 22,000 (3.1%) Stable Aa2/A-p/AA-s » Daily Credit Briefing - J.P. Morgan: 1Q21 net income surges on large loan-loss-reserve release and ... - 15 Apr 2021 CABKSM CaixaBank MW 20,000 (2.8%) Stable –/–/BBB+n » Daily Credit Briefing - CaixaBank: 1Q21 net profit affected merger impact; financial guidance upgraded - 6 May 2021 BAC Bank of America MW 19,500 (2.7%) Stable A2/A-p/AA-s » Daily Credit Briefing - Bank of America: S&P raises outlook from stable to positive - 26 May 2021 WFC Wells Fargo & Co UW 19,500 (2.7%) Stable Aa2/BBB+s/AA-n » Daily Credit Briefing - Wells Fargo & Co.: 1Q21 earnings beat estimates on USD 1.6bn decrease in ... - 15 Apr 2021 RABOBK Rabobank MW 19,050 (2.7%) Stable Aa3/A+n/A+n » Daily Credit Briefing - Rabobank: Reports 1H20 net income of EUR 227mn, down 81% yoy, and revises FY20 ... - 13 Aug 2020






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Euro Credit Pilot




trend* Rating Latest research (including link) SANTAN Banco Santander MW 17,250 (2.4%) Stable A2/An/BBB+s » Daily Credit Briefing - Banco Santander: Fitch revises outlook from negative to stable - 9 Jun 2021 UBS UBS MW 17,250 (2.4%) Stable Aa3/A-s/AA-s » Daily Credit Briefing - UBS: 1Q21 net profit of USD 1.8bn beats estimates despite surprise USD 774mn ... - 27 Apr 2021 INTNED ING MW 16,750 (2.4%) Stable Baa1/A-n/AA-n » Daily Credit Briefing - ING: Strong 1Q21 results beat estimates driven by higher fee income and lower ... - 6 May 2021 DB Deutsche Bank OW 16,650 (2.3%) Improving A3wp/BBB+p/BBBp » Daily Credit Briefing - Deutsche Bank: Moody's puts ratings on watch positive from stable outlook - 18 May 2021 MS Morgan Stanley MW 16,500 (2.3%) Stable A1wp/BBB+p/As » Daily Credit Briefing - Morgan Stanley: 1Q21 profit more than doubles on strength in the institutional ... - 19 Apr 2021 ISPIM Intesa Sanpaolo MW 13,600 (1.9%) Stable Baa1/–/– » Daily Credit Briefing - Intesa Sanpaolo: 1Q21 results beat on revenues and LLPs, low NPL inflows in 1Q21 - 6 May 2021 CS Credit Suisse MW 13,500 (1.9%) Stable Baa1/BBB+n/A-n » Daily Credit Briefing - Credit Suisse: Recovers more assets in suspended Greensill-linked funds - 26 May 2021 HSBC HSBC MW 13,250 (1.9%) Stable A1wn/A-s/A+n » Daily Credit Briefing - HSBC: 1Q21 net profit of GBP 1.7bn supported by lower impairments - 3 May 2021 UCGIM UniCredit Restricted 13,100 (1.8%) – Baa1/BBBn/BBB-s Not covered C Citigroup MW 12,998 (1.8%) Stable Aa3/BBB+s/As » Daily Credit Briefing - Citigroup: 1Q21 record net income driven by strong investment banking revenue ... - 16 Apr 2021 BBVASM BBVA MW 12,500 (1.8%) Stable A3/BBBn/BBB+s » Daily Credit Briefing - BBVA: Fitch revises outlook from negative to stable - 9 Jun 2021 CMZB Commerzbank MW 12,000 (1.7%) Stable A1/–/– » Daily Credit Briefing - Commerzbank: 1Q21 net profit above consensus, FY outlook improved - 12 May 2021 ABNANV ABN Amro Bank MW 11,700 (1.6%) Stable A1/As/An » Daily Credit Briefing - ABN Amro: 1Q21 results burdened by AML settlement - 12 May 2021 LLOYDS Lloyds Banking Group MW 10,575 (1.5%) Stable A1/BBB+n/A+n » Daily Credit Briefing - Lloyds Banking Group: 1Q21 net profit of GBP 1.7bn supported by lower impairments - 3 May 2021 BACR Barclays MW 10,341 (1.5%) Stable Baa2/BBBs/A+n » Daily Credit Briefing - Barclays: 1Q21 net profit of GBP 1.7bn supported by lower impairments - 3 May 2021 NDASS Nordea MW 9,500 (1.3%) Stable Aa3/AA-s/AA-n » Daily Credit Briefing - Nordea: Strong 1Q21 results driven by high income growth - 29 Apr 2021 SHBASS Svenska Handelsbanken MW 9,500 (1.3%) Stable Aa2/AA-s/AAn » Daily Credit Briefing - Svenska Handelsbanken: Strong 1Q21 figures reported - 21 Apr 2021 CMARK Credit Mutuel Arkea MW 8,250 (1.2%) Stable Aa3/–/A-n » Daily Credit Briefing - Credit Mutuel Arkea: Resilient core banking revenue and only moderately ... - 26 Feb 2021 DANBNK Danske Bank MW 8,250 (1.2%) Stable A2/As/As » Sector Report - ESG Insurance: Insurers have robust ESG profiles but ambitious strategies require ... - 10 Jun 2021 NWG NatWest MW 8,250 (1.2%) Stable –/BBBn/A+n » Daily Credit Briefing: NatWest: 4Q20 pre tax profit above consensus, revenue weak, capital very strong - 22 Feb 2021 OPBANK OP Cooperative – 8,000 (1.1%) – Aa3/AA-s/– Not covered SWEDA Swedbank MW 7,150 (1.0%) Stable Aa3/A+s/A+s » Daily Credit Briefing - Swedbank: Sound 1Q21 results - 27 Apr 2021 KBCBB KBC Group MW 7,000 (1.0%) Stable Baa1/A-n/An » Daily Credit Briefing - KBC Group: 1Q21 net profit recovers on LLP release and rebounding trading and ... - 11 May 2021 MIZUHO Mizuho Financial Group – 7,000 (1.0%) – –/A-s/A-s Not covered NAB National Australia Bank – 6,750 (0.9%) – Aa3/AA-s/A+s Not covered LBBW LBBW MW 6,700 (0.9%) Stable –/–/A-n » Daily Credit Briefing - Landesbank Baden-Württemberg: FY20 PBT of EUR 252mn, down 59% yoy, improved ... - 12 Mar 2021 NYKRE Nykredit MW 6,650 (0.9%) Stable A2/A+s/As » Daily Credit Briefing - Nykredit Bank Group: 1Q21 net income rises strongly thanks to lower LLPs and ... - 7 May 2021 FRLBP LBP MW 5,900 (0.8%) Stable –/As/As » Daily Credit Briefing - La Banque Postale: Initiation of coverage with marketweight - 10 Mar 2021 DNBNO DNB MW 5,850 (0.8%) Stable Aa2/AA-s/– » Daily Credit Briefing - DnB NOR (Den Norske Bank): Strong 1Q21 results above estimates - 29 Apr 2021 SEB SEB MW 5,850 (0.8%) Stable Aa2/A+s/BBBs » Daily Credit Briefing - SEB: Strong 1Q21 results benefitting from lower loan loss provisions - 28 Apr 2021 STANLN Standard Chartered – 5,750 (0.8%) – –/As/A+n Not covered SUMIBK Sumitomo Mitsui – 5,750 (0.8%) – A1/A-s/An Not covered WSTP Westpac – 5,500 (0.8%) – A1/AA-s/A+n Not covered


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Euro Credit Pilot




trend* Rating Latest research (including link) SANSCF Santander Consumer

Finance MW 5,330 (0.7%) – A2/A-n/BBB+s Subsidiary of Banco Santander

NWIDE Nationwide – 5,285 (0.7%) – –/As/An Not covered CCBGBB Belfius Bank MW 5,050 (0.7%) Stable –/A-s/BBB+s » Daily Credit Briefing - Belfius Bank: Strong top line leads to solid FY20 profit despite prudent ... - 1 Mar 2021 ERSTBK Erste Bank MW 5,000 (0.7%) Stable A2/As/An » Sector Flash - Covered Bonds: Austria’s path to a new covered bond legislative framework - 21 May 2021 SABSM Banco de Sabadell MW 4,250 (0.6%) Stable Baa3/BBBn/BBB-s » Daily Credit Briefing - BANCO DE SABADELL SA: To implement new efficiency plan in Spain in 1Q22 as part ... - 28 May 2021 BHH Berlin Hyp MW 4,250 (0.6%) Stable Aa2/–/A+n » Daily Credit Briefing - Berlin Hyp: FY20 net result drops, but capital and asset quality remain sound - 1 Apr 2021 ANZ Aust. & NZ. Banking Group – 3,500 (0.5%) – Aa3/AA-s/A+s Not covered RBIAV Raiffeisen Bank Int. MW 3,500 (0.5%) Stable A3/A-n/– » Daily Credit Briefing - Raiffeisen Bank International: 1Q21 results above estimates - 7 May 2021 BACRED Mediobanca – 3,250 (0.5%) – Baa1/BBBs/BBB-s Not covered MUFG MUFG – 3,250 (0.5%) – A1/A-s/A-s Not covered TD Toronto-Dominion Bank MW 3,000 (0.4%) Stable –/AA-s/AA-n » Daily Credit Briefing - Canadian banks release resilient quarterly earnings - 2 Sep 2020 BKIR Bank of Ireland MW 2,750 (0.4%) Stable A3/BBB-n/A+s » Daily Credit Briefing - Bank of Ireland: Bank of Ireland - 3 May 2021 AIB Allied Irish Banks MW 2,500 (0.4%) Stable Baa2/BBB-n/BBB+n » Daily Credit Briefing - Allied Irish Banks: Releases 1Q21 trading update in line with expectations - 7 May 2021 HESLAN Helaba MW 2,500 (0.4%) Stable –/An/BBB+s » Daily Credit Briefing - Landesbank Hessen-Thüringen: FY20 profit before tax of EUR 223mn, sees LLPs and ... - 25 Mar 2021 SANUK Santander UK MW 2,369 (0.3%) Stable A1/BBBn/A+n Subsidiary of Banco Santander CBAAU Commonwealth Bank of

Australia – 2,352 (0.3%) – Aa3/AA-s/A+s Not covered

CM CIBC MW 2,100 (0.3%) Stable Aa2/A+s/AA-n » Daily Credit Briefing - Canadian banks release resilient quarterly earnings - 2 Sep 2020 BKTSM Bankinter MW 2,000 (0.3%) Stable –/BBB+n/– » Sector Report - Spanish banks: Optimization of cost structures takes center stage - 7 May 2021 DEVOBA de Volksbank MW 2,000 (0.3%) Stable A2/A-s/A-s » Daily Credit Briefing - de Volksbank: FY20 net income down 37% on higher LLPs and restructuring charges ... - 12 Feb 2021 LANSBK Lansforsakringar – 2,000 (0.3%) – A1/As/– Not covered SCBNOR Santander Consumer Bank – 2,000 (0.3%) – A2/–/A-s Subsidiary of Banco Santander BNS Bank of Nova Scotia MW 1,750 (0.2%) Stable Aa2/A+s/AA-n » Daily Credit Briefing - Canadian banks release resilient quarterly earnings - 2 Sep 2020 PBBGR Deutsche Pfandbriefbank MW 1,750 (0.2%) Stable –/A-n/– » Daily Credit Briefing - Deutsche Pfandbriefbank: 1Q21 pre-tax profit of EUR 52mn, confirms FY21 guidance - 10 May 2021 MQGAU Macquarie – 1,750 (0.2%) – A3/A+s/A-s Not covered AARB Aareal Bank MW 1,500 (0.2%) Stable –/–/BBB+n » Daily Credit Briefing - Aareal Bank: 1Q21 net profit of EUR 16mn due to lower LLPs, FY21 guidance confirmed - 11 May 2021 ARGSPA Argenta Spaarbank – 1,500 (0.2%) – –/A-s/– Not covered ASBBNK ASB Bank – 1,500 (0.2%) – A1/AA-s/A+s Not covered EUROCL Euroclear Bank – 1,500 (0.2%) – –/AAs/AA+s Not covered HYNOE HYPO NOE – 1,500 (0.2%) – –/As/– Not covered NIBCAP NIBC Bank NV – 1,500 (0.2%) – Baa1/BBB+n/BBBn Not covered RY Royal Bank of Canada MW 1,500 (0.2%) Stable Aa2/AA-s/AAn » Daily Credit Briefing - Canadian banks release resilient quarterly earnings - 2 Sep 2020 SPOLNO Sparebank 1 Oestlandet – 1,500 (0.2%) – Aa3/–/– Not covered

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Euro Credit Pilot




trend* Rating Latest research (including link) MINGNO SpareBank 1 SMN – 1,500 (0.2%) – A1/–/A-s Not covered BCHINA Bank of China – 1,300 (0.2%) – A1/As/As Not covered BZLNZ Bank of New Zealand – 1,300 (0.2%) – Aa3/AA-s/A+s Not covered CCB China Construction Bank – 1,300 (0.2%) – A1/As/As Not covered USB U.S. Bancorp – 1,175 (0.2%) – A1wn/A+s/AA-s Not covered ANZNZ ANZ Bank New Zealand

Limited – 1,000 (0.1%) – A1/AA-s/A+s Not covered

DELL Dell – 1,000 (0.1%) – Baa3/–/BB+wp Not covered DKRED Deutsche Kreditbank – 1,000 (0.1%) – A1/–/– Subsidiary of BayernLB HCOB Hamburg Commercial Bank MW 1,000 (0.1%) Stable Baa2/–/– » Daily Credit Briefing - Plans SNP bond issuance in 2020, expects CET1 ratio of 25% by FYE 2020 - 11 Nov 2020 JYBC JYSKE Bank – 1,000 (0.1%) – A2/As/– Not covered NNGRNV NN Group MW 1,000 (0.1%) Stable Baa1/A-n/A+s See sector Insurance SCBGER Santander Consumer Bank AG – 1,000 (0.1%) – A3/A-n/A-s Subsidiary of Banco Santander VMUKLN Virgin Money – 1,000 (0.1%) – Baa3/BBB-n/BBB+n Not covered YBS Yorkshire Building Society – 1,000 (0.1%) – A3/–/A-n Not covered FABUH First Abu Dhabi Bank – 750 (0.1%) – Aa3/AA-s/AA-s Not covered SRBANK SpareBank 1 SR – 750 (0.1%) – A1/–/A-s Not covered DBSSP DBS Bank MW 600 (0.1%) Stable –/AA-s/AA-s » Daily Credit Briefing - DBS Bank: Singaporean banks 3Q20 earnings update - 10 Nov 2020 AEGON Aegon MW 500 (0.1%) Stable A3/A-s/– See sector Insurance BAWAG BAWAG P.S.K. MW 500 (0.1%) Stable A2/–/– » Daily Credit Briefing - BAWAG: BAWAG reports strong 1Q21 results - 26 Apr 2021 BYLAN BayernLB MW 500 (0.1%) Stable Aa3/–/A-n » Daily Credit Briefing - BayernLB: 1Q21 net profit of EUR 112mn, FY21 guidance affirmed - 18 May 2021 DEKA Dekabank MW 500 (0.1%) Stable –/A+n/– » Daily Credit Briefing - Dekabank: resilient 1H20 results, but capital down 1.2pp in 1H20 - 7 Sep 2020 KUTXAB Kutxabank – 500 (0.1%) – –/BBBs/BBB+s Not covered MUNHYP Münchener Hypothekenbank MW 500 (0.1%) Stable Aa3/–/AA-n » Daily Credit Briefing - Muenchener Hypothekenbank: FY20 net results up 5.6% yoy to EUR 37.7mn, CET1 ... - 20 Apr 2021 RFLBNI Raiffeisenlandesbank

Niederoesterreich-Wien AG – 500 (0.1%) – Baa1/–/– Not covered

RFLBOB Raiffeisenlandesbank Oberoesterreich

– 500 (0.1%) – Baa1/–/– Not covered

SHNHAN Shinhan Bank Co. Ltd. – 500 (0.1%) – Aa3/A+s/An Not covered SYDBDC Sydbank – 500 (0.1%) – A1/–/– Not covered VOWIBA Volksbank Wien – 500 (0.1%) – –/–/BBBn Not covered ZKB Zuercher Kantonalbank – 500 (0.1%) – –/AAAs/AAAs Not covered


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Euro Credit Pilot


Insurance (Marketweight) Natalie Tehrani Monfared, Senior Credit Analyst (UniCredit Bank, Munich) +49 89 378-12242, [email protected]

Current ASW spread SEN: T1: Euro STOXX INN YTD:

36.5bp

150.2bp

+12.7%

Sector drivers In our view, low interest rates and competition will dominate the insurance segment in the coming years. The ongoing low-interest-rate environment constitutes one of the main risks for European insurance groups, particularly for life insurers, due to the large amount of fixed-term investments and the impact of long-term interest rates on the discount rate of insurance liabilities. As interest rates are below the yields insurance groups generate on their assets, investment yields remain under pressure and insurers are forced to (re)invest at lower rates. Thus, low interest rates will further affect the profitability of insurance groups. We expect all European insurers to continue to deal with low interest rates by cutting costs and changing their asset mix and through M&A transactions. Insurers will invest more in assets with higher risk and lower liquidity, which, in turn, might lower credit quality. We nevertheless expect the asset mix of European insurers to remain conservative, as lower liquidity and higher credit risk lead to higher solvency requirements. Life insurers Most European life insurers, driven by ongoing low rates, started to reduce their traditional guaranteed life insurance products (run-off and disposal) years ago and are instead focusing on so-called capital-light products such as unit-linked contracts, a trend we deem credit-positive and one we expect to continue. Non-life insurers Given the lower duration of P&C insurers’ asset portfolios, this segment faces less pressure on investment returns than the life-insurance segment. P&C insurers will continue to exercise pricing discipline, but intense competition limits their ability to raise prices to offset increasing claims. Reinsurers Prices for reinsurance-contract renewals in January 2021 increased by about 4.5%, which, however, was below market expectations, while April renewals prices remained firm. Reinsurance demand is impacted by many factors, such as 1. global trends, e.g. protection gaps and demographic changes; 2. the development of new products, e.g. digitalization and cyber-risk insurance, and 3. the evolution of new markets, e.g. in emerging markets. In recent years, pricing in the reinsurance segment has been under pressure. This has been partly offset by measures aimed at improving asset and investment return, cost reductions and increases in written premiums. Overall, profitability has been stabilized by these measures. In our view, underwriting results will improve in 2021 and, at the same time, COVID-19-related claims will decline, which could improve profitability for the sector overall.

Market recap European primary insurance groups reported overall improved results in the first quarter of 2021 compared to 1Q20 and the impact of the COVID-19 crisis, which was considerable in 2020, was limited and more manageable. Solvency ratios and combined ratios improved on average and gross written premiums were up across all segments. Moreover, most insurance groups have confirmed their FY21 targets. The reinsurance segment in 2020 was heavily impacted by COVID-19-related market turmoil on both the investment and the insurance side, particularly due to claims for business interruption and event cancellation coverage. However, the impact of the crisis in 1Q21 was moderate compared to 1Q20. 1Q21 results were credit-positive overall, showing recovery from the pandemic. Solvency ratios and combined ratios improved and COVID-19 claims were manageable. Asset swap spreads (ASW): The COVID-19 outbreak in March and April 2020 led to massive spread widening across all segments, including the insurance segment. However, the spread tightening that followed brought the spreads of insurance bonds roughly back to pre-crisis levels. The iBoxx EUR Insurance Senior Index has remained in the 38-40bp range since the beginning of the 2021 and the iBoxx EUR Insurance T2 dated index has tightened by about 20bp in the same time period.



Euro Credit Pilot




trend* Rating Latest research (including link) ALVGR Allianz MW 14,750 (13.9%) Stable Aa3/AAs/AA-s » Daily Credit Briefing - Allianz: Net and operating income improve considerably and the 2021 profit ... - 12 May 2021 AXASA AXA MW 7,984 (7.5%) Stable A2/As/Ap » Daily Credit Briefing - AXA: 1Q21 gross revenue up 2.0% yoy - 5 May 2021 ASSGEN Assicurazioni Generali MW 6,700 (6.3%) Stable Baa2/–/BBB+s » Daily Credit Briefing - Generali: Offers to buy all remaining shares in Cattolica for maximum amount of ... - 1 Jun 2021 CNPFP CNP Assurances MW 5,250 (4.9%) Stable –/As/As » Daily Credit Briefing - CNP Assurances: Premium income up 14.6% yoy but net insurance revenue down ... - 13 May 2021 NNGRNV NN Group MW 5,200 (4.9%) Stable Baa1/A-n/A+s » Daily Credit Briefing - NN Group: Premium income down yoy, COVID-19 impact limited - 18 Feb 2021 ZURNVX ZFS – 5,000 (4.7%) – A1/AAs/A+s Not covered ACAFP Credit Agricole MW 4,750 (4.5%) – –/A+n/A+n See sector Banks CB Chubb – 4,350 (4.1%) – A3/–/A+s Not covered HANRUE Hannover Re MW 3,750 (3.5%) Stable –/AA-s/A+s » Daily Credit Briefing - Hannover Re: Written premiums up 11.9% yoy and FY21 guidance confirmed - 5 May 2021 SRENVX Swiss Re MW 3,550 (3.3%) Stable Aa3/–/A-s » Daily Credit Briefing - Swiss Re: Reports net income of USD 333mn for 1Q21 and a recovery overall from ... - 30 Apr 2021 MET Metropolitan Life – 3,350 (3.2%) – A3/A-s/A+s Not covered SAMPFH Sampo – 3,022 (2.8%) – A3/As/– Not covered CCAMA Groupama MW 2,750 (2.6%) Stable –/–/A-s » Daily Credit Briefing - Groupama: Operating income down 25.9% to EUR 306mn and the Solvency II ratio ... - 15 Mar 2021 MUNRE Munich Re MW 2,500 (2.4%) Stable A2/AA-s/AA-s » Daily Credit Briefing - Munich Re: Net income up to EUR 598mn and guidance for 2021 confirmed - 6 May 2021 TALANX Talanx MW 2,500 (2.4%) Stable –/A+s/– » Daily Credit Briefing - Talanx: Written premiums up 9.4% yoy and guidance for 2021 confirmed - 6 May 2021 MAPSM Mapfre MW 2,100 (2.0%) Stable –/A-s/A-s » Daily Credit Briefing - Mapfre: Net income up 37% yoy to EUR 173mn, but RoE still far away from target - 30 Apr 2021 ACHMEA Achmea MW 2,000 (1.9%) Stable –/A-s/As » Daily Credit Briefing - Achmea B.V.: FY20 results overall not impacted by the COVID-19 outbreak, net ... - 12 Mar 2021 LAMON La Mondiale – 1,768 (1.7%) – –/As/– Not covered AIG AIG – 1,750 (1.6%) – Baa1wn/BBB+wn/A-

wns Not covered

BNP BNP Paribas MW 1,750 (1.6%) – Aa3/A-n/An See sector Banks AVLN Aviva – 1,600 (1.5%) – A2/As/A+s Not covered ASRNED ASR Nederland – 1,500 (1.4%) – –/BBB+s/– Not covered ATH Athene Global Funding – 1,500 (1.4%) – –/–/BBB+s Not covered SLHNVX Swiss Life MW 1,350 (1.3%) Stable –/A-s/– » Daily Credit Briefing - Swiss Life: Premium income down yoy but profit guidance for 2021 confirmed - 11 May 2021 LIBMUT Liberty Mutual – 1,250 (1.2%) – Baa2/BBBs/BBB+s Not covered AEGON Aegon MW 1,200 (1.1%) Stable A3/A-s/– » Daily Credit Briefing - AEGON: Premium income drops 18.3% yoy, but Transforming Aegon agenda on track - 13 May 2021 HELNSW Helvetia – 1,100 (1.0%) – –/Ap/– Not covered MMC Marsh & McLennan – 1,100 (1.0%) – Baa1/A-s/A-s Not covered SCOR SCOR MW 1,100 (1.0%) Stable –/AA-s/A+s » Daily Credit Briefing - Scor: Solvency II ratio above target range and P&C combined ratio improves yoy - 28 Apr 2021 UQA UNIQA – 1,100 (1.0%) – –/A-s/– Not covered AGSBB Ageas – 1,000 (0.9%) – A1/A+s/As Not covered GWOCN Great-West Lifeco – 1,000 (0.9%) – –/A+s/A+n Not covered

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Euro Credit Pilot




trend* Rating Latest research (including link) VIGAV Vienna Insurance Group – 1,000 (0.9%) – –/A+s/– Not covered NYLIFE New York Life Insurance – 800 (0.8%) – Aaa/–/– Not covered SOGESA Sogecap – 800 (0.8%) – –/BBB+n/– Not covered FFHCN Fairfax Financial – 750 (0.7%) – –/BBB-p/– Not covered PRE PartnerRe – 750 (0.7%) – –/Bn/– Not covered AON AON – 500 (0.5%) – Baa2/A-s/BBB+s Not covered DANPEN Danica – 500 (0.5%) – –/A-s/– Not covered PHNXLN Phoenix Group – 500 (0.5%) – –/–/As Not covered UMGVYV UMG Groupe VYV – 500 (0.5%) – –/–/An Not covered XL XL Group – 500 (0.5%) – A2/As/Ap Not covered



Euro Credit Pilot


Real Estate (Marketweight) Natalie Tehrani Monfared, Senior Credit Analyst (UniCredit Bank, Munich) +49 89 378 12242, [email protected]

Weight in iBoxx FNL: Current ASW spread: change mom/YTD: Euro STOXX RES YTD:

13.4%

72bp -0.5/-24.3

+7.9%

Sector drivers The COVID-19 pandemic has led to a severe and extensive credit shock across many sectors, regions and markets. Within the real estate sector, the impact differs greatly by segment. Commercial real estate has been affected much worse than residential real estate. The hardest-hit segments have been hotels and non-food retail, while the performance of logistics and office real estate has been more stable. The overall impact on residential real estate companies has been manageable (as revealed by FY20 and 1Q21 numbers).

Residential real estate Prospects for the German residential real estate market remain robust due to a gap between supply and demand that is unlikely to diminish, an increasing number of households, a very low average vacancy rate in Germany and the upward trend of rents over the last few years. Pricing has remained largely stable, particularly in established markets such as Germany, the Nordic area and the Netherlands. Long-term demographic drivers and the lack of affordable properties will further increase demand for residential properties. Investment in the residential segment is at historically high levels. We expect residential real estate companies in core European markets to perform well over the medium and long term. However, the sustainability of rents in the medium term will be a topic in the future. However, in April, the German Federal Constitutional Court struck down the law on the rent freeze in Berlin stating that it was not in conformance with the German constitution (the so-called “Basic Law”). At the end of 2020, about 76% of Deutsche Wohnen’s and about 14% of Vonovia’s property portfolio was in Greater Berlin. After the rent freeze in Berlin was overturned, Deutsche Wohnen announced that it would demand back payments from its tenants while Vonovia stated that it would not demand back payments and would waive its right to claw back up to EUR 10mn. After the merger of Deutsche Wohnen and Vonovia announced in May, it remains to be seen how the merged company will deal with this issue.

Retail real estate The retail real estate segment has been one of the sectors most affected by the pandemic shock given its higher sensitivity to the retail environment and the financial health of retailers. However, the retail real estate segment was already under pressure before the COVID-19 outbreak. In our view, changes in consumer demand and behavior, digitalization and e-commerce sales will reshape the entire retail segment in the coming years. Creative solutions to engaging consumers, generating sales and filling online orders during the pandemic likely represent permanent shifts in the way retailers operate. We expect retailers to consolidate store locations to optimize real estate portfolios. However, physical stores will still play an important role as retailers aim to expand their omni-channel platforms. Overall, we expect to see a deterioration in occupancy, a weakening of re-letting, a likely tendency by landlords to offer further rental concessions and a decrease in property values in 2021. Of the companies we cover, IGD and Unibail are most affected, with about 100% and 86% of properties in the retail segment, respectively. In 1Q21, Unibail reported a decrease of 42.8% in total revenue and IGD’s net income in 1Q21 dropped by 31.1% yoy.

Office real estate Similar to other real estate segments, the office real estate sector in Germany has also been affected by the COVID-19 pandemic. The role of the office space shift towards high-quality and technologically flexible workspace and a decline in the use of offices will lower leasing demand in all regions in the medium term, in our view. Overall, demand for office space will be structurally lower even after the crisis, resulting in rising vacancies and lower demand from new occupiers, declining rental income and declining property values. Overall, the long-term impact on demand could thus be credit-negative, in our view. However, demand for energy-efficient and smart office buildings may even be boosted by the increased use of technology. Despite the expected structural changes, offices will not disappear completely anytime soon, in our view. In our coverage, the most affected company is Alstria, with 100% of its properties in the office segment. However, CA Immo (90% of properties in the office segment), Covivio (60% of properties in the office segment), Aroundtown (51% of properties in the office segment) and CPI Properties (46% of properties in the office segment) are also affected.

Hotel real estate The impact of COVID-19 has been felt across the travel and tourism industries in the EU. In 2020, the hotel real estate segment came under considerable pressure due to ongoing fixed costs for hotel operators in combination with a huge number of cancellations. Rent collection in 2020 dropped on the whole, although this was partly offset by bilateral agreements, such as deferrals of rent payment. Less working capital will likely increase investment sales in 2021, in our view. Hotel transaction volumes were down more than 50% in Europe in 2020 but state support has so far saved some companies from the full impact of the crisis. As operating costs remain high in the short term, operating income declined overall in 2020 and this has continued in the first half of 2021. Not all hotels will recover from this, and we expect to see the permanent repurposing of certain properties in this segment. However, in the second half of 2021 we expect to see some recovery in the hotel segment as travel picks up. With respect to our coverage, as of end-March, Aroundtown had the largest hotel exposure (about 24% of total properties) and reported rent collection of 32% for its hotel properties in 1Q21, not considering the rent-free period agreed with hotel tenants in exchange for longer lease terms.



Euro Credit Pilot




trend* Rating Latest research (including link) ULFP Unibail-Rodamco-Westfield UW 16,349 (11.9%) Stable Baa2wn/BBB+n/BBB+n » Daily Credit Briefing - Unibail-Rodamco-Westfield: Reports drop in total revenues of 42.8% yoy - 29 Apr 2021 ANNGR Vonovia MW 14,800 (10.7%) Stable –/BBB+s/– » Daily Credit Briefing - Vonovia: Vonovia, the largest German residential company, agreed to acquire the ... - 26 May 2021 ARNDTN Aroundtown Property OW 7,200 (5.2%) Stable Baa2/BBB+s/– » Daily Credit Briefing - Aroundtown Property: Reports extraordinary expenses of EUR 32mn for uncollected ... - 27 May 2021 DLR Digital Realty Trust – 5,825 (4.2%) – Baa2/BBBs/BBBs Not covered LIFP Klepierre – 5,580 (4.0%) – Baa1/BBB+s/– Not covered PLD Prologis – 5,550 (4.0%) – A3/A-s/– Not covered LOGICR Logicor – 5,100 (3.7%) – –/BBBs/– Not covered AMT American Tower – 4,400 (3.2%) – Baa3/BBB-s/BBB+s Not covered ICADFP ICADE – 4,150 (3.0%) – –/BBB+s/– Not covered GFCFP Gecina – 4,100 (3.0%) – A3/A-s/– Not covered BPPEHX Blackstone Property Partners – 4,000 (2.9%) – –/BBBs/– Not covered SBBBSS Samhallsbyggnadsbolaget i

Norden – 3,250 (2.4%) – –/BBB-p/BBB-p Not covered

MRLSM Merlin Properties – 3,243 (2.4%) – –/BBBs/– Not covered GYCGR Grand City Properties MW 2,968 (2.2%) Stable Baa1/BBB+s/– » Daily Credit Briefing - Grand City Properties: Adjusted EBITDA up slightly and LTV ratio improves to 33% - 18 May 2021 AKFAST Akelius Fastigheter – 2,700 (2.0%) – –/BBBs/BBBs Not covered SCGAU Scentre – 2,600 (1.9%) – A2/An/As Not covered BALDER Fastighets Balder – 2,550 (1.9%) – Baa3/BBBs/– Not covered WPC WP Carey – 2,525 (1.8%) – Baa2/BBBs/– Not covered DWNIGY Deutsche Wohnen MW 2,190 (1.6%) Stable A3/A-wn/– » Daily Credit Briefing - Deutsche Wohnen: COVID-19 impact overall limted but lower fair-value ... - 26 May 2021 CPIPGR CPI Property Group MW 2,150 (1.6%) Stable Baa2/BBBwn/– » Daily Credit Briefing - CPI Property Group: Gross rental income in 1Q21 up 3.9% yoy to EUR 93.5mn and ... - 1 Jun 2021 COVFP Covivio MW 2,095 (1.5%) Stable –/BBB+s/– » Daily Credit Briefing - Covivio: Like-for-like revenue declines by 1.2% in the office segment (about ... - 21 Apr 2021 NEPSJ NE Property – 2,000 (1.5%) – –/–/– Not covered SEGPLP SELP – 2,000 (1.5%) – Baa2/–/BBB+s Not covered SPG Simon Property Group – 2,000 (1.5%) – –/A-s/– Not covered HEIBOS Heimstaden Bostad – 1,900 (1.4%) – –/BBBs/– Not covered GSWITC Global Switch – 1,700 (1.2%) – Baa2/BBBs/BBBs Not covered COLSM Inmobiliaria Colonial – 1,650 (1.2%) – Baa2/BBB+s/– Not covered VVOYHT Kojamo – 1,500 (1.1%) – Baa2/–/– Not covered LEGGR LEG Immobilien OW 1,500 (1.1%) Stable Baa1/–/– » Daily Credit Briefing - LEG Immobilien: Net rental income up by 9.7% yoy and profit guidance for 2021 ... - 11 May 2021 CTPNV CTP NV – 1,150 (0.8%) – Baa3/BBB-s/– Not covered EQIX Equinix – 1,100 (0.8%) – Baa3/BBBs/BBBs Not covered


https://www.research.unicredit.eu/DocsKey/credit_docs_9999_180229.ashx?EXT=pdf&KEY=n03ZZLYZf5miJJA2_uTR8pegKoXXbHKEfzbQ5FD1EZI=&T=1

https://www.research.unicredit.eu/DocsKey/credit_docs_9999_180247.ashx?EXT=pdf&KEY=n03ZZLYZf5miJJA2_uTR8q-zkejfS78HEAlF4U2Dt4o=&T=1

https://www.research.unicredit.eu/DocsKey/credit_docs_9999_180161.ashx?EXT=pdf&KEY=n03ZZLYZf5miJJA2_uTR8pXbMtCK88HM6tG1fLhNzCE=&T=1

https://www.research.unicredit.eu/DocsKey/credit_docs_9999_180229.ashx?EXT=pdf&KEY=n03ZZLYZf5miJJA2_uTR8pegKoXXbHKEfzbQ5FD1EZI=&T=1

https://www.research.unicredit.eu/DocsKey/credit_docs_9999_180283.ashx?EXT=pdf&KEY=n03ZZLYZf5miJJA2_uTR8riKT2C9cs_P70NtmYa81U4=&T=1

https://www.research.unicredit.eu/DocsKey/credit_docs_9999_179892.ashx?EXT=pdf&KEY=n03ZZLYZf5miJJA2_uTR8vh91GtUHrI_QEXfz2dpZQQ=&T=1

https://www.research.unicredit.eu/DocsKey/credit_docs_9999_180107.ashx?EXT=pdf&KEY=n03ZZLYZf5miJJA2_uTR8ujoi8ztFxROFeMqtHQSw5M=&T=1


Euro Credit Pilot




trend* Rating Latest research (including link) CARDFP Carmila – 1,091 (0.8%) – –/BBBn/– Not covered CONE CyrusOne – 1,000 (0.7%) – Ba1/–/BBB-s Not covered FLYFP Fonciere Lyonnaise – 1,000 (0.7%) – –/BBB+s/– Not covered HMSOLN Hammerson – 1,000 (0.7%) – Baa3/–/BBBn Not covered HEMSOF Hemso Fastighets – 1,000 (0.7%) – –/A-wn/– Not covered IIAAV Immofinanz – 1,000 (0.7%) – –/BBB-n/– Not covered PRIFII ProLogis – 1,000 (0.7%) – A3/A-s/– Not covered VESTNL Vesteda – 1,000 (0.7%) – –/A-s/– Not covered ANNFND Annington Funding – 600 (0.4%) – Not covered VGPBB VGP NV – 600 (0.4%) – –/–/BBB-s Not covered MERYFP Mercialys – 569 (0.4%) – –/BBBn/– Not covered CITCON Citycon – 550 (0.4%) – Baa3/BBB-n/BBB-s Not covered GWILN Globalworth – 550 (0.4%) – Baa3/BBB-s/BBB-s Not covered KWELN Kennedy Wilson Europe Real

Estate – 550 (0.4%) – –/–/– Not covered

ALTAFP Altarea – 500 (0.4%) – –/BBB-s/– Not covered AREITF Altareit – 500 (0.4%) – –/BBB-s/– Not covered ATRSAV Atrium European Real Estate – 500 (0.4%) – Baa3/–/BBBs Not covered CAIAV CA Immo MW 500 (0.4%) Stable Baa2wn/–/– » Daily Credit Briefing - CA Immo: FFO I stood at EUR 134mn at the end 2020 and was thus above the target ... - 25 Mar 2021 CASTSS Castellum – 500 (0.4%) – Baa2/–/– Not covered CBREGI Cbre Global Investors Open-

Ended Fund SCA SICAV-SIF – 500 (0.4%) – –/BBB+s/– Not covered

COFBBB Cofinimmo – 500 (0.4%) – –/BBBs/– Not covered GMGAU Goodman Group – 500 (0.4%) – Baa1/BBB+s/– Not covered INLIFP In'li – 500 (0.4%) – –/As/– Not covered PSA Public Storage – 500 (0.4%) – A2/As/– Not covered SAGAX Sagax – 500 (0.4%) – Baa3/–/– Not covered VCXAU Vicinity Centres Trust – 500 (0.4%) – A2/–/– Not covered CERTSP Cromwell Ereit Lux Finco Sarl – 500 (0.4%) – –/–/BBB- Not covered


https://www.research.unicredit.eu/DocsKey/credit_docs_9999_179639.ashx?EXT=pdf&KEY=n03ZZLYZf5miJJA2_uTR8hvniw6dSXUTs-_k63UWrdY=&T=1


Euro Credit Pilot

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Euro Credit Pilot


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Euro Credit Pilot


UniCredit Research* Credit & Credit Strategy Research

Erik F. Nielsen Group Chief Economist Global Head of CIB Research +44 207 826-1765 [email protected]

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

Head of Credit Research Heads of Strategy Research Credit & Equity Sector Strategy Research

Dr. Sven Kreitmair, CFA Head of Credit Research +49 89 378-13246 [email protected]

Dr. Luca Cazzulani Co-Head of Strategy Research FI Strategist +39 02 8862-0640 [email protected]

Elia Lattuga Co-Head of Strategy Research Cross Asset Strategist +44 207 826-1642 [email protected]

Christian Stocker, CEFA Lead Equity Sector Strategist +49 89 378-18603 [email protected]

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

Financials Credit Research

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

Dr. Michael Teig Deputy Head Banks, Covered Bonds +49 89 378-12429 [email protected]

Matthias Dax Sub-Sovereigns & Agencies, ESG +49 89 378-13946 [email protected]

Florian Hillenbrand, CFA Securitization, Covered Bonds, Banks +49 89 378-12004 [email protected]

Tobias Keller Banks, Covered Bonds +49 89 378-12960 [email protected]

Julian Kreipl, CFA Sub-Sovereigns & Agencies, ESG +49 89 378-12961

[email protected]

Natalie Tehrani Monfared Insurance, Real Estate +49 89 378-12242

[email protected]

Corporate Credit Research

Christian Aust, CFA Head Industrials, Oil & Gas +49 89 378-17564 [email protected]

Gianfranco Arcovito, CFA Telecoms, Technology, Gaming +49 89 378-15449 [email protected]

Sergey Bolshakov EEMEA Corporates & Financials +44 207 826-1772 [email protected]

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

Ulrich Scholz, CFA, FRM Utilities, Hybrids +49 89 378-41847 [email protected]

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

Jana Schuler, CFA Industrials +49 89 378-13211 [email protected]

Dr. Silke Stegemann, CEFA Health Care & Pharma, Consumer +49 89 378-18202 [email protected]

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Euro Credit Pilot - UniCredit Research