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February 19, 2014

 Non-GAAP Measures Are Useful, But Could Benefit From Standard Definitions And Independent Assurances

Analytical use of supplementary financial measures or non-Generally Accepted Accounting Principles (GAAP) measures are increasingly popular among analysts and investors today. Many non-GAAP measures are widely reported by management--e.g., EBITDA, adjusted debt, and free cash flow. Such measures can give management and users of financial reports additional analytical insight into a company's performance and financial condition, expanding on the information stipulated by the GAAP framework. However, a major issue regarding non-GAAP measures is the lack of consistent definitions for their calculation and disclosure, even among companies in the same industry. The lack of standard definitions is one reason regulators have restricted the use of certain measures in financial statements and require extensive disclosure and reconciliations.

 Alternative Financing: Disclosure Is Critical To Credit Analysis In Public Finance

We continue to see U.S. public finance issuers using alternative financing products such as bank loans and direct-purchase debt. We have commented about the use of these products and the potential credit risks inherent in them. We recognize there are benefits to some of the alternative financing products, such as direct-purchase bonds, that are being offered to municipal obligors. However, it is important to highlight the risks of these new products, and reiterate the need for transparency when issuers incorporate these types of financing vehicles into their debt profile. Whether or not banks or municipal entities are required to disclose direct financing agreements' covenants, it is critical, as part of our routine surveillance of obligors, to explore whether issuers have entered into any such agreements.


Podcasts  How Fed Tapering Affects Spreads

Gregg Moskowitz
Associate Director
Standard & Poor's

Recently, the Federal Open Market Committee announced a $10 billion reduction in its bond-buying program to $65 billion a month by cutting its monthly mortgage bond and Treasury purchases by $5 billion each. How has tapering affected spreads? In this CreditMatters TV segment, Standard & Poor's Associate Director Gregg Moskowitz explains the key trends and data points.


Top Stories

Global Issuers

 Brazil's Banks And Insurers Profit From Bancassurance In A Sluggish Economy

Bancassurance is a business model where insurers reach customers by selling mostly life insurance (and, to a lesser extent property & casualty coverage) through local bank branches. It's a way for insurance companies to broaden their distribution while also curtailing some of their operational expenses, and for banks to increase their non-interest revenue--which takes on added importance when prevailing interest rates are low. The bancassurance model has long proven successful in parts of Europe, such as France, which pioneered this business model. Now it's gaining prominence in developing markets such as Latin America, where insurers see it as one of the best ways to reach the region's emerging middle-class.


 Competition Through Diversified Distribution Channels May Squeeze Japanese Life Insurers' Earnings

We have observed diversification of the distribution channels in Japan's life insurance market in recent years, in addition to insurance products. For instance, we have seen an increase in independent agents, including "insurance shops," and growth in Internet-based life insurance sales. If an insurer generates the majority of its premium income through distribution channels in which it can control its sales strategies, and if the channels give the insurer a competitive advantage, it is a positive factor for the ratings. Despite the increasing diversification of distribution channels, there will likely not be a material decline in the share of insurance products sold through domestic major life insurers' tied agents, mainly because their customer base is solid.


 2014 U.S. Corporate Credit Outlook: Chemicals Sector

We expect that credit quality among North American chemical companies will remain generally stable in 2014. About 90% of these companies have stable outlooks, indicating that we think rating changes are unlikely over the next year. After years of limited capacity expansion, capital investment in the sector has recently increased, primarily due to the shale gas boom; and we expect this trend to continue in 2014. Spending in North America will likely be concentrated in the petrochemical, downstream, and fertilizer subsectors, in which companies have greatly improved their positions on the global cost curve, thanks to the availability of low-cost natural gas. An increasing risk for the sector in 2014 remains the potential for further political discord.


Occidental Petroleum Corp. 'A' Ratings Placed On Watch Negative

The negative CreditWatch placement follows Occidental's announcement that it plans to separate its California operations into a separate, publically traded company through a dividend to shareholders, as part of strategic initiatives to enhance shareholder value. In addition, Occidental has sold or is in the process of selling various assets. These include a portion of its Middle East and North African operations; its U.S. mid-continent assets, which include the recent sale of its Hugoton assets for $1.4 billion, as well as assets in the Williston and Piceance Basins; and the partial sale in 2013 of its interest in the general partnership of Plains All-American Pipeline in 2013.



The U.S. Capital Goods Sector
Feb. 26
Webcast and Q&A

Standard & Poor's Media, Entertainment, And Cable Industry Breakfast Briefing And Teleconference
March 5
New York

2014 Leveraged Finance And Recovery Hot Topics Conference
March 7
New York

U.S. ABS 2014 Outlook & Hot Topics
March 11
New York

Global Bank Conference 2014
March 27
New York

Standard & Poor's Ratings Services 30th Annual Insurance Conference
June 3-5
New York