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2nd presidential debate hits on energy; New Pa. shale drilling rules take effect

Street Talk Episode 40 - Digital Banks Take a Page Out of 'Mad Men'

Broadband Only Homes Skyrocket In 2018 Validating Top MSOs Connectivity Pivot

Power Forecast Briefing: As retirements accelerate, can renewable energy fill the gap?

2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Fundamentals View


2nd presidential debate hits on energy; New Pa. shale drilling rules take effect

Top News

2nd presidential debate hits on energy independence, coal and steel struggles

The two major party presidential candidates concluded a contentioussecond debate Oct. 9 with a discussion of domestic energy policy, with Republicannominee Donald Trump argued the U.S. energy industry is "under siege"and Democrat nominee Hillary Clinton emphasizing the need for the country to remainenergy independent. The candidates' comments came in response to the second-to-lastquestion of the town hall style debate, which was initially driven by tense exchangesbetween Trump and Clinton over recent campaign trail controversies and foreign policy.

Afterconsuming six years, a series of public meetings and the job of one secretary ofenvironmental protection, Pennsylvania's new unconventional drilling regulationstook effect Oct. 8. The new regulations prohibit the storage of waste in pits atshale wells, calling for waste to be stored in tanks with secondary impoundments.

shares are off toa slow start since the company's emergencefrom bankruptcy despite glimmersof hope in metallurgical and thermal coal markets. Arch returned to the NYSE aftera bankruptcy reorganization absence, opening at $70 per share on Oct. 5 under thesymbol ARCH, but closing the week at $61.70 per share.

Power

* Toenhance its retail energy platform, CalpineCorp. has entered a dealto acquire Noble Americas Energy SolutionsLLC from Noble AmericasGas & Power Corp. for $800 million, plus an estimated $100 millionof net working capital at closing.

* HurricaneMatthew brought damages that were beyondDuke Energy Carolinas LLC'sexpectations, with some electrical systems in need of being rebuilt. The companyaims to restore power before 11:45 p.m. ET on Oct. 16 for the 660,000 outages itreported on Oct. 9.

* Expertsdonot expect a large number of states to rushto obtain emissions credits from California's well-oiled cap-and-trade program tocomply with the U.S. EPA's Clean Power Plan because any linking programs need tobe at least as stringent as California's program. An attorney involved in the carbonrule litigation said the requirement could therefore keep states from meeting theiremissions reduction goals, but others dispute that claim.

* TheMontana Supreme Court upheldthe Public Service Commission's denial of $1.42 million in power supply replacementcosts NorthWestern Corp.incurred during a 2011 outage of its DaveGates Generating Station.

* Post-technicalconference comments submitted by the major trade groups addressing issues relatedto competitive transmission development were wide-ranging and varied. For instance, the Edison ElectricInstitute warned FERC not to take away any of the flexibility granted by Order 1000,the agency's landmark transmission planning and cost allocation final rule.

* Ina tweet, CEO Elon Musk shotdown expectations that the company will raise equity or corporate debt in the fourthquarter to acquire SolarCity Corp.When asked about potential fundraising plans in the first quarter of 2017, Muskreplied onTwitter, "Probably not then either."

* TheSEC's corporation finance team sent a letter to 8point3 Energy Partners LP to inform the company it breachedrevised guidelines on the use of non-standard financial metrics, MarketWatchreports. The First Solar Inc.and SunPower Corp. jointventure allegedly used unusual metrics to attract investors for a secondary offering.

* closedC$220 million in project financing to redevelop and expand four hydroelectric generatingstations on the lower part of the Mattagami River, according to a .

* A lobbyistwho created the political action committee No Handouts to Billionaires filed a lawsuitwith the Carson City court to invalidate the Energy Choice Initiative, a Novemberballot measure which seeks to end NVEnergy Inc.'s monopoly and open up Nevada's energy markets to competitors,the LasVegas Sun reports. The lawsuit aims to prevent the measure from appearing againon the ballot in 2018.

* A subsidiaryof Norwegian company Statoil ASAhas signaled its interest in building wind farms off the shores of Oahu in Hawaii,according to the HonoluluStar Advertiser.

* Moody'sloweredGenOn Energy Inc.'s corporatefamily rating to Caa3 from Caa2 and probability of default rating to Caa3-PD fromCaa2-PD. The downgrade reflects an increasing chance of default for the unit by June 2017at the soonest.

* Thecity of Denton, Texas, has contracted Burns & McDonnell to build its 225-MW,natural gas-fired Denton Energy Center, according to PowerEngineering. Construction of the facility is expected to begin in 2017, withcommissioning by July 2018.

Natural gas/midstream

* Culturalresource specialists and energy infrastructure experts see the controversy overDakota Access Pipelineas proof of the need tore-examine how tribal outreach and historic resource preservation efforts are handledduring pipeline permitting. In a related report from the St.Louis Post-Dispatch, the U.S. Court of Appeals for the District of ColumbiaCircuit ruled Oct. 9 that construction can be resumed on a small stretch of theDakota Access Pipeline, amid an appeal by the Standing Rock Sioux tribe.

* NewEngland's state-by-state effort to secure its natural gas supplies by having electricutilities purchase capacity on new pipelines has been dealt another blow with a dismissal by New Hampshire regulatorsof Eversource Energy'spetition to purchase natural gas capacity from Spectra Energy Corp's Access Northeast pipeline project.

* remains committed toits U.S. shale assets even if it admits to the FinancialTimes that the timing of its purchase five years ago is ill-judged. On thelong-term, the oil producer and mining company sees the assets eclipsing conventionaloilfields and plugging a supply gap, according to the report.

* FortyBritish Columbia aboriginal groups are backing pipeline megaprojects, counteringa claim by a coalition of North American native leaders of "unprecedented unity"against such project proposals, the VancouverSun reports,citing a Postmedia analysis.

Coal

* A by NPR and othernews entities found that West Virginia gubernatorial candidate Jim Justice $15 million in taxes and fines.

* BMIResearch shows that Indiais set to outstrip theU.S. as the world's second-largest coal producer after China, citing the country'sglobal production share increasing to 12.7% by 2020 from 9.8% in 2016, BloombergNews reported Oct. 7.

Commodities

* Extendinglast month's trend, Septemberhydroelectric power production in the Pacific Northwest was below both the prior-month and year-ago levels, althoughhigher output was reported from dams in the lower Columbia River Basin.

SNL Image

New from RRA

* ThePublic Utility Commission of Texas approveda procedural order directing SharylandUtilities LP to re-submit its rate filing no later than Jan. 1, 2017.

Quoted

"Eversource'sproposal is an interesting one, with the potential to reduce that volatility; butit is an approach that, in practice, would violate New Hampshire law following therestructuring of the electric industry. If the General Court believes EDCs shouldbe allowed to make long-term commitments to purchase gas capacity and include thecosts in distribution rates, the statutes can be amended to permit such activities,"the New Hampshire Public Utilities Commission said in denying a request by Eversource Energy to purchasecapacity on the Access Northeast natural gas pipeline.

The day ahead

* Earlymorning futures indicators pointed to a higher opening for the U.S. equity markets.To view more SNL equity market indexes, click here.To view more SNL Energy commodities prices, click here.


Listen: Street Talk Episode 40 - Digital Banks Take a Page Out of 'Mad Men'

Mar. 20 2019 — Some fintech companies are making hay with digital platforms that tout their differences with banks, even though they are often offering virtually the same products. In the episode, we discuss with colleagues Rachel Stone and Kiah Haslett the deposit strategies employed by the likes of Chime, Aspiration and other incumbent players such as Ally Financial, Discover and Capital One. Those efforts conjure up memories of a Don Draper pitch in Mad Men and likely will enjoy continued success.

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Technology, Media & Telecom
Broadband Only Homes Skyrocket In 2018 Validating Top MSOs Connectivity Pivot

Highlights

The segment stood at an estimated 23.6 million as of Dec. 31, 2018, accounting for 24% of all wireline high-speed data homes.

The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Mar. 20 2019 — The U.S. broadband-only home segment logged its largest net adds on record in 2018, validating Comcast Corp.'s and Charter Communications Inc.'s moves to make broadband, or connectivity, the keystone of their cable communication businesses.

The size and momentum of the segment also put in perspective the recent high-profile online-video video announcements by the top two cable operators as well as AT&T Inc.'s WarnerMedia shake-up and plans to go toe-to-toe with Netflix in the subscription video-on-demand arena in the next 12 months.

We estimate that wireline broadband households not subscribing to traditional multichannel, or broadband-only homes, rose by nearly 4.3 million in 2018, topping the gains from the previous year by roughly 22%. Overall, the segment stood at an estimated 23.6 million as of Dec. 31, 2018, accounting for 24% of all wireline high-speed data homes.

For perspective, broadband-only homes stood at an estimated 11.3 million a mere four years ago, accounting for 13% of residential cable and telco broadband subscribers.

The once all-powerful, must-have live linear TV model, which individuals and families essentially treated as a utility upon moving into a new residence, increasingly is viewed as too expensive and unwieldy in the era of affordable, nimble internet-based video alternatives. This has resulted in a sizable drop in penetration of occupied households.

As a result, continued legacy cord cutting is baked in and broadband-only homes are expected to continue to rise at a fast clip, with the segment's momentum in the next few years compounded by Comcast's, Charter's and AT&T's ambitious moves into online-video territory.

Note: we revised historical broadband-only home estimates as part of our fourth-quarter 2018, following restatements of historical telco broadband subscriber figures and residential traditional multichannel subscriber adjustments.

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Q4'18 multichannel video losses propel full-year drop to edge of 4 million

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Q4'18 multiproduct analysis sheds more light on video's fall from grace

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Watch: Power Forecast Briefing: As retirements accelerate, can renewable energy fill the gap?

Mar. 19 2019 — Steve Piper shares the outlook for U.S. power markets, discussing capacity retirements and whether continued development of wind and solar power plants may mitigate the generation shortfall.

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Credit Analysis
2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Fundamentals View

Mar. 15 2019 — On November 20, 2018, a joint event hosted by S&P Global Market Intelligence and S&P Global Ratings took place in London, focusing on credit risk and 2019 perspectives.

Pascal Hartwig, Credit Product Specialist, and I provided a review of the latest trends observed across non-financial corporate firms through the lens of S&P Global Market Intelligence’s statistical models.1 In particular, Pascal focused on the outputs produced by a statistical model that uses market information to estimate credit risk of public companies; if you want to know more, you can visit here.

I focused on an analysis of how different Brexit scenarios may impact the credit risk of European Union (EU) private companies that are included on S&P Capital IQ platform.

Before, this, I looked at the evolution of their credit risk profile from 2013 to 2017, as shown in Figure 1. Scores were generated via Credit Analytics’ PD Model Fundamentals Private, a statistical model that uses company financials and other socio-economic factors to estimate the PD of private companies globally. Credit scores are mapped to PD values, which are based on/derived from S&P Global Ratings Observed Default Rates.

Figure 1: EU private company scores generated by PD Model Fundamentals Private, between 2013 and 2017.

Source: S&P Global Market Intelligence.2 As of October 2018.

For any given year, the distribution of credit scores of EU private companies is concentrated below the ‘a’ level, due to the large number of small revenue and unrated firms on the S&P Capital IQ platform. An overall improvement of the risk profile is visible, with the score distribution moving leftwards between 2013 and 2017. A similar picture is visible when comparing companies by country or industry sector,3 confirming that there were no clear signs of a turning point in the credit cycle of private companies in any EU country or industry sector. However, this view is backward looking and does not take into account the potential effects of an imminent and major political and economic event in the (short) history of the EU: Brexit.

To this purpose, S&P Global Market Intelligence has developed a statistical model: the Credit Analytics Macro-scenario model enables users to study how potential future macroeconomic scenarios may affect the evolution of the credit risk profile of EU private companies. This model was developed by looking at the historical evolution of S&P Global Ratings’ rated companies under different macroeconomic conditions, and can be applied to smaller companies after the PD is mapped to a S&P Global Market Intelligence credit score.

“Soft Brexit” (Figure 2): This scenario is based on the baseline forecast made by economists at S&P Global Ratings and is characterized by a gentle slow-down of economic growth, a progressive monetary policy tightening, and low yet volatile stock-market growth.4

Figure 2: “Soft Brexit” macro scenario.5

Source: S&P Global Ratings Economists. As of October 2018.

Applying the Macro-scenario model, we analyze the evolution of the credit risk profile of EU companies over a three-year period from 2018 to 2020, by industry sector and by country:

  • Sector Analysis (Figure 3):
    • The median credit risk score within specific industry sectors (Aerospace & Defense, Pharmaceuticals, Telecoms, Utilities, and Real Estate) shows a good degree of resilience, rising by less than half a notch by 2020 and remaining comfortably below the ‘b+’ threshold.
    • The median credit score of the Retail and Consumer Products sectors, however, is severely impacted, breaching the high risk threshold (here defined at the ‘b-’ level).
    • The remaining industry sectors show various dynamics, but essentially remain within the intermediate risk band (here defined between the ‘b+’ and the ‘b-’ level).

Figure 3: “Soft Brexit” impact on the median credit risk level of EU private companies, by industry.

Source: S&P Global Market Intelligence. As of October 2018.

  • Country Analysis (Figure 4):
    • Although the median credit risk score may not change significantly in certain countries, the associated default rates need to be adjusted for the impact of the credit cycle.6 The “spider-web plot” shows the median PD values for private companies within EU countries, adjusted for the credit cycle. Here we include only countries with a minimum number of private companies within the Credit Analytics pre-scored database, to ensure a robust statistical analysis.
    • Countries are ordered by increasing level of median PD, moving clock-wise from Netherlands to Greece.
    • Under a soft Brexit scenario, the PD of UK private companies increases between 2018 and 2020, but still remains below the yellow threshold (corresponding to a ‘b+’ level).
    • Interestingly, Italian private companies suffer more than their Spanish peers, albeit starting from a slightly lower PD level in 2017.

Figure 4: “Soft Brexit” impact on the median credit risk level of EU private companies, by country.

Source: S&P Global Market Intelligence. As of October 2018.

“Hard Brexit” (Figure 5): This scenario is extracted from the 2018 Stress-Testing exercise of the European Banking Authority (EBA) and the Bank of England.7 Under this scenario, both the EU and UK may go into a recession similar to the 2008 global crisis. Arguably, this may seem a harsh scenario for the whole of the EU, but a recent report by the Bank of England warned that a disorderly Brexit may trigger a UK crisis worse than 2008.8

Figure 5: “Hard Brexit” macro scenario.9

Sources:”2018 EU-wide stress test – methodological note” (European Banking Authority, November 2017) and “Stress Testing the UK Banking system: 2018 guidance for participating banks and building societies“ (Bank of England, March 2018).

Also in this case, we apply the Macro-scenario model to analyze the evolution of the credit risk profile of EU companies over the same three-year period, by industry sector and by country:

  • Sector Analysis (Figure 6):
    • Despite all industry sectors being severely impacted, the Pharmaceuticals and Utilities sectors remain below the ‘b+’ level (yellow threshold).
    • Conversely, the Airlines and Energy sectors join Retail and Consumer Products in the “danger zone” above the ‘b-’ level (red threshold).
    • The remaining industry sectors will either move into or remain within the intermediate risk band (here defined between the ‘b+’ and the ‘b-’ level).

Figure 6: “Hard Brexit” impact on the median credit risk level of EU private companies, by industry.

Source: S&P Global Market Intelligence. As of October 2018.

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  • Country Analysis (Figure 7):
    • Under a hard Brexit scenario, the PD of UK private companies increases between 2017 and 2020, entering the intermediate risk band and suffering even more than its Irish peers.
    • Notably, by 2020 the French private sector may suffer more than the Italian private sector, reaching the attention threshold (here shown as a red circle, and corresponding to a ‘b-’ level).
    • While it is hard to do an exact like-for-like comparison, it is worth noting that our conclusions are broadly aligned with the findings from the 48 banks participating in the 2018 stress-testing exercise, as recently published by the EBA:10 the major share of 2018-2020 new credit risk losses in the stressed scenario will concentrate among counterparties in the UK, Italy, France, Spain, and Germany (leaving aside the usual suspects, such as Greece, Portugal, etc.).

Figure 7: “Hard Brexit” impact on the median credit risk level of EU private companies, by country.

Source: S&P Global Market Intelligence. As of October 2018.

In conclusion: In Europe, the private companies’ credit risk landscape does not yet signal a distinct turning point, however Brexit may act as a pivot point and a catalyst for a credit cycle inversion, with an intensity that will be dependent on the Brexit type of landing (i.e., soft versus hard).

1 S&P Global Ratings does not contribute to or participate in the creation of credit scores generated by S&P Global Market Intelligence.
2 Lowercase nomenclature is used to differentiate S&P Global Market Intelligence credit scores from the credit ratings issued by S&P Global Ratings.
3 Not shown here.
4 Measured via Gross Domestic Product (GDP) Growth, Long-term / Short-term (L/S) European Central Bank Interest Rate Spread, and FTSE100 or STOXX50 stock market growth, respectively.
5 Macroeconomic forecast for 2018-2020 (end of year) by economists at S&P Global Ratings; the baseline case assumes the UK and the EU will reach a Brexit deal (e.g. a “soft Brexit”).
6 When the credit cycle deteriorates (improves), default rates are expected to increase (decrease).
7 Source: “2018 EU-wide stress test – methodological note” (EBA, November 2017) and “Stress Testing the UK Banking system: 2018 guidance for participating banks and building societies”. (Bank of England, March 2018).
8 Source: “EU withdrawal scenarios and monetary and financial stability – A response to the House of Commons Treasury Committee”. (Bank of England, November 2018).
9 As a hard Brexit scenario, we adopt the stressed scenario included in the 2018 stress testing exercise and defined by the EBA and the Bank of England.
10 See, for example, Figure 18 in “2018 EU-Wide Stress Test Result” (EBA November 2018), found at:https://eba.europa.eu/documents/10180/2419200/2018-EU-wide-stress-test-Results.pdf

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2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Market-Driven View

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