Majority of investors see a Riksbank July rate cut, a major shift from a month ago

Credit Comment: Vasakronan — Upgraded stand-alone rating

- We upgrade the stand-alone rating from BBB- to BBB
- We reduce the uplift from government support to one notch
- Corporate rating unchanged at BBB+ but outlook lowered to stable

Upgraded stand-alone rating due to stronger financial profile
Vasakronan has reduced its financial leverage gradually over the past two years. As of Q1 2013, the net LTV was down to 52% and debt-to-EBITDA (rolling 12m) was 10.7x. Thus, credit metrics are now adequate for a mid-BBB indicative rating.

Implicit government support reduced
We reduce the rating uplift from implicit government support from two notches to one notch. The change relates to a revised methodology for our support assumptions rather than any recent development related to the company.

Credit quality outlook lowered to stable from positive
The previous positive outlook for credit quality was due to the positive development for the stand-alone credit profile. Following the upgraded stand-alone rating we change the outlook to stable.

Market Participant Survey — Majority of investors see a Riksbank July rate cut, a major shift from a month ago

- Shift from April, as more investors see lower Riksbank rates
- Majority of respondents now expect the SEK to weaken against the EUR and the USD
- Majority see higher 10-year bond yields but expect Swedish bond yields to tighten against Germany
- Majority are still positive on credit bonds
- Expectations are for new regulatory measures to contain household debt growth

FX Pilot — Fed’s inflation problem suggests no QE end

- Negative on risk sentiment
- Still bullish on EUR/SEK
- We stick to being bearish on EUR/USD

Credit comment: Aker Solutions — Rating maintained, outlook set to negative

- Weak Q1 results in line with profit warning
- Working capital build-up and increasing net debt
- Risks associated with Cat B project and marine assets

Weak Q1 across several business areas
Aker Solutions' Q1 EBITDA of NOK 868m was as expected given the profit warning issued prior to the report, but some NOK 200m below consensus ahead of the PW. The deviation was related to execution problems in several business areas, most importantly the Ekofisk Zulu project in the MMO and Engineering business areas, as well as capacity and quality issues in Umbilicals. Also, two idle vessels weighed on the quarter's earnings. Aker Solutions expects results to improve in H2, but admits short-term visibility has decreased, due among other things to competitive tendering processes.

Weak cash flow, but liquidity remains adequate
Cash flow in Q1 was very weak, with NOK 2bn in negative operating cash flow caused by a NOK 2.8bn increase in working capital. Net debt increased by about NOK 3.7bn in the quarter, to NOK 10.1bn, and net debt/12-month trailing EBITDA increased to 2.3x from 1.4x at year-end. Despite this, liquidity remains adequate, with NOK 5.7bn in total cash and undrawn credit lines, and AKSO still enjoys considerable headroom to its financial covenants. We expect the working capital build-up to be reversed ahead, and hence the primary uncertainty remains in execution and the future state of the Cat B project. 

We maintain our BBB- rating, but assign a negative outlook
We still view AKSO as an investment grade credit and maintain our BBB- rating, one notch above Fitch's public rating of the company. However, we change the rating outlook to negative (from stable) based on the weak earnings and increased uncertainty.

Swedish Rate Wrap — No central bank exit for some time to come

Global: interest rates must go down unless the ISM bounces
The recent payroll-driven increase in interest rates will level off unless the ISM bounces substantially next month. Another rate cut of 25bp from the ECB appears to be imminent this summer. If the economic outlook worsens, negative deposit rates could be possible. Meanwhile, a downside in bond yields is still close at hand in Sweden, partly because of delayed effects from the strong krona. Globally, credits also remain well supported by central bank stimuli (pp. 3-4).

The ECB has no magic wand for SMEs
The ECB has long expressed its dissatisfaction with loan terms for small and medium-sized enterprises (SMEs). However, we believe that the small enterprise bottleneck cannot be dissolved without someone bearing more credit risk, which does not lie in the ECB's nature. Instead, other European institutions must step forward, after which it would be difficult to find any major market complications in the near term. (pp 6-7).

FX Option Trade Idea — The big bad NOK wolf - 3M Seagull 7.60 / 7.42 / 7.82

1. Short NOK positioning - Time to re-enter
2. Bond expiry effects exaggerated
3. 3M Seagull 7.60 / 7.42 / 7.82 --> Zero cost at 7.65 spot