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INVESTMENT SOLUTIONS & PRODUCTS Swiss Institutional Credit Research

Swiss Credit Handbook 2016

August 2016

Ratings – sector trends – market outlook

Benign credit environment not without risks

Swiss Credit Handbook

Credit Suisse I August 2016

Imprint

Swiss Institutional Credit Research This material is directed at Credit Suisse’s market professionals and institutional clients. Recipients who are not market professionals or institutional clients of Credit Suisse should, before entering into any transactions, consider the suitability of the transaction to individual circumstances and objectives.

Authors Head of Global Credit Research Daniel Rupli Director Phone +41 44 333 13 79 [email protected] Sectors: Public sector, utilities

Head of Global Equity & Credit Research Christine Schmid Managing Director Phone +41 44 334 56 43 [email protected] Sectors: Banks

Global Credit Research Heike Halsinger Director Phone +41 44 333 13 70 [email protected] Sectors: Healthcare, retail

Global Credit Research Misha Weber Director Phone +41 44 333 54 25 [email protected] Sectors: Automotive, materials, chemicals

Global Credit Research Nathalie Dantès Director Phone +41 44 332 12 23 [email protected] Sectors: High Yield

Global Credit Research Michael Kruse, CFA Vice President Phone +41 44 334 56 96 [email protected] Sectors: Banks, insurance

Global Credit Research Jannick Dousse Credit Analyst Phone +41 44 333 13 74 [email protected] Sectors: Capital goods, real estate

Global Credit Research Colin Ferguson Credit Analyst Phone +41 44 334 25 83 [email protected] Sectors: Consumer goods

Global Credit Research Roman Ochsner Credit Analyst Phone +41 44 332 03 72 [email protected] Sectors: Food, telecom

Global Credit Research Louis Leutenegger Credit Analyst Phone +41 44 333 57 68 [email protected] Sectors: Capital goods

Acknowledgements

We wish to thank Thomas Rühl and the Regional Research team for their support, input and contributions to this publication.

We would also like to thank Assistant Credit Analysts Veronika Molnár, Bastien Menninger and Tristan Schulz for contributing to this publication.

Information about other Swiss Institutional Credit Research publications Institutional Research Flash – Credit Update Switzerland Institutional White Paper Credit Suisse AG Investment Publishing P.O. Box 300, CH-8070 Zurich

Internet https://isr.csintra.net/isr/fixed-income Intranet (for employees only) https://isr.csintra.net/isr/fixed-income Editorial deadline 14 August 2016



Contents

Summary 4 Lindt & Sprüngli (High A, Stable) 82 Kraftwerke Sarganserland (Mid A, Negative) 158

Rating overview 8 Lonza (Low BBB, Stable) 84 Maggia Kraftwerke (Mid A, Negative) 159

Meyer Burger (Low B, Negative) 86 Nant de Drance (Low A, Negative) 160

Peer comparison Migros (High A, Stable) 88

Banking 10 Mobimo (Mid BBB, Stable) 90 Cantons

Building Materials 11 Nestlé (Restricted) 92 Rating methodology – cantons 161

Capital Goods 12 Novartis (Mid AA, Stable) 94 Aargau (High AA, Stable) 164

Chemicals 13 Oerlikon (Low BBB, Stable) 96 Appenzell-Ausserrhoden (High AA, Stable) 165

Food 14 PSP Swiss Property (Low A, Stable) 98 Appenzell-Innerrhoden (High AA, Stable) 166

Healthcare 15 Raiffeisen (Low AA, Stable) 100 Basel-Land (Mid AA, Stable) 167

Insurance 16 Regionalspital Emmental (Mid A, Stable) 102 Basel-Stadt (High AA, Stable) 168

Public Sector 17 Repower (High BB, Stable) 104 Bern (Mid AA, Stable) 169

Real Estate 18 Rieter (Mid BB, Stable) 106 Fribourg (High AA, Stable) 170

Retail 19 Roche (Low AA, Positive) 108 Geneva (Low AA, Stable) 171

Utilities 20 Schindler (High A, Stable) 110 Glarus (High AA, Stable) 172

SGS (Mid A, Stable) 112 Graubünden (High AA, Stable) 173

Corporates SIG (High BBB, Stable) 114 Jura (High A, Stable) 174

Rating methodology – corporates 22 Sika (Low A, Negative) 116 Lucerne (High AA, Stable) 175

ABB (Low A, Stable) 24 Sulzer (Mid BBB, Negative) 118 Neuchâtel (High A, Stable) 176

Adecco (Mid BBB, Stable) 26 Swisscom (Mid A, Stable) 120 Nidwalden (AAA, Stable) 177

Aduno Holding (Mid A, Stable) 28 Swissgrid (Low AA, Stable) 122 Obwalden (High AA, Stable) 178

Allreal (Mid BBB, Stable) 30 Swiss Life (Low A, Stable) 124 Schaffhausen (High AA, Stable) 179

Alpiq (Mid BBB, Negative) 32 Swiss Prime Site (High BBB, Stable) 126 Schwyz (AAA, Stable) 180

Aryzta (High BB, Negative) 34 Swiss Re (Low AA, Stable) 128 Solothurn (High AA, Negative ) 181

Axpo (Mid A, Negative) 36 Syngenta (Restricted) 130 St. Gallen (High AA, Stable) 182

Baloise (Low A, Stable) 38 TPG (Low AA, Stable) 132 Thurgau (High AA, Stable) 183

Bell (Mid BBB, Stable) 40 UBS (Mid A, Stable) 134 Ticino (High A, Stable) 184

BKW (Mid A, Stable) 42 Valiant (High A, Stable) 136 Uri (Mid AA, Positive) 185

Bobst Group (High BB, Stable) 44 Valora (Low BBB, Stable) 138 Valais (Mid AA, Stable) 186

Bucher Industries (High BBB, Stable) 46 Zurich Insurance (High A, Stable) 140 Vaud (AAA, Stable) 187

Cembra Money Bank (Mid A, Stable) 48 Zug (AAA, Stable) 188

CFT (High BB, Stable) 50 Partner plants Zurich (AAA, Stable) 189

Clariant (Low BBB, Negative ) 52 Rating methodology – partner plants 142

Coop (Low A, Stable) 54 AKEB (Low A, Stable) 144 Cities

Emmi (Low A, Stable) 56 Blenio Kraftwerke (Mid A, Negative) 145 Bern (Mid AA, Stable) 190

Flughafen Zürich (Mid A, Negative) 58 Electricité d'Emosson (High BBB, Negative) 146 Geneva (Low AA, Stable) 191

Galenica (Restricted) 60 ENAG (High BBB, Stable) 147 Lausanne (High A, Stable) 192

Geberit (High BBB, Positive) 62 Engadiner Kraftwerke (Low A, Negative) 148 Lugano (Mid A, Negative) 193

Georg Fischer (Mid BBB, Stable) 64 Grande Dixence (High BBB, Negative) 149 Winterthur (Mid AA, Stable) 194

Givaudan (Low A, Stable) 66 KBG (High BBB, Negative) 150 Zurich (High AA, Stable) 195

Glencore (Mid BBB, Stable) 68 Kernkraftwerk Gösgen-Dän. (High BBB, Neg.) 151

Helvetia (Low A, Stable) 70 Kernkraftwerk Leibstadt (High BBB, Stable) 152 Glossary 196

HIAG Immobilien (Low BBB, Stable) 72 Kraftwerk Amsteg (Mid AA, Stable) 153 Disclaimer/Disclosures 19

Hilti (High A, Stable) 74 Kraftwerke Hinterrhein (High BBB, Stable) 154

Hirslanden (Mid BB, Stable) 76 Kraftwerke Linth-Limmern (Mid A, Negative) 155

Implenia (Mid BBB, Stable) 78 Kraftwerke Mauvoisin (Low A, Stable) 156

LafargeHolcim (Mid BBB, Stable) 80 Kraftwerke Oberhasli (High A, Stable) 157

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Aim of the Swiss Credit Handbook We are pleased to present the 2016 edition of the Swiss Credit Handbook. The aim of the publication is to shed light on the credit standing of Swiss issuers in the CHF capital market. The study exam-ines the creditworthiness of the largest Swiss bond issuers and main participants in the capital market through a structured assessment. The Swiss Credit Handbook contains 108 issuers (59 companies, 17 partner plants, 26 cantons and 6 cities), one less than in 2015. It encompasses a wide range of borrowers not covered by the interna-tional credit rating agencies. Applying our various credit methodolo-gies, which are included in this publication, we assess each issuer's credit profile and assign the resulting credit rating as well as a rating outlook. In addition, we examine characteristics, market trends and prospects for selected industries, as well as features of specific issuer groups. The Swiss Credit Handbook thus targets all investors and financial market participants seeking detailed information about the current development and creditworthiness of Swiss capital market borrowers.

And it's still the shareholder… Looking back to 2015, the global economy grew by 3.2%, with China and India leading global growth across the larger economies with 6.9% and 7.3% gross domestic product (GDP) growth, respectively. Although emerging market growth slowed versus 2015 and larger divergences materialized (Brazil –3.8%; Philippines +5.8%), these economies remain the global growth drivers. North America topped mature markets as the USA generated 2.4% GDP growth. The Eurozone continued its path back to stronger growth with GDP growth of 1.6% thanks to solid performance of Spain with 3.2% GDP growth. Against this backdrop and the aid of cost savings and effi-ciency programs, Swiss corporates under our coverage were by and large able to grow revenues thanks to higher volumes and better prices, in various cases also fueled by acquisitions. That said, another year with a very strong Swiss franc has offset local currency revenue growth for many companies. With regard to profitability margins, the pendulum is about to swing, in our view. In our coverage universe only one half of the companies were able to improve margins while the other half reported a drop. Furthermore, margin drops were more significant than increases, which were mainly supported by cost-saving initiatives rather than actual growth, in our view. However, FY 2015 margins still outperformed the 7-year average reading illustrat-ing that profitability margins still remain high historically. Companies with weaker margins are mainly in the capital goods and building

materials sectors, and/or those suffering from the strong Swiss franc and European competition. Operating cash flow generation remained relatively stable thanks to working capital efficiencies, as funds from operations experienced a weakening trend. Capex across our cover-age was actually slightly higher YoY. We excluded Glencore which cut capex markedly following the drop in commodity prices. On top of slightly weaker free cash flows dividends remained flat or rose while share buybacks increased substantially across our coverage amounting to CHF 13.7 bn, a 60% increase YoY and 429% versus FY 2013. That said, such high shareholder payments are supported by very attractive refinancing conditions and central bank support for the fixed income asset classes, offering good access to capital mar-kets within the investment grade universe. Hence, some corporates might even take a rating downgrade into consideration when launch-ing share buybacks and/or acquisitions as long as refinancing condi-tions remain attractive. Overall, Swiss corporates continued to enjoy very solid liquidity, with available cash on hand and unused credit lines. The Stable outlook for around 80% of the companies we cover (90% excluding Swiss utilities) reflects this. Currently, only three corporate ratings carry a Positive outlook, underpinning our view that companies will use improving credit metrics to enhance shareholder focus or undertake acquisitions. Banking industry The negative interest rate environment, the flat yield curve, and the reluctance to charge negative interest rates on savings deposits continue to put pressure on net interest income. This especially con-cerns the predominately domestic-oriented cantonal and regional banks, for which interest income is the single most important earnings source. However, we think that asset quality, capital ratios and profit-ability will remain at solid levels overall, given our expectation of slow-ing but not stagnating economic activity, demanding loan-underwriting standards, slower growth in mortgage volumes and real estate prices, and strict cost controls. We therefore keep the ratings for all banks in our coverage universe unchanged and maintain a Stable outlook. As of 1 July 2016, an updated version of the Swiss banking ordinance came into effect demanding stricter capital requirements for two global systemically important Swiss banks, i.e. UBS (Mid A, Stable) and Credit Suisse (not covered). The full requirements for Raiffeisen (Low AA, Stable) will only be known by the end of February 2017. The new rules require higher leverage and risk-weighted capital ratios, consisting of better-quality capital, i.e. only CET1 and T1 instruments. As a result, we expect that non-compliant existing capital instruments will be redeemed at their first call date. The two big banks will also

Summary

Figure 1 Figure 2 GDP growth (December 2007 to December 2015) Average 2015 and expected 2016 EBITDA margins

Source: Datastream, Credit Suisse Source: Company data, Credit Suisse

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2007 2008 2009 2010 2011 2012 2013 2014 2015

World Emerging markets USAEurozone Switzerland China

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riant

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Average EBITDA margin FY 2016E

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have to issue significant amounts of senior unsecured bonds (out of the holding company) in the coming years. However, this is mitigated by a phase-in period until year-end 2019, broad market access and large amounts of maturing non-eligible senior debt. Building Materials industry The building and construction sector remains driven by the overall level of economic activity. The recent UK vote to leave the European Union raises uncertainty. A recession in UK construction markets is a distinct possibility in our view. The possible increase in political tension across Europe may also undermine business and consumer confi-dence in the region and temper construction activity. Given the im-portance of access to financing in the sector, any possible dislocation in the European banking sector would also act to restrain construction activity, although we would expect the European Central Bank to react promptly to any indications that the banking sector was failing in its intermediary function. Away from Europe, we expect the US con-struction markets to continue to remain robust in the coming 12 months. The residential sector is still a long way off from returning to the levels of new housing construction activity that existed prior to the Lehman financial crisis. US demographic trends remain supportive. In addition, the improving fiscal balance of many states and municipali-ties should result in an increase in infrastructure spending. In emerg-ing markets, the prospects look less promising in the near term. Some regions are showing tentative signs of expansion in construction markets (for example Mexico and India). Continued weakness in Latin America (Brazil) as well as parts of Eastern Europe and Asia suggests that those companies with a relatively higher exposure to developed markets may benefit from better visibility and face fewer headwinds than firms primarily operating in emerging markets. Capital Goods industry During 2015, the Swiss capital goods sector suffered from a slow growth environment, with significant top-line pressures in energy and commodity-related end-markets. Margins were weaker on the back of fiercer competition in the market, but also due to lower capacity utilization. The typically high operating leverage disproportionately affected the bottom line, which was only partially mitigated by a re-duced interest burden. Despite some difficulties, the Swiss capital goods sector has held up relatively well globally due to its focus on quality and niche products, and increasingly on less-cyclical services. Free cash flows have been largely stable to marginally positive due to reduced capex and better working capital management. However, these cash sources continued to flow predominantly to shareholders. Credit metrics remained mostly stable, with the exception of Sulzer, which has announced plans to re-leverage its capital structure. We expect the slow growth environment to persist for longer. Conse-quently, companies will intensify efforts to adjust their cost bases by reducing capacity, improving productivity and shifting production abroad to achieve a better natural hedge. In view of these measures, we expect profitability to recover somewhat, and credit metrics to remain largely stable. In terms of risk, we see the possibility for further debt-financed merger and acquisition (M&A) activity, as well as con-tinued high shareholder remuneration. Chemicals industry Weak global economic growth in recent years has meant that volume growth has also slowed in the chemicals sector. As a consequence, the Germany chemicals industry association has cut its long-term annual industry growth forecast to 2030 from 1.8% to 1.5%. At the subsector level, we would expect consumer-facing pharmaceutical and specialty chemicals to grow slightly faster, while basic chemicals may well stagnate. The generally lackluster demand environment means that the sector is likely to be challenged in terms of organic growth. Combined with low capital costs, this creates a fertile envi-ronment for sector M&A, with the current year shaping up as a very active. The agriculture chemicals segment has been a hotspot of M&A activity. More generally, European companies appear to be focusing

their attention on M&A opportunities in North America, looking to add higher-margin specialty businesses and gaining greater exposure to a region with likely better growth prospects than Europe. From a credit perspective, M&A transactions offer the acquirer an opportunity to potentially improve the business risk profile. For example, the acquirer may add a potentially higher-margin business and/or improve the geographic diversification. Moreover, if the targeted financing strategy makes use of existing financial flexibility or is at least partially equity financed, then M&A activity need not necessarily lead to deterioration in sector credit quality. Nevertheless, event risk is elevated in the chemicals sector and warrants close attention. Food industry The food sector exhibits relatively low earnings volatility and price inelasticity, enabling sound cash flow generation through the cycle. Some traditional food categories have reached a mature state and are considered to be commodities, which can negatively impact pricing power and profitability. However, most companies we cover either benefit from sizeable scale, a premium offering, a good positioning in niches or are making efforts to reformulate and innovate their product ranges. Paired with the trend toward convenience, sustainability and natural ingredients, innovation plays an increasingly important role and supports a company's value more effectively than volume-driven growth, in our view. Global food companies have felt the growth slowdown in emerging markets in recent years; but for Swiss produc-ers with limited exposure to those markets the bigger concerns remain the deflationary pressure in Europe, input cost volatility and shopping tourism due to CHF strength. While activist investors and large share buybacks are to date mainly a sector phenomenon outside Switzer-land, M&A activity has increased in recent quarters. Transactions are often largely funded through internal cash flows, thus credit metrics remain mostly above required thresholds for the current ratings. We therefore have a Stable sector outlook. Owing to the low yield envi-ronment and robust credit quality of most issuers, credit spreads are at tight levels. Healthcare industry Healthcare remains a growth sector underpinned by global de-mographics and improved access to healthcare and innovation. Scien-tific progress and the drive to address unmet medical needs are boosting innovation (e.g. in oncology, immunology and cardiology). Manageable patent losses, a good approval flow for new medications, and healthy margins despite price pressure underpin our Stable sector outlook. This incorporates political price pressure (US rebates are rising faster than sales) and growing cost-benefit scrutiny. While this puts some onus on the companies, innovative participants will be able to show a good cost-benefit ratio. Innovative and efficacious products will continue to command a premium, in our view. Pipelines remain generally well-stocked through own R&D (increasingly via partner-ships) and M&A, a probate means to boost pipelines and compensate for generics losses. Companies under coverage have mostly solid financial flexibility as dividends, share buybacks and bolt-on acquisi-tions are covered by internal cash flows. The sector remains the most active in M&A (pipeline, growth, consolidation), often debt-funded as high valuations and shareholder payments take their toll on internally generated cash. Issuers thus typically tap the market regularly across currencies. The solid credit quality is reflected in credit spreads and often limited yield, exacerbated by the low interest-rate environment.

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Insurance industry Property & Casualty (P&C) insurers have benefited from reserve releases in the last few years and low natural catastrophe losses. Moreover, the Swiss P&C market is characterized by a high concen-tration of players and highly efficient operations, leading to combined ratios in the low 90% area. However, the oligopolistic market struc-ture also results in only limited premium growth and investment in-come is not helpful either. Life insurers are challenged even more by low yields. As a consequence, additional reserve strengthening is likely and the shift into modern-traditional products, e.g. unit-linked, with less risk but lower margins, will continue in the next few years. Investment returns are also less secure despite rising duration and a growing share of corporate bond investments, but the credit quality of investments remains good overall. Most Swiss insurers offer both P&C and life insurance services in Switzerland and abroad. We there-fore expect Helvetia, Zurich and Baloise to deliver resilient results for FY 2016, with ratings remaining unchanged. Swiss Life, as a pure life insurer, is even more exposed to the low-yield environment, but non-traditional life products and fee-generating asset management ser-vices are gaining importance, leading to a Stable rating outlook. P&C Reinsurance prices suffer from an oversupply of alternative capital, but Swiss Re’s ratings are well supported by its broad product and geo-graphic diversification as well as strong solvency. Public Sector industry The public sector in Switzerland has remained in very solid shape in European or global comparison. Many Swiss cantons remain net cash and have presented positive balance sheets and a relatively stable trend in indebtedness. Self-financing ratios remained very sound, with two thirds of the cantons reporting a ratio above 100%, indicating that they were able to fully self-finance their net investments, which is a strong performance in our view. Nevertheless, indebtedness contin-ues to rise in many cantons, driven by refinancing of underfunded pension funds. We believe that some cantons also acted opportunisti-cally given that refinancing costs are at negative levels across many maturities in the current record-low interest rate environment. Contin-gent liabilities remain a challenge, with underfunded pension funds most likely to rise further given the negative yields putting additional pressure on pension obligations. Cantonal banks are still in solid shape and have not burdened cantons, but remain a key risk in partic-ular with regard to Swiss real estate exposure, in our view. For the current year, we expect the solid trend to continue. We highlight that cantonal budgets are guiding for weaker results, but in the past we have seen finance ministers of Swiss cantons tending to overestimate net investments and to adjust their net investments downward through the course of the year. We have mainly Stable outlooks on the Swiss cantons and expect a continued sideways trend in credit quality.

Real Estate industry The Swiss real estate sector has seen another stable year, with slightly rising rental income and continued gains from condominium sales. However, the clouds on the horizon are darkening: the market for office space has continued to suffer from oversupply, and the retail segment is affected by weakening consumer sentiment and shopping tourism. Residential properties, on the other hand, remain a source of stability. Due to the prime quality of most of the rated real estate companies' portfolios, vacancy rates have remained remarkably stable on low levels. The companies are also investing more in building modernization, reno-vation or even replacement of existing buildings to maintain the attrac-tiveness of their portfolios. At the same time, property prices continue to be pushed up by large inflows of capital from pension funds and other institutional investors in their "search for yield." The companies have therefore reduced the number of acquisitions of existing properties in favor of developing new sites, thereby attempting to generate some surplus yield. In view of these developments, we continue to question whether the current high pay-out ratios are sustainable, as they clearly surpass the recurring operating cash flow generation. For the coming months, however, we remain confident that the current environment of high property prices will persist, and the softening office and retail markets will only have a minor impact on vacancies. Retail industry 2015 was very difficult for the Swiss retail sector. Abandoning the EUR/CHF floor led to a stronger Swiss franc, giving further impetus to cross-border shopping – which had stabilized at an elevated level for a number of years. In 2015, about CHF 11 bn (or every tenth franc paid in retail) was spent abroad, mainly in Germany and through online shopping. Domestic online retailing continued to grow strongly as well. While it remains low in the sector (5.1% in 2014), it is high in specific product categories. Coop indicated that 30% of electronics revenues are generated online, while online revenue in food retail remains negligi-ble. Migros' online revenues grew by 47% to CHF 1.6 bn, equating to about 6% of group revenues. Online retail was boosted by numerous e-commerce activities such as the launch of new online shops by several leading retailers (e.g. siroop by Coop/Swisscom), pick-up stations (Migros), etc. For 2016, we expect high cross-border shopping volumes and lackluster consumer sentiment to persist. However, we think that the downtrend in prices and nominal revenues seen in 2015 versus 2014 will flatten, spurred by slightly higher disposable income and only marginally lower net immigration. Coop and Migros are well positioned to weather this environment as they adjust to changes in the market and consumer preferences, maintain a high-quality offering (including a high share of sustainable and regional products), are diversified across sub-sectors and strive for high process efficiency. This requires ongoing investments but funding needs remain limited.

Figure 3 Figure 4 Cash flow generation trend Swiss corporates (legend see glossary page 196) Rating distribution

Source: Company data, Credit Suisse Source: Credit Suisse

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Financials Public Utilities Corporates

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Utilities industry European utilities remain under serious pressure given record-low wholesale electricity prices. Earlier this year, electricity prices dropped to new all-time lows following a decrease in commodity prices. While European GDP growth was subdued, efficiency gains resulted in a decrease in consumption, which weighs on electricity demand. In addition, the expansion of renewable generation capacity continues at a fast pace, particularly in Spain, Italy and Germany, which adds ever more capacity to the market. In contrast, the exit from nuclear power production across Europe continues very slowly, and coal-fired plants are currently enjoying a revival rather than a reduction. As such, forward prices for base load electricity do not indicate any recovery over the next three years. At current prices, all but the subsidized renewable production is loss-making, which carries substantial chal-lenges for European producers. The focus of many companies is to move away from the dependence on wholesale electricity prices toward less capital-intensive electricity service businesses and/or regulated and quasi-regulated businesses. Swiss utilities are under severe pressure with regard to their credit quality and we will closely monitor their current credit quality trend. Given the earnings cliff resulting from expiring hedged energy contracts, Swiss utilities will continue to work on deleveraging their balance sheet to maintain adequate credit metrics and safeguard their credit quality over the medium term. Financial flexibility is very limited under the current rating categories. Deterioration in credit quality driven by utilities This year's edition includes 108 issuers as we removed only AFG from our coverage universe after the company repaid its last bond earlier this year. Credit ratings in our coverage have deteriorated slightly, which is in line with our expectations. This was mainly due to the persisting challenging situation for electric utilities. Since we released our last handbook in August 2015, there have been nine rating downgrades and only one upgrade.

Within corporates, the utility sector again accounted for the lion's share of rating downgrades. Axpo was downgraded in December 2015 and Repower in April 2016 following weak FY 2015 results. While the rating outlook for Axpo remained Negative after the down-grade (which implies potential further negative rating changes), Re-power convinced investors with a capital increase bringing in two new anchor shareholders and restoring the company's financial metrics to levels that would be in line with an investment grade rating. A suc-cessful execution of Repower's strategy, disposal of various assets and businesses without weakening the current balance sheet metrics, and a stabilization of its operating result would trigger an upgrade to investment grade. With the downgrade of Axpo's and Repower's rating we have also revised the credit rating of five partner plants in line with our rating methodology for partner plants, namely KBG, KKW

Gösgen-Däniken, Kraftwerke Hinterrhein, Kraftwerke Linth-Limmern, and Kraftwerke Sarganserland.

Sulzer's rating has been downgraded following the announcement of a fully debt-financed acquisition. Moreover, the company an-nounced a special dividend with its full-year results in March. We also highlight that Sulzer has a quite large exposure to the oil & gas sector which suffered from weaker commodity prices. Aryzta has been downgraded to sub-investment grade due to its continued acquisition-driven growth and substantially weakened credit metrics. The outlook remains Negative as a result of the persistently high shareholder focus combined with integration risk and operating challenges in the current environment. We changed the outlook for Clariant from Stable to Negative following the publication of the FY 2015 results. The revision is due to the continuing weak cash flow performance and a resulting lack of progress in strengthening credit metrics, which we had been expecting. We also changed the outlook from Stable to Negative for Flughafen Zurich, as it aims to re-leverage its balance sheet (to 3x net debt/EBITDA versus currently 1.1x) including high shareholder payments and potentially numerous mergers and acquisi-tions. In contrast, we moved the outlook for Valora from Negative to Stable as the company's new strategy promises positive results as reflected in slightly improving credit metrics with the FY 2015 and H1 2016 results. The rating outlook for Geberit has been revised from Stable to Positive due to its solid business profile and continued progress in deleveraging its balance sheet.

In the public sector, the overall rating trend remains Stable, reflect-ing the high quality of the Swiss public sector. The rating of the Can-ton of Glarus has been upgraded as the canton presented another solid set of FY 2015 results, including a net cash position. We have also changed the rating outlook for the Canton of Uri from Stable to Positive. While the rating is somewhat constrained by the canton's locational quality, Uri again presented strong financial results last year. For three consecutive years, the canton has achieved a self-financing ratio of clearly above 100%. The rating of the Canton of Basel-Landschaft has been downgraded by one notch following another challenging financial year. Although the canton was able to limit ex-cess expenditures to some extent, self-financing ratios remained weak and the balance sheet continued to show a deficit after the recapitalization of the pension fund in 2014. The rating of the Canton of Solothurn remains High AA, but we moved the outlook from Stable to Negative. Following many years of negative self-financing ratios, the balance sheet weakened further following the recapitalization of the cantonal pension fund last year.

Daniel Rupli

Figure 5 Figure 6 Credit Suisse ratings trend Credit Suisse credit rating outlooks (108 issuers)

Source: Credit Suisse Source: Credit Suisse

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Upgrade Downgrade Stable Negative Positive

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Rating overview

Table 1: Companies

Company CS rating CS outlook Changes since August 2015 S&P Moody’s

ABB Low A Stable A, Stable A2, Stable Adecco Mid BBB Stable BBB+, Stable Baa1, Stable Aduno Holding Mid A Stable n.r. n.r. Arbonia Forster Group n.r. n.r. Dropped coverage, last rating: High BB, Stable n.r. n.r. Allreal Mid BBB Stable n.r. n.r. Alpiq Mid BBB Negative n.r. n.r. Aryzta High BB Negative From Low BBB Stable to High BB Negative n.r. n.r. Axpo Mid A Negative From High A Negative to Mid A Negative n.r. n.r. Bâloise Insurance Low A** Stable A, Stable* n.r. Bell Mid BBB Stable n.r. n.r. BKW Mid A Stable n.r. n.r. Bobst Group High BB Stable n.r. n.r. Bucher Industries High BBB Stable n.r. n.r. Cembra Money Bank Mid A Stable A-, Stable n.r. CFT High BB Stable n.r. n.r. Clariant Low BBB Negative Outlook changed from Stable to Negative BBB-, Negative Ba1, Negative Coop Low A Stable n.r. n.r. Emmi Low A Stable n.r. n.r. Flughafen Zürich Mid A Negative Outlook changed from Stable to Negative A+, Stable n.r. Galenica Restricted n.r. n.r. Geberit High BBB Positive Outlook changed from Stable to Positive A+, Stable n.r. Georg Fischer Mid BBB Stable n.r. n.r. Givaudan Low A Stable n.r. n.r. Glencore Mid BBB Stable BBB-, Stable Baa3, Stable Helvetia Low A*** Stable A, Stable* n.r. HIAG Immobilien Low BBB Stable n.r. n.r. Hilti High A Stable n.r. n.r. Hirslanden Mid BB Stable n.r. n.r. Implenia Mid BBB Stable n.r. n.r. LafargeHolcim Mid BBB Stable BBB, Stable Baa2, Negative Lindt & Sprüngli High A Stable n.r. n.r. Lonza Low BBB Stable n.r. n.r. Meyer Burger Low B Negative n.r. n.r. Migros High A Stable n.r. n.r. Mobimo Mid BBB Stable n.r. n.r. Nestlé Restricted AA, Stable Aa2, Stable Novartis Mid AA Stable AA-, Stable Aa3, Stable Oerlikon Low BBB Stable n.r. n.r. PSP Swiss Property Low A Stable n.r. n.r. Raiffeisen Low AA Stable n.r. Aa2, Stable Regionalspital Emmen- Mid A Stable n.r. n.r. Repower High BB Stable From Mid BBB U.R. for pot. Downgr. To High BB Stable n.r. n.r. Rieter Mid BB Stable n.r. n.r. Roche Low AA Positive AA, Stable A1, Stable Schindler High A Stable n.r. n.r. SGS Mid A Stable n.r. A3, Stable SIG High BBB Stable n.r. n.r. Sika Low A Negative A-, Negative n.r. Sulzer Mid BBB Negative From High BBB Stable to Mid BBB Negative n.r. n.r. Swisscom Mid A Stable A, Stable A2, Stable Swissgrid Low AA Stable n.r. n.r. Swiss Life Low A**** Stable A, Stable* n.r. Swiss Prime Site High BBB Stable n.r. n.r. Swiss Re Low AA Stable AA-, Stable* Aa3, Stable* Syngenta Restricted A+, Watch Negative A2, Watch Negative TPG Low AA Stable n.r. n.r. UBS Mid A Stable A+, Stable A1, Stable Valiant Bank High A Stable n.r. A1, Stable Valora Low BBB Stable Outlook changed from Negative to Stable n.r. n.r. Zurich Insurance High A***** Stable AA-, Stable* Aa3, Stable*

n.r. = not rated

* Insurance Financial Strength (IFS) rating. This does not necessarily reflect a bond rating.

** Senior bond rating for Baloise Insurance. We rate the bonds issued at Baloise Holding High BBB (note: the bonds are not rated by S&P).

*** Senior bond rating for Helvetia Insurance. We rate the bonds issued at Helvetia Holding High BBB (note: the bonds are rated A- by S&P).

**** Senior bond rating for Swiss Life. The bonds issued at Swiss Life Holding are rated High BBB (note: the bonds are rated BBB+ by S&P).

***** Senior bond rating for Zurich Insurance (note: bonds issued at Zurich Insurance are rated A+ by S&P and A1 by Moody's, which differs from IFS rating).

Source: S&P, Moody’s, Credit Suisse

8



Table 2: Cantons and cities

Canton/City CS rating CS outlook Changes since August 2015 S&P Moody’s

Aargau High AA Stable AAA, Negative n.r. Appenzell A.-Rh. High AA Stable n.r. n.r. Appenzell I.-Rh. High AA Stable n.r. n.r. Basel-Land Mid AA Stable From High AA Negative to Mid AA Stable AA+, Stable n.r. Basel-Stadt High AA Stable AA+, Stable n.r. Bern Mid AA Stable n.r. n.r. Fribourg High AA Stable n.r. n.r. Geneva Low AA Stable AA-, Stable n.r. Glarus High AA Stable From Mid AA Positive to High AA Stable n.r. n.r. Graubünden High AA Stable AA+, Stable n.r. Jura High A Stable n.r. n.r. Lucerne High AA Stable AA+, Stable n.r. Neuchâtel High A Stable n.r. n.r. Nidwalden AAA Stable n.r. n.r. Obwalden High AA Stable n.r. n.r. Schaffhausen High AA Stable n.r. n.r. Schwyz AAA Stable AAA, Negative n.r. Solothurn High AA Negative Outlook change from Stable to Negative AA+, Stable n.r. St. Gallen High AA Stable AA+, Stable n.r. Thurgau High AA Stable n.r. n.r. Ticino High A Stable n.r. Aa2, Stable Uri Mid AA Positive Outlook change from Stable to Positive n.r. n.r. Valais Mid AA Stable n.r. n.r. Vaud AAA Stable AAA, Stable n.r. Zug AAA Stable n.r. n.r. Zurich AAA Stable AAA, Stable n.r. City of Bern Mid AA Stable n.r. Aa2, Stable City of Geneva Low AA Stable AA-, Stable n.r. City of Lausanne High A Stable A+, Stable n.r. City of Lugano Mid A Negative n.r. n.r. City of Winterthur Mid AA Stable n.r. n.r. City of Zurich High AA Stable n.r. n.r.

n.r. = not rated


Table 3: Selected Swiss partner plants

Partner plants CS rating CS outlook Changes since August 2015 S&P Moody’s

AG für Kernenergiebeteiligungen (AKEB) Low A Stable n.r. n.r. Blenio Kraftwerke AG Mid A Negative n.r. n.r. Electricité d'Emosson SA High BBB Negative n.r. n.r. Energiefinanzierungs AG (ENAG) High BBB Stable n.r. n.r. Engadiner Kraftwerke AG (EKW) Low A Negative n.r. n.r. Grande Dixence SA High BBB Negative n.r. n.r. Kernkraft-Beteiligungsgesellschaft AG (KBG) High BBB Negative From Low A Negative to High BBB Negative n.r. n.r. KKW Gösgen-Däniken AG (KKG) High BBB Negative From Low A Negative to High BBB Negative n.r. n.r. KKW Leibstadt AG (KKL) High BBB Stable n.r. n.r. Kraftwerk Amsteg AG Mid AA Stable n.r. n.r. Kraftwerke Hinterrhein AG (KHR) High BBB Stable From Low A Negative to High BBB Stable n.r. n.r. Kraftwerk Linth-Limmern AG Mid A Negative From High A Negative to Mid A Negative n.r. n.r. Kraftwerk Mauvoisin AG Low A Stable n.r. n.r. Kraftwerke Oberhasli AG (KWO) High A Stable n.r. n.r. Kraftwerke Sarganserland AG (KSL) Mid A Negative From High A Negative to Mid A Negative n.r. n.r. Maggia Kraftwerke AG Mid A Negative n.r. n.r. Nant de Drance Low A Negative n.r. n.r.

n.r. = not rated


9



Deutsche BankCredit Suisse

Barclays

Santander

BNP

UBS

Valiant

Raffeisen

ZKB

35%

50%

65%

80%

95%

110%8% 10% 12% 14% 16% 18%

Cos

t/in

com

e ra

tio

CET1 ratio (Basel 3, fully-loaded)

Peer Comparison – Banking

Raiffeisen Valiant ZKB UBS Credit Suisse Barclays BNP Paribas Deutsche Bk. Santander

Credit Suisse Low AA, Sta High A, Sta n.r. Mid A, Sta n.r. n.r. n.r. n.r. n.r.

Moody's Aa2, Sta A1, Sta Aaa, Sta A1, Sta A2, Sta Baa3, Neg A1, Sta Baa2, Sta A3, Sta

S&P n.r. n.r. AAA, Neg A+, Sta A, Sta BBB, Neg A, Sta BBB+, Neg A-, Sta

FY ended 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015

Currency CHF m CHF m CHF m CHF m CHF m GBP m EUR m EUR m EUR m

P&L

Net interest income 2,188 288 1,162 6,732 9,299 13,084 22,553 15,882 32,812

Net fee & commission income 463 64 854 17,140 12,044 9,655 13,335 16,412 13,042

Net trading income 209 13 366 5'742 1,042 4,235 7,539 4,045 1,928

Total revenues 3,027 368 2,402 30,721 25,697 27,217 48,658 37,008 50,849

Operating profit 958 122 663 5,606 2,664 2,663 9,787 -6,261 9,587

Loan loss provisions (LLP) 29 10 61 117 324 2,114 3,797 956 10,194

Net income 808 114 722 6,204 -2,958 -49 6,694 -6,794 5,966

Balance sheet

Total assets 205,748 25,445 154,410 942,819 820,805 1,120,012 1,994,193 1,629,130 1,340,260

Risk-weighted assets 87,459 12,681 62,942 212,302 294,950 380,138 633,526 397,011 585,609

Gross customer loans 166,479 22,085 81,296 312,681 273,861 404,138 735,023 432,778 817,366

Non-performing loans 505 50 609 1,630 1,973 7,817 41,251 8,151 37,094

Senior debt 21,792 5,095 14,074 141,589 106,185 44,458 70,705 94,571 80,131

Subordinated debt 528 150 1,310 12,600 10,189 17,086 16,563 7,144 15,118

Shareholders' equity 13,318 2,052 10,429 55,313 45,001 65,864 100,077 67,624 98,753

Market capitalization n.a. 1,864 n.a. 75,147 42,327 36,786 65,059 31,260 65,792

Profitability ratios

Cost/income ratio 68.3% 66.8% 67.6% 81.8% 91.7% 80.2% 69.2% 95.9% 47.3%

Return on average equity 6.4% 5.7% 7.3% 11.7% -6.7% -0.7% 7.5% -10.7% 7.1%

Capital adequacy ratios

CET1 ratio (fully-loaded, Basel 3) 15.9% 15.6% 15.8% 14.5% 11.4% 11.4% 10.9% 11.1% 10.1%

Total capital ratio (ph.-in Basel 3) 16.4% 16.8% 17.9% 26.8% 21.3% 18.6% 13.6% 16.2% 14.4%

Equity/net loans 8.0% 9.3% 13.0% 17.7% 16.5% 17.7% 13.6% 15.9% 12.2%

Asset quality & liquidity ratios

LLP/NII 1.3% 3.4% 5.2% 1.7% 3.5% 16.2% 16.8% 6.0% 31.1%

Coverage ratio 47.1% 151.9% 50.7% 44.6% 38.4% 63.0% 63.5% 61.7% 71.5%

Non-performing loan ratio 0.3% 0.2% 0.7% 0.5% 0.7% 1.9% 5.6% 1.9% 4.5%

Deposits/average loans 91.4% 80.0% 99.4% 125.1% 125.1% 103.5% 94.6% 131.1% 79.0%

Source: Company data, Moody's, Bloomberg, Credit Suisse n.r. = not rated

Figure 1

Key ratio comparison

Source: Company data, Moody's, Credit Suisse Bubble size corresponds to CHF total assets

10

Credit Handbook


Cemex

LafargeHolcim

CRH

Hilti

Geberit

St. Gobain

HeidelbergCement

Implenia

5%

10%

15%

20%

25%

30%

0% 20% 40% 60% 80% 100%

Adj

uste

d EB

ITD

A m

argi

n

Adjusted FFO/net debt

> or net cash

Peer Comparison – Building Materials

Implenia Hilti Geberit LafargeHolcim HeidelbergC. Cemex St. Gobain CRH

Credit Suisse Mid BBB, Sta High A, Sta High BBB, Pos Mid BBB, Sta n.r. n.r. n.r. n.r.

Moody's n.r. n.r. n.r. Baa2, Neg Ba1, Pos n.r. Baa2, Sta Baa2, Sta

S&P n.r. n.r. A+, Sta BBB, Sta n.r. B+, Pos BBB, Sta BBB+, Neg

FY ended 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015

Currency CHF m CHF m CHF m CHF m EUR m MXN m EUR m EUR m

P&L

Sales 3,288 4,384 2,593 23,584 13,465 225,742 39,623 23,635

Adjusted EBITDA 246 803 645 4,031 2,613 44,135 4,103 2,735

Adjusted EBITDA margin 7.5% 18.3% 24.9% 17.1% 20.6% 19.6% 10.4% 11.6%

Adjusted interest expense 31 54 13 845 469 20,803 710 453

Net profit 48 410 422 −1,469 486 234 374 724

Cash flow

Adjusted FFO 185 710 569 2,847 1,471 29,669 2,991 1,949

Adjusted CFO 213 710 609 2,615 1,494 2,623 2,921 2,587

Adjusted CAPEX −119 −319 −161 −2,774 −908 −8,872 −1,475 −882

Adjusted FCF 94 391 448 −159 586 −6,249 1,446 1,705

Adjusted pre-financing cash flow 2 −40 −1,246 5,257 3,602 28,696 2,188 −6,025

Balance sheet

Adjusted cash and near-cash 779 915 382 3,921 169 15,280 5,380 2,518

Adjusted total asset base 3,230 4,985 3,665 74,661 29,189 548,170 47,417 33,629

Adjusted gross debt 1,063 1,542 1,516 25,071 8,253 310,844 16,090 11,739

Adjusted net debt 284 628 1,134 21,150 8,084 295,564 10,710 9,221

Adjusted equity 624 2,299 1,452 35,534 15,976 152,061 19,324 13,544

Market capitalization 944 n.a. 12,859 30,500 14,210 126,820 19,795 21,998

Interest and debt coverage

Adjusted EBITDA/int. expense 7.9x 14.9x 49.6x 4.8x 5.6x 2.1x 5.8x 6.0x

Adjusted EBIT/interest expense 3.2x 10.6x 38.3x 2.5x 3.9x 1.3x 2.0x 3.4x

Adjusted FFO/net debt 65.1% 113.1% 50.2% 13.5% 23.3% 10.0% 27.9% 21.1%

Adjusted FCF/net debt 33.1% 62.3% 39.5% -0.8% 7.2% −2.1% 13.5% 18.5%

Adjusted net debt/EBITDA 1.2x 0.8x 1.8x 5.2x 3.1x 6.7x 2.6x 3.4x

Capital structure

Adjusted cash/gross debt 73.3% 59.3% 25.2% 15.6% 2.0% 4.9% 33.4% 21.4%

Adjusted net leverage 31.3% 21.4% 43.9% 37.3% 33.6% 66.0% 35.7% 40.5%

Adjusted net gearing 45.5% 27.3% 78.1% 59.5% 50.6% 194.4% 55.4% 68.1%

Source: Company data, S&P, Bloomberg, Credit Suisse n.r. = not rated

Figure 1


Source: Company data, S&P, Credit Suisse Bubble size corresponds to CHF sales

11



Sulzer

Rieter

ABB

Bobst

Bucher Ind.Schindler

Georg Fischer

Oerlikon

0%

5%

10%

15%

20%

0% 25% 50% 75% 100% 125% 150%

Adj

uste

d EB

ITD

A m

argi

n


> or net cash

Peer Comparison – Capital Goods

ABB Bobst Bucher Ind. Georg Fischer Meyer Burger Rieter Sulzer Oerlikon Schindler

Credit Suisse Low A, Sta High BB, Sta High BBB, Sta Mid BBB, Sta Low B, Neg Mid BB, Sta Mid BBB, Neg Low BBB, Sta High A Stable

Moody's A2, Stable n.r. n.r. n.r. n.r. n.r. n.r. n.r. n.r.

S&P A, Stable n.r. n.r. n.r. n.r. n.r. n.r. n.r. n.r.

FY ended 31/12/2015 31/12.2015 31/12.2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/03/2015

Currency USD m CHF m CHF m CHF m CHF m CHF m CHF m CHF m CHF m

P&L

Sales 35,481 1,331 2,490 3,640 324 1,037 2,971 2,671 9,391

Adjusted EBITDA 4,725 108 306 465 -50 119 321 367 1,307

Adjusted EBITDA margin 13.3% 8.1% 12.3% 12.8% -15.4% 11.4% 10.8% 13.7% 13.9%

Adjusted interest expense 340 13 17 45 16 8 35 30 61

Net profit 1,933 59 138 188 -168 50 74 -421 689

Cash flow

Adjusted FFO 3,982 87 249 359 -64 91 295 375 1,079

Adjusted CFO 4,278 101 245 362 -47 91 245 271 1,184

Adjusted CAPEX -1,254 -28 -83 -203 -20 -34 -96 -179 -291

Adjusted FCF 3,025 73 162 159 -67 57 149 92 893

Adjusted pre-financing cash flow -23 54 86 109 -68 50 -42 28 -287

Balance sheet

Adjusted cash and near-cash 4,247 226 250 450 82 282 1,039 687 2,391

Adjusted total asset base 44,338 1,490 2,416 3,341 611 1,020 4,431 4,223 9,171

Adjusted gross debt 12,105 492 528 1,214 300 146 983 1,542 2,359

Adjusted net debt 7,859 266 278 764 218 -136 -56 855 -32

Adjusted equity 15,406 414 1,154 1,111 175 444 2,234 1,463 2,375

Market capitalization 39,800 693 2,320 2,579 536 848 3,605 3,041 18,900


Adjusted EBITDA/int. expense 13.9x 8.3x 18.4x 10.3x -3.1x 14.5x 9.2x 12.1x 21.4x

Adjusted EBIT/interest expense 9.4x 5.2x 12.6x 6.9x -7.9x 9.0x 4.9x -9.5x 17.4x

Adjusted FFO/net debt 50.7% 32.7% 89.4% 47.0% -29.3% Net Cash Net Cash 43.8% Net Cash

Adjusted FCF/net debt 38.5% 27.4% 58.3% 20.8% -30.9% Net Cash Net Cash 10.8% Net Cash

Adjusted net debt/EBITDA 1.7x 2.5x 0.9x 1.6x -4.4x Net Cash Net Cash 2.3x Net Cash

Capital structure

Adjusted cash/gross debt 35.1% 45.9% 47.4% 37.1% 27.3% 193.1% 105.7% 44.5% 101.4%

Adjusted net leverage 33.8% 39.1% 19.4% 40.7% 55.5% Net Cash Net Cash 36.9% Net Cash

Adjusted net gearing 51.0% 64.3% 24.1% 68.8% 124.6% Net Cash Net Cash 58.5% Net Cash


Figure 1


Source: Company data, Moody's, Credit Suisse Bubble size corresponds to CHF sales

12

Credit Handbook


GivaudanLonza

Sika

Syngenta

BASF

Linde

Clariant

Monsanto

0%

10%

20%

30%

40%

0% 25% 50% 75% 100% 125%

Adj

uste

d EB

ITD

A m

argi

n


Peer Comparison – Chemicals

Clariant Givaudan Lonza Sika Syngenta BASF Linde IFF Monsanto

Credit Suisse Low BBB, Neg Low A, Sta Low BBB, Sta Low A, Neg Restricted n.r. n.r. n.r. Restricted

Moody's Ba1, Neg n.r. n.r. n.r. A2, W Neg A1, Sta A2, Sta Baa1, Sta A3, Neg

S&P BBB-, Neg n.r. n.r. A-, W Neg A+, W Neg A, Sta A+, Sta BBB+, Sta BBB+, Neg

FY ended 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/08/2015

Currency CHF m CHF m CHF m CHF m USD m EUR m EUR m USD m USD m

P&L

Sales 5,807 4,396 3,803 5,489 13,411 70,449 17,944 3,023 15,001

Adjusted EBITDA 792 1,043 771 898 2,895 10,709 4,105 751 4,489

Adjusted EBITDA margin 13.6% 23.7% 20.3% 16.4% 21.6% 15.2% 22.9% 24.8% 29.9%


Net profit 217 636 277 460 1,334 3,987 1,149 419 2,286

Cash flow

Adjusted FFO 554 1,026 670 662 1,852 8,234 3,188 562 3,019

Adjusted CFO 479 946 759 633 1,241 9,743 3,327 483 3,126

Adjusted CAPEX −456 −188 −268 −190 −576 −5,663 −1,842 −101 −989

Adjusted FCF 23 758 491 443 665 4,080 1,485 382 2,137

Adjusted pre-financing cash flow −71 154 324 202 −384 1,776 772 −388 522

Balance sheet

Adjusted cash and near-cash 825 346 163 910 873 2,262 1,838 182 3,638

Adjusted total asset base 7,899 6,492 6,344 5,220 19,241 72,095 35,796 3,903 22,500

Adjusted gross debt 3,327 1,903 2,728 1,497 4,658 22,260 10,761 1,478 11,957

Adjusted net debt 2,502 1,557 2,565 587 3,785 19,998 8,923 1,296 8,319

Adjusted equity 2,494 2,974 1,649 2,394 8,483 31,545 15,974 1,595 7,105

Market capitalization 6,310 16,772 8,631 9,195 36,283 64,955 24,857 9,574 45,691


Adjusted EBITDA/int. expense 5.7x 19.0x 11.5x 21.4x 16.1x 11.1x 8.7x 11.5x 9.1x

Adjusted EBIT/interest expense 3.4x 13.5x 6.9x 16.4x 12.5x 6.9x 4.4x 9.2x 7.5x

Adjusted FFO/net debt 22.2% 65.9% 26.1% 112.8% 48.9% 41.2% 35.7% 43.4% 36.3%

Adjusted FCF/net debt 0.9% 48.7% 19.1% 75.5% 17.6% 20.4% 16.6% 29.5% 25.7%

Adjusted net debt/EBITDA 3.2x 1.5x 3.3x 0.7x 1.3x 1.9x 2.2x 1.7x 1.9x

Capital structure


Adjusted net leverage 50.1% 34.4% 60.9% 19.7% 30.9% 38.8% 35.8% 44.8% 53.9%

Adjusted net gearing 100.3% 52.3% 155.5% 24.5% 44.6% 63.4% 55.9% 81.2% 117.1%


Figure 1



13



Nestlé

Barry Callebaut

Unilever

DanoneMondelez

Kellogg

Aryzta

Bell

0%

5%

10%

15%

20%

25%

0% 20% 40% 60%

Adj

uste

d EB

ITD

A m

argi

n


> or net cash

Peer Comparison – Food

Aryzta Bell Emmi Lindt Nestlé Danone Kellog Mondelez Unilever

Credit Suisse High BB, Neg Mid BBB, Sta Low A, Sta High A, Sta Restricted n.r. n.r. n.r. n.r.

Moody's n.r. n.r. n.r. n.r. Aa2, Sta Baa1, W Neg Baa2, Sta Baa1, Sta A1, Sta

S&P n.r. n.r. n.r. n.r. AA, Sta BBB+, W Ne BBB, Sta BBB, Neg A+, Sta

FY ended 31/07/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015

Currency EUR m CHF m CHF m CHF m CHF m EUR m USD m USD m EUR m

P&L

Sales 3,820 2,781 3,214 3,653 88,785 22,412 13,525 29,636 53,272

Adjusted EBITDA 302 252 327 685 17,848 3,708 2,190 4,856 9,142



Net profit -362 95 120 380 9,066 1,282 614 7,267 4,909

Cash flow

Adjusted FFO 258 232 292 629 14,188 2,689 1,921 3,401 6,731

Adjusted CFO 298 205 282 531 14,828 2,489 1,761 4,101 7,408

Adjusted CAPEX -399 -129 -76 -294 -4,820 -937 -549 -1,507 -2,201

Adjusted FCF -101 76 206 237 10,008 1,552 1,212 2,594 5,207

Adjusted pre-financing cash flow –5 77 127 166 -4,273 912 -575 2,738 364

Balance sheet

Adjusted cash & near cash 240 138 325 331 4,917 3,033 251 1,870 2,018


Adjusted gross debt 3,079 558 623 1,414 30,474 12,714 8,956 18,291 18,284

Adjusted net debt 2,839 420 298 1,083 25,557 9,681 8,705 16,421 16,266

Adjusted equity 2,490 909 1,394 3,490 64,867 12,669 2,138 28,100 16,082




Adjusted EBIT/int. expense -1.4x 11.5x 11.9x 21.5x 20.7x 8.1x 4.6x 4.7x 9.8x


Adjusted FCF/net debt -3.6% 18.1% 69.1% 21.9% 39.2% 16.0% 13.9% 15.8% 32.0%


Capital structure





Figure 1



14



GalenicaBayer

GSK

Merck & Co

AstraZeneca

PfizerRoche

Sanofi

Novartis

10%

20%

30%

40%

50%

0% 30% 60% 90% 120% 150%

Adj

uste

d EB

ITD

A m

argi

n


Peer Comparison – Healthcare

Galenica Novartis Roche AstraZeneca Bayer GSK Merck & Co Pfizer Sanofi

Credit Suisse Restricted Mid AA, Sta Low AA, Pos n.r. n.r. n.r. n.r. n.r. n.r.

Moody's n.r. Aa3, Stable A1, Stable A3, Stable A3, Stable A2, Negative A1, Stable A1, Negative A1, Stable

S&P n.r. AA-, Stable AA, Stable A-, Stable A-, Stable A+, Stable AA, Stable AA, Stable AA, Stable

FY ended 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015

Currency CHF m USD m CHF m USD m EUR m GBP m USD m USD m EUR m

P&L

Sales 3,792 49,414 48,145 24,708 46,324 23,923 39,498 48,851 34,861

Adjusted EBITDA 594 14,762 18,291 6,402 9,958 5,731 13,333 18,470 10,921


Adjusted interest expense 34 735 942 492 1,031 858 736 1,583 532

Net profit 301 17,783 8,863 2,825 4,030 8,422 4,442 6,949 4,411

Cash flow

Adjusted FFO 552 13,024 15,046 5,275 7,441 3,920 11,309 15,007 8,468

Adjusted CFO 566 12,161 14,615 3,655 6,705 2,116 12,363 15,222 8,449

Adjusted CAPEX -209 -3,760 -4,413 -2,788 -2,484 -1,901 -1,283 -1,464 -2,752

Adjusted FCF 357 8,401 10,202 867 4,221 215 11,080 13,758 5,697

Adjusted pre-financing cash flow 201 -9,503 1,153 2,398 3,361 7,750 4,137 -15,287 5,899

Balance sheet

Adjusted cash and near cash 308 3,965 8,208 6,853 1,859 5,905 13,427 23,292 9,148



Adjusted net debt 932 22,350 25,227 12,301 24,240 20,970 9,775 19,099 13,037

Adjusted equity 1,910 79,089 23,698 18,509 27,722 8,878 44,517 64,998 58,210








Capital structure





Figure 1



15



Baloise

Helvetia

Zurich Ins.AXA

Allianz

AvivaGenerali

0%

10%

20%

30%

40%

90%93%96%99%102%105%

Fina

ncia

l lev

erag

e

Combined ratio

Peer Comparison – Insurance

Baloise Helvetia Swiss Life Swiss Re Zurich Ins. Allianz Aviva AXA Generali

Credit Suisse Low A, Sta Low A, Sta Low A, Sta Low AA, Sta High A, Sta n.r. n.r. n.r. n.r.

Moody's n.r. n.r. n.r. Aa3, Sta Aa3, Sta Aa3, Sta A3, Sta A2, Sta Baa1, Sta

S&P A, Sta A, Sta A, Sta AA-, Sta AA-, Sta AA, Sta A-, Sta A-, Pos n.r.

FY ended 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015

Currency CHF m CHF m CHF m USD m USD m EUR m GBP m EUR m EUR m

P&L

Gross written premium 6,832 8,087 13,912 n.a. 50,998 125,190 21,925 98,534 74,165

Net premiums earned 6,684 7,781 13,771 29,751 42,624 70,645 18,924 87,039 68,507

Net investment income 1,522 1,106 4,290 4,250 7,462 25,042 2,825 18,218 13,408

Net capital gains on investments 386 79 248 1,206 6,238 7,937 2,472 2,518 2,434

Net attributable profit 512 332 872 4,665 1,842 6,987 1,079 5,987 2,030

Comprehensive income -85 -89 -343 716 -2,251 5,617 576 6,872 2,214

Balance sheet

Total group investments 62,275 45,053 146,413 137,810 191,238 509,493 307,951 480,272 452,662

Goodwill and other intangibles 200 1,177 1,376 3,862 6,614 12,101 1,955 17,062 6,661

Technical liabilities: Life (linked) 2,623 2,482 29,777 n.a. 123,951 105,873 127,050 152,079 57,793

Technical liabilities: Life (other) 37,196 33,397 124,303 72,236 87,575 486,222 181,173 332,733 313,517

Technical liabilities: Non-Life 5,947 5,770 872 44,835 73,502 68,989 13,506 56,431 33,377

Financial debt 1,708 935 4,077 8,860 10,085 18,797 8,770 13,357 12,955

Shareholders' equity 5,428 4,640 12,177 33,517 31,178 63,144 18,232 40,905 24,708


Key figures – Life

Gross written premium 3,783 4,311 n.a. 10,914 14,446 24,215 11,658 57,376 48,689

Business operating profit 277 199 n.a. 939 1,300 3,796 2,419 4,518 2,965

Embedded value 3,876 3,196 12,509 n.a. 17,637 28,737 15,274 54,200 30,133

New business margin 9.8% 8.3% 19.0% n.a. 19.1% 18.0% 33.8% 34.0% 21.0%

Key figures – Non-Life

Gross written premium 3,049 3,777 n.a. 15,090 34,020 51,597 8,738 31,448 20,868

Business operating profit 396 199 n.a. 2,977 864 5,603 765 3,194 1,987

Combined ratio 93.3% 92.1% n.a. 86.0% 103.5% 94.6% 94.6% 96.2% 93.1%

Other key ratios

Return on average equity 10.0% 7.0% 7.0% 13.4% 5.6% 10.7% 17.4% 14.1% 14.0%

SST / Solvency II n.a. n.a. 146.0% 223.0% 189.0% 200.0% 180.0% 205.0% 175.0%

Leverage 23.9% 16.8% 25.1% 20.9% 24.4% 22.9% 32.5% 24.6% 34.4%


Figure 1


Source: Company data, Moody's, Credit Suisse Bubble size corresponds to CHF total assets

16



Zurich Aargau

Basel-Land Basel-Stadt

Bern

Geneva

Lucerne

Neuchatel

Ticino

Vaud

0%

40%

80%

120%

160%

200%

240%-120% -40% 40% 120% 200% 280%

Deb

t/re

venu

es

Self-financing ratio>

Peer Comparison – Public Sector

CS rating Accounting Excess revenue

Debt per capita

Degree of self-financing

Self-financing ratio

Gross debt/ revenue

Interest/ revenues

Swiss cantons FY 2015 CHF m CHF CHF m

Aargau High AA, Stable HRM2 -28.0 3,505.2 143.8 87.9% 46.8% 0.6%

Appenzell-Ausserhoden High AA, Stable HRM2 11.1 4044.4 14.8 89.2% 49.3% 0.0%

Appenzell-Innerrhoden High AA, Stable HRM2 4.7 3,662.5 13.7 134.9% 38.5% 0.0%

Basel-Land Mid AA, Stable HRM2 -26.0 14,830.1 49.5 33.3% 159.0% 1.8%

Basel-Stadt High AA, Stable HRM2 432.4 33,811.4 613.1 123.1% 147.3% 0.9%

Bern Mid AA, Stable HRM1 169.7 7,278.9 577.0 120.2% 67.4% 1.0%

Fribourg High AA, Stable HRM2 24.0 2,940.6 227.9 179.9% 26.5% 0.1%

Geneva Low AA, Stable IPSAS -20.8 33,603.1 440.9 89.4% 191.4% 2.7%

Glarus High AA, Stable HRM2 2.4 4,238.1 19.1 83.4% 47.9% 0.2%

Graubünden High AA, Stable HRM2 16.7 5,407.3 240.2 147.1% 38.6% 0.0%

Jura High A, Stable HRM2 1.0 6,813.7 55.0 161.6% 53.6% 0.7%

Lucerne High AA, Stable HRM2 23.3 4,994.7 158.5 123.6% 60.6% 0.7%

Neuchatel High A, Stable HRM2 0.1 9,206.9 51.6 109.2% 79.0% 1.4%

Nidwalden AAA, Stable HRM2 0.6 6,285.5 49.9 378.1% 68.8% 0.7%

Obwalden High AA, Stable HRM2 -2.5 2,520.1 37.6 322.8% 29.6% 0.2%

Schaffhausen High AA, Stable HRM1 4.9 4,392.8 22.5 102.2% 52.9% 0.3%

Schwyz AAA, Stable HRM1 10.4 3,109.4 91.5 142.3% 36.1% 0.3%

Solothurn High AA, Negative HRM2 -1,127.6 8,420.3 -1,031.9 -1,047.1% 108.6% 1.6%

St. Gallen High AA, Stable HRM2 154.5 3,235.6 236.7 166.5% 36.4% 0.7%

Thurgau High AA, Stable HRM2 7.8 4,074.8 162.0 307.8% 54.6% 0.3%

Ticino High A, Stable HRM2 -90.5 16,969.0 91.2 44.4% 165.8% 1.0%

Uri Mid AA, Positive HRM2 21.1 3,424.1 37.1 166.3% 29.9% 0.3%

Valais Mid AA, Stable HRM1 95.7 8,115.7 278.5 153.6% 78.8% 0.9%

Vaud AAA, Stable HRM2 359.4 5,568.3 899.2 269.0% 42.8% 0.3%

Zug AAA, Stable HRM2 -87.9 5,169.5 -41.0 -52.7% 45.5% 0.0%

Zurich AAA, Stable HRM2 17.9 6,177.9 681.6 63.0% 60.4% 0.9%

Cities

Bern Mid AA, Stable HRM2 -4.6 11,678.4 47.1 46.8% 142.9% 4.5%

Geneva Low AA, Stable HRM1 39.5 8,281.6 124.2 93.9% 133.4% 2.0%

Lausanne High A, Stable HRM1 4.6 18,426.0 148.8 199.2% 149.5% 3.8%

Lugano Mid A, Negative HRM1 -0.1 15,186.5 36.6 74.8% 214.5% 4.5%

Winterthur Mid AA, Stable HRM1 12.7 16,365.2 112.9 75.9% 138.8% 2.2%

Zurich High AA, Stable HRM1 9.7 20,706.4 686.9 110.2% 111.2% 2.2%

Source: Cantons data, Credit Suisse

Figure 1


Source: Company data, Moody's, Credit Suisse Bubble size corresponds to population size

17



Unibail

Gecina

PSP

SPS

Mobimo

Klepierre

HIAG

Allreal

10%

35%

60%

85%

110%

25%30%35%40%45%50%

Adj

uste

d EB

ITD

A m

argi

n

Adjusted loan-to-value

Peer Comparison – Real Estate

PSP SPS Mobimo Allreal HIAG Klepierre Unibail Gecina

Credit Suisse Low A, Sta High BBB, Sta Mid BBB, Sta Mid BBB, Sta Low BBB, Sta n.r. n.r. n.r.

Moody's n.r. n.r. n.r. n.r. n.r. n.r. n.r. Baa1, Sta

S&P n.r. n.r. n.r. n.r. n.r. A-, Sta A, Sta BBB+, Sta

FY ended 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015

Currency CHF m CHF m CHF m CHF m CHF m EUR m EUR m EUR m

P&L

Revenues 280 876 100 775 54 1'309 1'978 582

Adjusted EBITDA 227 465 73 161 34 957 1'433 475


Revaluation of properties 34 125 35 16 31 883 1,819 1,239

Adjusted interest expense 30 108 30 45 5 260 316 124

Net profit 188 356 104 122 59 -500 2,334 1,366

Cash flow

Adjusted FFO 180 320 30 99 28 682 1,086 348

Adjusted CFO 183 320 28 37 26 580 1,072 225

Adjusted CAPEX -121 -227 -142 -20 -60 -291 -1,246 -433

Adjusted FCF 62 93 -114 17 -34 290 -174 -209

Adjusted pre-financing cash flow -45 584 63 -33 -32 463 604 -281

Balance sheet

Adjusted cash and near cash 24 227 222 16 52 414 343 146

Adjusted net debt 1,963 4,349 1,151 1,784 453 9,106 13,824 4,974

Adjusted equity 3,870 4,956 1,265 1,994 709 11,729 19,245 7,751

Market capitalization 3,936 5,468 1,349 2,186 761 12,767 23,134 7,022

Real estate portfolio

Total value of portfolio 6,724 9,687 2,655 3,813 1,224 22,100 37,755 12,971

Vacancy rate 8.5% 6.7% 4.7% 7.5% 11.1% 3.8% 2.5% 3.6%




Adjusted FCF/net debt 3.2% 2.1% -9.9% 1.0% -7.5% 3.2% -1.3% -4.2%


Capital structure


Adjusted loan-to-value 29.2% 44.9% 43.4% 46.8% 37.0% 41.2% 36.6% 38.3%


Figure 1


Source: Company data, Moody's, Credit Suisse Bubble size corresponds to CHF portfolio value

18



Tesco

Metro

Carrefour

Valora

Coop Migros

Casino

Auchan*

Rewe

0%

3%

6%

9%

12%

15%

0% 10% 20% 30% 40% 50% 60%

Adj

uste

d EB

ITD

A m

argi

n


Peer Comparison – Retail

Coop Migros Valora Tesco Casino Auchan Carrefour Metro Rewe

Credit Suisse Low A, Sta High A, Sta Low BBB, Sta n.r. n.r. n.r. n.r. n.r. n.r.

Moody's n.r. n.r. n.r. Ba1, Stable n.r. n.r. Baa1, Stable Baa3, Dev n.r.

S&P n.r. n.r. n.r. BB+, Stable BB+, Stable BBB+, Stable BBB+, Stable BBB-, Stable BBB-, Sta

FY ended 31/12/2015 31/12/2015 31/12/2015 29/02/2016 31/12/2015 31/12/2014 31/12/2015 30/09/2015 31/12/2015

Currency CHF m CHF m CHF m GBP m EUR m EUR m EUR m EUR m EUR m

P&L

Sales 25,895 26,205 2,077 53,478 46,592 53,010 77,527 59,219 43,699

Adjusted EBITDA 2,432 2,453 258 3,501 2,913 3,256 4,167 3,542 3,395


Adjusted interest expense 180 148 47 1,275 1,080 368 595 767 645

Net profit 416 592 -30 225 -47 574 977 -263 381

Cash flow

Adjusted FFO 2,173 2,327 237 2,389 1,850 2,601 3,269 2,370 2,574

Adjusted CFO 2,048 2,406 233 2,910 3,521 2,694 3,157 2,230 2,123

Adjusted CAPEX -1,850 -1,651 -154 -998 -1,488 -2,034 -2,378 -986 -1,306

Adjusted FCF 2,173 2,327 237 2,389 1,850 2,601 3,269 2,370 2,574

Adjusted pre-financing cash flow 81 624 -72 2,370 -47 760 98 -1,252 1,111

Balance sheet

Adjusted cash and near cash 586 1,673 75 5,991 4,588 401 2,815 4,728 636



Adjusted net debt 6,638 2,862 1,125 15,664 12,082 6,190 9,077 9,847 9,898

Adjusted equity 8,400 14,181 393 6,242 11,323 11,227 9,913 5,172 5,304

Market capitalization n.a. n.a. 694 19,934 4,785 n.a. 19,680 8,049 n.a.







Capital structure





Figure 1


Source: Company data, Moody's, Credit Suisse Bubble size corresponds to CHF sales (*Auchan: FY 2014)

19



Alpiq

Axpo

BKW

Vattenfall

EnBW

Repower

EVN AG

RWE

0%

10%

20%

30%

40%

5% 10% 15% 20% 25% 30% 35%

Adj

uste

d EB

ITD

A m

argi

n


Peer Comparison – Utilities

Alpiq Axpo BKW Repower EnBW EVN RWE Vattenfall

Credit Suisse Mid BBB, Neg Mid A, Neg Mid A, Sta High BB, Sta n.r. n.r. n.r. n.r.

Moody's n.r. n.r. n.r. n.r. A3, Neg A3, Negative Baa3, Sta A3, Sta

S&P n.r. n.r. n.r. n.r. A-, Sta BBB+, Stable BBB-, Neg A-, Sta

FY ended 31/12/2015 30/9/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2015

Currency CHF m CHF m CHF m CHF m EUR m EUR m EUR m SEK m

P&L

Sales 6,715 5,596 2,645 1,838 21,944 2,244 46,357 164,510

Adjusted EBITDA 751 1,435 872 70 2,072 563 6,168 33,390


Adjusted interest expense 305 319 111 23 923 97 1,880 7,229

Net profit −825 −1,010 277 −136 125 148 −1,694 −16,672

Cash flow

Adjusted FFO 629 1,110 631 24 1,674 530 4,009 28,291

Adjusted CFO 887 1,053 836 30 1,883 526 4,156 43,576

Adjusted CAPEX −622 −1,321 −510 −40 −1,395 −239 −2,684 −28,232

Adjusted FCF 266 −268 326 −10 488 287 1,472 15,344

Adjusted pre-financing cash flow 503 −275 150 52 1,079 192 4,049 17,825

Balance sheet

Adjusted cash and near cash 1,217 3,137 1,262 320 3,501 336 9,959 44,256

Adjusted total asset base 10,435 22,788 9,559 1,902 38,508 6,501 80,775 463,961

Adjusted gross debt 7,776 10,146 4,165 765 9,255 2,046 38,076 180,508

Adjusted net debt 6,558 7,009 2,903 444 5,754 1,710 28,117 136,252

Adjusted equity 3,311 5,665 2,383 603 6,090 3,098 9,944 125,229

Market capitalization 2,927 n.a. 1,843 188 5,584 1,752 7,199 n.a.



Adjusted EBIT/interest expense −1.1x −2.4x 3.8x −2.8x 1.6x 3.1x 1.5x -3.0x


Adjusted FCF/net debt 4.0% −3.8% 7.8% −2.2% 8.5% 16.8% 5.2% 11.3%


Capital structure

Adjusted cash/gross debt 15.7% 30.9% 20.2% 41.9% 37.8% 16.4% 26.2% 24.5%


Adjusted net gearing 198.1% 123.7% 141.4% 73.7% 94.5% 55.2% 282.8% 108.8%


Figure 1



20



Notes

21



This rating methodology is used for all non-financial companies (ex-cept public sector entities), banks and insurers. The rating process starts with a detailed due diligence process – using publicly available information on the issuer such as annual reports, presentations, company and sector reports from rating agencies as well as a broad range of historical statistical data. Meetings with management are a vital part of the due diligence of business, market and financial as-pects, including peer comparison. The findings from this due diligence are assigned to four categories each for the business and the financial profile in our credit profile map. The combination of a strong business profile and a strong financial profile qualifies for a high issuer rating such as AA or AAA, while below-average business and financial profiles will result in non-investment-grade ratings. An overview of the rating convention used for our methodology is shown in Table 1.

Business profile To assess the business profile, we examine key criteria associated with a corporate's operations in terms of:

Industry and peer analysis; competitive position; regulation. Market position and market share; Business consistency and development; Management track record and strategy; Diversification – geographic, segment, products, clients; Manufacturing processes; interaction with the environment.

We also apply market models such as Porter’s Five Forces to as-

sess strengths, weaknesses, opportunities and threats to the busi-ness. After assessing these predominantly qualitative and quantitative features, we assess other aspects such as operating profitability, cash flow generation and sustainability, as well as indebtedness and the financial policy. We differentiate individual businesses according to their importance for a given company in terms of overall weight, growth rates, cash generation and future prospects. The key parame-ters derived from our evaluation serve as a basis to assess the level, historical stability and sustainability of profit margins and generated cash flows.

Industry characteristics set the tone The key criteria are considered in the assessment of issuers across almost all industries. Nevertheless, sector characteristics should not be disregarded as these impact the business profile and thus credit quality. In our view, it is meaningful to distinguish between cyclical and non-cyclical industries as well as between regulated and non-regulated industries. Issuer ratings in cyclical industries tend to be capped as earnings volatility and sustainability are an important part in assessing credit quality. Even with a solid financial profile rating, the upside potential is limited. These companies tend to have higher financial flexibility under certain rating categories. Therefore, required thresholds for rating categories can vary between industries.

Market position and share can offer pricing power A strong market position with a high market share usually has a posi-tive impact on an issuer's business profile. With such prerequisites, a company is usually able to increase prices for its products when input costs rise, i.e. it has strong pricing power. Further, a high market share usually indicates rather high entry barriers, while very granular and fragmented markets tend to have relatively low entry barriers. Although high entry barriers are generally positive, this does not guarantee low competition. Companies with strong market positions tend to be relatively large unless they are operating in specialized and/or small niche markets. Such large companies tend to not only benefit from their size in terms of absolute sales, but also in terms of

profitability margins given their strong market position and good pric-ing power.

Geographical diversification balances regional risks While geographical diversification has several benefits, it also takes a certain skill set to operate successfully in several regions given differ-ent legislations, histories and cultures. Nevertheless, wider regional diversification can offset potential economic downturns in single regions or countries. The more regions a company is active in, the larger it tends to be in terms of absolute sales and/or EBITDA, as it needs a critical size to successfully operate in a single region. Given the challenges arising from the aforementioned differences between countries, companies also need to be sufficiently large to operate profitably and accommodate the associated additional costs. Wide geographic diversification thus requires a good footprint and a certain size, in our view.

Segmental diversification is key Diversification across various segments and/or products can shield companies from risks or fluctuations in any one business. It is thus an important consideration in a company's business profile. Diversifica-tion across segments weighs stronger than across products, in our view, as segments with different characteristics can balance volatility and/or economic swings. In case a company has three similar-sized segments with one highly cyclical, one non-cyclical and one anti-cyclical, sales and profitability should remain relatively stable over time, i.e. largely protecting against strong fluctuations in performance. That said, we highlight a potential lack of synergies and lower profita-bility for more broadly diversified companies. Product diversification is key, as potential risks such as technology changes, replacement of existing products, general quality issues or changes in fashion/taste can seriously affect business performance. Companies with a broader diversification tend to have larger absolute size to achieve critical mass in their industry, which tends to benefit their competitive position.

Watch out for customer concentrations Customer concentration is a crucial consideration in the business profile. Large concentrations in the customer portfolio are a concern, even if such customers have a high credit quality, as the loss of these clients (through contract termination or default) can impact profitability substantially through the loss of future sales and profitability because the issuer may be unable to replace their business. Customer diversi-fication will thus be evaluated in detail. In case of meaningful concen-trations, further detail and/or mitigation (such as off-taker contracts) would be needed.

Financial profile Assessing the financial profile involves an understanding of an issuer's cost structure, margins, capital structure, capital intensity, shareholder focus, sensitivity to environmental changes and credit metrics. We chiefly assess the following issues to provide an indication for an investor's main concerns: "Will I get my money back?" and "How much interest do I get?"

Financial policy built on business and shareholder strategy; Business cycle (growth, consolidation or stagnation); Size of sales size, market share and cash flows; Profitability and cost structure; Cash-flow-generating capacity; Cash cycle of the issuer; Capital intensity measured by capex and working capital; Capital structure, indebtedness and leverage; Interest and debt coverage.

Credit Suisse rating methodology – corporates

22



Given the key questions above, the level of indebtedness (with a focus on net debt) and cash flow generation capacity are the main drivers of the financial profile. Appropriate credit metrics are used to define so-called rating thresholds, which are used to quantify the required levels of credit metrics for a specific issuer rating. For cash flow generation capacity, our rating methodology favors adjusted funds from operations, equal to operating cash flow before working capital changes. In our view, this is the most sustainable cash flow measure as working capital swings can be sizeable, distort the result and are often not sustained over the longer term. Adjusted free cash flow – which takes capital expenditure into account – is a further piece in the mosaic, indicating how much spending money is left for poten-tial debt-financed acquisitions and shareholder distribution, without affecting balance sheet quality.

To assess debt repayment ability, we use cash flow – as a source to repay debt – in relation to adjusted net debt (FFO/net debt). This indicates how long it would take to repay existing debt with the current funds from operations (FFO). It disregards refinancing of debt and cash flow swings, but is useful to measure the appropriateness of the debt level for the business, e.g. a capital-intensive company can be expected to have higher debt and often longer periods to repay debt. This simple relationship can of course be distorted by debt-financed acquisitions. An alternative (slightly more crude) measure is adjusted net debt in relation to adjusted EBITDA/EBIT, stating how many years' profit is needed to repay debt.

To assess the issuer's interest payment ability, we look at interest rate coverage metrics, i.e. how many times it could pay interest due with the profit generated in a single year (e.g. EBITDA/net interest), thus giving an indication of how comfortably interest payments are covered. Rounding off key metrics, we use adjusted net gearing and adjusted net leverage as the sole balance sheet metrics to indicate the split between debt and equity financing.

Adjustments Adjustments aim to make issuers comparable, despite different levels of cash and near cash on their balance sheets, varying amounts of cash needed for operations, diverse accounting principles or varying methods to finance assets (debt or operating leases). In addition, pension liabilities, guarantees and other contingencies are incorpo-rated into the analysis of the financial profile of issuers as follows: Cash: Issuers typically carry cash and near cash on their balance sheets, enhancing their financial profiles through this liquidity. We generally base our credit metrics on net debt, i.e. total debt less cash on the balance sheet, thus establishing a level playing field for issuers regardless of their levels of liquidity. At the same time, we deduct operating cash, i.e. cash "stuck" in operations and not immediately liquid, from cash and near cash on the balance sheet. We obtain the

suitable level from management discussions or apply a percentage of sales. Leases and rents: Companies can own or rent/lease their assets. Own assets are financed by equity and debt, while operating leases are off-balance sheet. By bringing leasing obligations onto the bal-ance sheet, companies with asset ownership and companies with asset leasing are better comparable. To do this, we add lease and rental expenses to debt by applying a multiple of 5x to 8x depending on the industry and object. At the same time, lease and rental ex-penses – split into an interest and a depreciation component – are deducted from the P&L statement, positively affecting adjusted EBITDA and adjusted EBIT as well as adjusted FFO, which increases in line with the depreciation component of the lease and rental ex-penses. Pensions: The deficit from the difference between funded and un-funded pension liabilities and assets is added to adjusted debt in full. Further adjustments are made on the operating cost side using the difference between current service costs and net pension expense. Additionally, FFO is adjusted by netting current service cost against employer contribution (to plan assets). Guarantees and contingencies: These are added to debt in full. They can be reduced to an extent we assume to be accurate and likely (e.g. track record for product guarantees). Partner-plant-related debt of electrical utilities: Liabilities related to partner plants are treated as power purchase agreements. The reported share of the partner plants' debt is added to adjusted debt. As with lease and rental expenses, utilities' annual payments to part-ner plants (according to the investment quota) – to fund their costs including debt servicing – are deducted from operating costs. The payments are then split into an interest and a depreciation compo-nent. Adjusted EBITDA/EBIT benefits from this as does adjusted FFO, which increases in line with the depreciation component.

Event risk/outlook While our ratings are "through the cycle", there could nevertheless be incidents that might bring about a sudden change in a rating (rather than a migration) and are naturally difficult to predict. These include large debt-financed acquisitions, high shareholder payments, changes in commodity prices, contingent liabilities, litigation or changes to financial policy.

Table 1: Credit Suisse rating convention for long-term debt versus rating agencies'

Credit Suisse S&P Moody’s

In

vest

men

t gr

ade

AAA AAA Aaa Highest possible rating. Extremely strong debt-servicing capacity.

High AA AA+ Aa1

Very strong debt-servicing capacity. Mid AA AA Aa2

Low AA AA– Aa3

High A A+ A1 Strong debt-servicing capacity, but slightly more exposed to adverse business and economic

developments. Mid A A A2

Low A A– A3

High BBB BBB+ Baa1 Adequate debt-servicing capacity with increased likelihood of weakened debt-servicing

capacity in case of adverse business or economic developments. Mid BBB BBB Baa2

Low BBB BBB– Baa3

High BB BB+ Ba1 Existing debt-servicing capacity; could become inadequate due to major uncertainties or

exposure to negative business, financial or economic developments. Mid BB BB Ba2

Low BB BB– Ba3

High B B+ B1 Higher vulnerability to default. Existing ability and willingness to pay could become impaired

through adverse business, financial or economic developments. Mid B B B2

Low B B– B3

Source: S&P, Moody’s, Credit Suisse 1 interest and principal payments

23



ABB – Low A, Stable Jannick Dousse

Sector: Capital Goods Bond ticker: ABBNVX

Company description www.abb.com

Rating rationale Business profile: Above-average Financial profile: Above-average

SWOT analysis

Strengths Weaknesses

A broadly diversified business profile which somewhat limits its expo-sure to the economic cycle. Good geographic diversification across continents, balanced between developed and emerging markets. Strong global market positions in most of its segments. Healthy and stable cash flow and earnings generation. Sound profitability, balance sheet and liquidity. An absence of large-scale M&A activities tends to preserve its credit metrics.

Utilities and oil and gas end-markets are suffering from an adverse market environment, leading to lower demand. High price levels reduce competitiveness in a challenging global market, particularly with local competitors in emerging markets. ABB is dependent on customers' business cycles and investment propensities. Its capital-intensive business model results in high operating lever-age.

Opportunities Threats

There are few large western companies in the capital goods sector, creating an oligopolistic sector structure. ABB focuses on close customer ties, which likely leads a to higher order intake from such clients in the future. There are strong long-term growth prospects in energy infrastructure, due to the need for replacement in developed countries and for new installations in emerging markets.

Increasing competition from emerging market companies. General risks related to emerging market activities. Weaker credit metrics due to the large share buyback program. General cyclicality of the capital goods sector. Strategies from activist shareholders could weaken ABB's financial position or business profile.

ABB, established in 1988 through the merger between Asea AB and BBC Brown Boveri AG, is one of the world's leading capital goods companies. It focuses mainly on power and automation technologies for several end markets, such as the utilities, industrial, transport and infra-structure industries. ABB simplified its set-up in January 2016 into four global divisions, focusing on specific industries and products. The Elec-trification Products segment (26% of FY 2015 pro-forma revenues)offers solutions for residential home automation and industrial buildingswithin the low and medium-voltage solutions. Discrete Automation and Motion (24%) offers products such as motors, generators and robotics, targeting manufacturers, OEMs and end-users in a variety of process industries. Process Automation (19%) markets systems to optimizeindustrial processes by improving productivity and saving energy. Power Grids (31%) is a supplier for power and automation products for the grid,partnering with utilities. This segment is currently under strategic review,and a decision on its future is expected for the Capital Markets Day in

October 2016. ABB's business activities are generally cyclical, but to a lesser extent than its peers. While Power Grids mainly targets late-cycle industries, Discrete Automation and Motion and Electrification Products focus on early and mid-cycle businesses. Its diverse activities and rela-tively high share of stable service revenues shield ABB somewhat from cyclicality. The company is well diversified globally, with a strong pres-ence in Europe (34% of FY 2015 orders), the Americas (29%) and the Asia and Middle East region (37%). Moreover, it has exposure to both mature markets (55%), and emerging economies (45%). ABB focuses mainly on organic growth, but also acquires companies and forms part-nerships. In September 2015, ABB launched Stage 2 of its "Next Level" strategy for the coming five years. Its mid-term targets include 3%–6% revenue growth, an 11%–16% operational EBITA margin, and free-cash-flow conversion of above 90% to net income. ABB is also continu-ing its USD 4 bn share buyback program, which is scheduled to be completed in September 2016.

ABB's business profile is supported by the company's large scale, itsglobal diversification and its leading market positions in most of its segments. Moreover, the more late-cycle segments, which are largely dependent on investment activity in utility and commodity companies, are well balanced by the segments targeting early and mid-cycle industries. Therefore, ABB is one of the less cyclical capital goods companies, which is a clear strength, in our view. We also appreciate ABB's bal-anced footprint in mature and emerging markets, providing both stability and growth opportunities. The financial profile benefits from sound profitability across all segments, a strong balance sheet, and a comfort-able liquidity buffer. The healthy and stable cash flows underpin the

company's defensive characteristics. ABB's adjusted FFO/net debt ratio still exceeds our guideline for the current rating category (at least 45%). However, we expect ABB to fall below that threshold due to the sizable share buyback program. Nevertheless, we acknowledge the manage-ment's commitment to the current rating category. Moreover, we appre-ciate its focus on internal growth, with some added impulses from pru-dent bolt-on acquisitions. Potential event risk could arise from activist shareholder Cevian Capital, which could trigger significant changes in the company's strategy (e.g. sale of Power Grids). The Stable outlook reflects our expectations that ABB will stabilize its credit metrics after the completion of its buyback program.

24



Financial overview (USD m) 2012 2013 2014 2015 2016E

P&L

Sales 39,336 41,848 39,830 35,481 35,410

Gross margin 33.0% 32.9% 31.5% 31.8% 31.8%

Adjusted EBITDA 6,313 6,843 6,128 4,725 4,711

Adjusted EBITDA margin 16.0% 16.4% 15.4% 13.3% 13.3%

Adjusted EBIT 4,253 4,602 4,371 3,187 3,251

Adjusted EBIT margin 10.8% 11.0% 11.0% 9.0% 9.2%

Adjusted interest expense 335 431 393 340 340

Net profit 2,704 2,787 2,594 1,933 1,979

Cash flow

Adjusted FFO 4,364 4,889 4,367 3,982 3,705

Working capital changes 27 -603 –10 296 21

Adjusted CFO 4,391 4,286 4,357 4,278 3,726

Adjusted CAPEX –1,757 –1,564 –1,450 –1,254 –1,253

Adjusted FCF 2,634 2,722 2,907 3,025 2,474

Dividends –1,626 –1,667 –1,841 –1,749 –1,574

Net M&A –3,638 –772 1,073 81 -25

Net share buybacks 90 74 –965 -1,380 -1,757

Adjusted pre-financing cash flow –2,540 357 1,174 -23 -882

Balance sheet

Adjusted cash and near-cash 6,318 4,183 4,577 4,247 4,085

Adjusted total asset base 52,730 51,676 48,200 44,338 43,079

Total adjusted debt 15,848 13,029 13,172 12,105 12,899

Total adjusted net debt 9,530 8,846 8,595 7,859 8,814

Adjusted equity 17,827 19,699 17,255 15,406 14,054

Market capitalization 47,200 60,900 48,000 39,800 n.a.

Key ratios


Adjusted EBITDA/net interest coverage 24.1x 18.9x 19.6x 17.9x 17.9x

Adjusted FFO/debt 27.5% 37.5% 33.2% 32.9% 28.7%

Adjusted FFO/net debt 45.8% 55.3% 50.8% 50.7% 42.0%

Adjusted FCF/net debt 27.6% 30.8% 33.8% 38.5% 28.1%

Adjusted net debt/EBITDA 1.5x 1.3x 1.4x 1.7x 1.9x

Capital structure

Core working capital/sales 32.5% 31.2% 29.3% 29.5% 29.5%

Adjusted cash and near-cash/debt 39.9% 32.1% 34.7% 35.1% 31.7%

Adjusted net leverage 34.8% 31.0% 33.3% 33.8% 38.5%

Adjusted gross leverage 47.1% 39.8% 43.3% 44.0% 47.9%

Adjusted net gearing 53.5% 44.9% 49.8% 51.0% 62.7%

n.a. = not available; accounting standard: US GAAP

Sales and profitability

Capital structure

Debt coverage

Liquidity and debt profile

Peer comparison FY 2015

Management / BoD since

Chairman: Peter R. Voser 2015

CEO: Ulrich Spiesshofer 2013

CFO: Eric A. Elzvik 2013

Major shareholders (end-2015)

Investor AB 10.0%

Cevian Capital Ltd. 5.2%

BlackRock 4.1%

Rating trend

2013 2014 2015 2016

Low A Low A Low A Low A Source (table and charts): Company data, S&P, Bloomberg, Credit Suisse Bubble size corresponds to CHF sales

4%

8%

12%

16%

20%

0

11'000

22'000

33'000

44'000

2012 2013 2014 2015 2016E

USD m

Power Grids (new 2016) Process Automation (new 2016)

Discrete Automation & Motion (new 2016) Electrification Products (new 2016)

Process Automation Low Voltage Products

Discrete Automation & Motion Power Systems

Power Products Adj. EBITDA margin (r.h.s.)

0%

13%

25%

38%

50%

0

6,000

12,000

18,000

24,000

2012 2013 2014 2015 2016E

USD m

Adj. Cash & near cash Adj. Net debt

Adj. Equity Adj. Net leverage (r.h.s.)

0%

50%

100%

150%

200%

2012 2013 2014 2015 2016EAdj. FFO / Net debtAdj. FFO / Net debt (3Y avg.)Threshold

0

2'500

5'000

7'500

10'000

Year end2015

2016 2017 2018 2019 2020 thereafter

USD m

Cash Unused credit lines Bonds

Schindler

ABB

Bobst

MetsoOerlikon

Sulzer

Rieter

Bucher Ind.Georg Fischer

Sandvik

5%

9%

13%

17%

21%

0% 25% 50% 75% 100% 125% 150%

Adj

uste

d EB

ITD

A m

argi

n

Adjusted FFO/net debt> or net cash

25



Adecco – Mid BBB, Stable Colin Ferguson

Sector: Staffing Bond ticker: ADENVX

Company description www.adecco.com

Rating rationale Business profile: Average Financial profile: Average

SWOT analysis


Leading positions for staffing services in several highly relevant markets worldwide and a strong brand recognition. Extensive service offering, including temporary/permanent staffing, outplacement and consulting. Highly diversified geographically and in terms of customers. Strong and growing positions in areas of professional staffing with higher margins. Solid cash flow generation and balance sheet provide some finan-cial flexibility.

Fragmented industry strongly correlated to economic developments. Various bolt-on acquisitions have resulted in around 35% of total assets being made up of intangibles. A more shareholder-friendly financial policy with a dividend policy targeting a payout ratio in the range of 40%–50% and potential share buybacks.


Deregulation in labor markets eases supply of temporary staffing. The company's knowledge of local markets and its local approach enable it to maintain and expand the customer base. Positive growth expectations due to an increasing demand for a flexible workforce. Ability to leverage its scale and market positions to maintain cost discipline in a fragmented and competitive market.

The financial profile could weaken after larger, debt-financed acqui-sitions and the stronger shareholder focus. Integration risk and further accounting of goodwill due to past and future acquisitions. Unexpected economic downturns lead to a decline in demand for staffing services.

As the global leader in professional staffing, Adecco operates a network of more than 5,100 branches in over 60 countries and in excess of 32,000 employees. The company acts as an intermediary between enterprises and individuals by offering temporary staffing, permanent placement, outsourcing, career transition and other services. In several highly relevant markets, Adecco holds no. 1 or no. 2 market positions. Nevertheless, the fragmentation of the market leads to relatively modest overall market shares. Competition among suppliers is high and results in low margins. Concerning revenues, France represents Adecco's largest market, accounting for 22% of revenue, followed by North America with 21%, the UK & Ireland (10%) and emerging markets (10%). Revenues increased by 10% YoY in FY 2015, surpassing the previous year’s levels, which can be attributed primarily to improvements in North Ameri-ca, France and emerging markets. Adecco improved its operating profit-ability by means of price discipline and cost control. Within the distinct services offered by Adecco, Temporary Staffing comprises the predomi-

nant share of revenues and gross profit (89% and 72%, respectively). The remaining service lines differ strongly in terms of revenues or gross profit. While Permanent Placement (2%), Career Transition (2%) and Outsourcing (7%) only account for minor revenue shares, they generate 28% of gross profit. In particular, Temporary Staffing is highly depend-ent on macroeconomic developments. Companies consult Adecco to gain access to a flexible workforce that can be adapted to demand fluctuations. Penetration rates thus fluctuate and differ between various markets. As Adecco covers a broad range of countries, the conse-quences are nevertheless mitigated. Low penetration rates in 2015, e.g. 2.0% in the USA and 2.2% in Germany, leave room for future growth opportunities. In FY 2015, Adecco's EBITA margin (excluding one-offs) was 5.2%, with a target band of 4.5%–5.5% in the medium term. The company has conducted regular share buybacks. While the recent program is completed, share buybacks are still likely after dividend payouts if no appropriate M&A opportunities arise.

Adecco's business profile benefits from leading market positions in the industry for staffing services, supporting its operating efficiency on a global scale. Its diversification – both in terms of geographic (despite its exposure to France) and customer coverage – provides some protection against local economic downturns. It also seems positive that Adecco has a strong position in the business of higher-margin staffing services and that the need for flexible workforces is expected to offer promising growth rates in the long term. In addition, we appreciate its strong brand and solid presence, but have to take into account the volatility and high level of competition in the market, which places a constraint on Adecco's credit rating. Profitability depends largely on economic conditions influ-

encing the demand for its services, e.g. for a temporary workforce supplied by Adecco. The company has a high cost base mostly due to staff costs. The financial profile is supported by a strong balance sheet, sound liquidity reserves and a light maturity schedule that allows Adecco to stay financially flexible, even in a downturn scenario. The group has acquired several smaller companies in recent years, leading to a large amount of intangibles (around 35% of total assets). The scope of the acquisitions and share buybacks has been within its financial flexibility. Adjusted FFO/net debt is still solidly above our required threshold of 30% for the current rating. The rating outlook for Adecco is Stable.

26



Financial overview (EUR m) 2012 2013 2014 2015 2016E

P&L

Sales 20,536 19,503 20,000 22,010 22,501

Gross margin 17.9% 18.3% 18.5% 19.0% 19.0%

Adjusted EBITDA 1,013 1,143 1,231 1,400 1,413


Adjusted EBIT 724 829 938 351 1,117



Net profit 377 557 638 8 757

Cash flow

Adjusted FFO 789 946 954 1,143 1,044

Working capital changes –36 –255 –5 –170 –7

Adjusted CFO 753 691 949 973 1,037

Adjusted CAPEX –262 –252 –244 –271 –273

Adjusted FCF 491 439 706 702 764

Dividends –256 –266 –291 –348 –350

Net M&A –98 1 –5 –46 –60

Net share buybacks –191 –297 –281 –225 –240

Adjusted pre-financing cash flow –54 –123 129 83 114

Balance sheet

Adjusted cash and near-cash 900 768 498 988 926


Adjusted gross debt 3,323 3,259 2,827 3,497 3,672

Adjusted net debt 2,423 2,491 2,329 2,509 2,746

Adjusted equity 3,699 3,532 3,810 3,303 3,469


Key ratios



Adjusted FFO/gross debt 23.8% 29.0% 33.8% 32.7% 28.4%




Capital structure


Adjusted cash and near-cash/gross debt 27.1% 23.6% 17.6% 28.3% 25.2%




n.a. = not available; accounting standard: U.S. GAAP


Capital structure

Debt coverage




Chairman: Rolf Dörig 2009

CEO: Alain Dehaze 2015

CFO: Hans Ploos Van Amstel 2015


BlackRock 5.1%

Akila Finance 4.3%

MFS Investment Management 3.2%

The Capital Group Companies 3.5%

Invesco Limited 3.1%

Rating trend

2013 2014 2015 2016

Mid BBB Mid BBB Mid BBB Mid BBB

Source (table and charts): Company data, S&P, Bloomberg, Credit Suisse Bubble size corresponds to EUR sales

0%

3%

5%

8%

10%

0

5'500

11'000

16'500

22'000

2012 2013 2014 2015 2016E

EUR m

Solutions Information TechnologyProfessional Staffing (except IT) OfficeIndustrial Adj. EBITDA margin (r.h.s)

30%

35%

40%

45%

50%

0

1'000

2'000

3'000

4'000

2012 2013 2014 2015 2016E

EUR m



25%

30%

35%

40%

45%

50%


0

400

800

1'200

1'600

Year end2015

2016 2017 2018 2019 2020 thereafter

EUR m

Cash Unused credit lines Bonds & loans

Accor

Edenred

Experian

Rentokil

Sodexo

Adecco

0%

10%

20%

30%

40%

20% 30% 40% 50% 60% 70%

Adj

uste

d EB

ITD

A m

argi

n


27



Aduno Holding – Mid A, Stable Michael Kruse

Sector: Banks Bond ticker: ADUHOL

Company description www.aduno-gruppe.ch


SWOT analysis


Sound and diversified business profile consisting of two main divi-sions: the issuer and acquirer business in the credit card industry, and consumer credit and leasing, which results in synergies. Leading provider of credit cards and pre-paid cards in Switzerland. Strong shareholder base consisting of nearly all Swiss retail banks and a shareholder agreement that supports the group structure, distribution channels and financial metrics. Stable profitability with a sound track record and robust capitaliza-tion metrics.

Relatively small size and short history. Large exposure to the consumer credit market. Clear no. 2 in the card readers business, behind market leader SIX Card Solutions.


New technologies and product features could attract new customers, drive revenues and increase market share. Growing market for cashless payments further supported by mobile commerce and e-commerce. Persistently low interest environment could support the consumer credit business.

Low switching costs in the acquiring business could result in the loss of larger customers. Higher costs to address the increasing risk of credit card fraud. Adverse regulatory interventions, e.g. ongoing reduction of inter-change fee.

The Aduno Group is a financial company that provides all products and services in connection with cashless payments and offers personal financing solutions. The group is based in Zurich and focuses on Swit-zerland. It is currently the fourth-largest provider of consumer credit in Switzerland behind Cembra Money Bank, Bank Now and Migros Bank. Itis mainly owned by Raiffeisen Schweiz, ZKB, Entris Banking, Migros Bank and Vaud Cantonal Bank. Entris Banking – via its parent company RBA-Holding – comprises a large number of smaller Swiss regional banks (e.g. Clientis, Valiant). Its shareholders are a major distribution channel for Aduno's products and services. The business consists of two main divisions: Payment and Consumer Finance. The former segment includes the operations around issuing (Viseca Card Services SA) and acquiring (Aduno SA) credit cards, as well as its rental guarantees business (AdunoKaution), while consumer credit and leasing activities (cashgate AG) are bundled in the latter. The company is also very active in the digitalization of payment processes and the provision of e- and m-commerce solutions. Given that the credit card related services account

for the largest part of the business, Aduno's main revenue sources are fees and commissions (65% of FY 2015 total revenues) and to a lesser extent interest (17%) and other income (18%). Viseca is one of Switzer-land's largest providers of credit cards and prepaid cards, with around 1.4 million cardholders and a leading market share of around 21%, as measured by credit cards outstanding. The company distributes its credit cards (MasterCard and Visa) through its partner banks (i.e. the share-holders of Aduno) and other co-branding partners (e.g. Mercedes and Air France). Aduno SA is an acquirer providing merchants, restaurants and hotels with card readers for processing credit and debit card trans-actions at points of sale, as well as payment solutions over the internet and other electronic devices. The company is the second-largest acquir-er in Switzerland with a market share of roughly 13%, behind the market leader SIX Card Solutions (around 70%). Cashgate provides financing products like consumer loans and consumer leasing for private individu-als. Its main distribution channels are selected partner banks, car retail-ers, agents and direct sales points.

We rate Aduno as Mid A based on the company's above-average busi-ness and financial profiles. Its business profile benefits from a strong and broad shareholder base, comprising nearly all Swiss retail banks (except Credit Suisse and UBS), which also act as distribution channels. The agreement with its shareholders helps to provide implicit support. Aduno Group is the only company in the credit card industry that acts as an issuer and acquirer, thereby combating credit card fraud. In contrast, the low switching costs for merchants expose the acquiring business to potential volatility. The risks in the consumer credit portfolio have been reduced following the acquisition of portfolios from shareholders over the years, and the exposure to the agent business has decreased. We do not rule out acquisitions in this area, which could increase the overall risk

exposure somewhat. The business profile is constrained by the relatively small size of the company. The above-average financial profile benefits from the group’s solid capitalization, the generally lower credit risk of credit card receivables and the sound asset quality of its consumer credit portfolio, which is also reflected in the low non-performing loan ratio. We appreciate the resilient profitability, with relatively low volatility and a good diversification of income streams. This should help to mitigate the chal-lenging economic environment in Switzerland and the first full-year impact of the latest regulatory changes (reduction of the interchange fee, maximum interest rate for consumer loans). Our rating outlook thus remains at Stable.

28



Financial overview (CHF m) 2012 2013 2014 2015 2016E

P&L

Net interest income (NII) 70 66 78 79

Net fee & commission income 274 286 302 297

Net trading income 75 84 100 83

Total revenues 420 436 480 459

Operating expenses 331 362 382 359

Operating profit 89 74 98 100

Loan loss provisions (LLP) 13 15 15 16

Pre-tax profit 92 79 86 87

Net income 85 67 75 75

Balance sheet

Total assets 2,035 2,139 2,246 2,207

Risk-weighted assets 1,621 1,718 1,820 1,713

Gross customer loans 1,631 1,738 1,839 1,740

Non-performing loans 14 26 30 34

Loan loss reserves 9 20 19 26

Customer deposits 281 269 223 227

Senior debt 1,191 1,266 1,353 1,247

Subordinated debt 0 0 0 0

Hybrid Tier 1 capital 0 0 0 0

Shareholders' equity 398 443 487 544

Market capitalization n.a. n.a. n.a. n.a. n.a.

Key ratios

Profitability

Net interest margin 4.8% 3.9% 4.3% 4.4%

Cost/income ratio 78.8% 82.9% 79.6% 78.3%

Return on average equity (ROAE) 23.2% 16.0% 16.0% 14.5%

Return on average assets (ROAA) 4.7% 3.2% 3.4% 3.4%

Net interest income/operating revenues 16.8% 15.1% 16.3% 17.2%

Capital adequacy

Equity/net loans 24.6% 25.8% 26.8% 31.7%

Equity/total assets 19.6% 20.7% 21.7% 24.6%

Asset quality & liquidity

LLP/NII 18.9% 22.3% 19.8% 19.8%

Coverage ratio 69.1% 75.5% 62.2% 77.0%

Non-performing loan ratio 0.8% 1.5% 1.7% 2.0%

Deposits/net loans 17.3% 15.7% 12.2% 13.3%

n.a. = not available; accounting standard: IFRS

Profitability

Asset quality

Capital adequacy

Breakdown of total revenues



Chairman: Pierin Vincenz 1999

CEO: Martin Huldi 2011

CFO: Conrad Auerbach 2006


Raiffeisen Schweiz 25.5%

ZKB 14.7%

Entris Banking 14.0%

Migros Bank AG 7.0%

Vaud Cantonal Bank 4.8%

Rating trend

2013 2014 2015 2016

Mid A Mid A Mid A Mid A Source (table and charts): Company data, S&P, Bloomberg, Credit Suisse Bubble size corresponds to CHF total assets

0%

25%

50%

75%

100%

0%

10%

20%

30%

40%

2011 2012 2013 2014 2015

Return on average equity (ROAE) Cost/income ratio (r.h.s.)

0.0%

0.8%

1.6%

2.4%

0%

8%

16%

24%

32%

2011 2012 2013 2014 2015

Loan loss provision / Net interest income

Non-performing loan ratio (r.h.s.)

21%

25%

29%

33%

2011 2012 2013 2014 2015

Equity/net loans

0

125

250

375

500

2011 2012 2013 2014 2015

CHF m

Net Fee & Commission Income Net interest income Other operating income

Raffeisen

ZKB

LUKB

BEKB

Valiant

Aduno

AKB

Cembra Money Bank40%

60%

80%

100%5% 10% 15% 20% 25% 30% 35%

Cos

t/in

com

e ra

tio

CET1 ratio (Basel 3, fully-loaded; for Aduno: Equity/net loans)

29



Allreal – Mid BBB, Stable Jannick Dousse

Sector: Real Estate Bond ticker: ALLNSW

Company description www.allreal.com


SWOT analysis


Large and profitable property portfolio in key locations, with healthy and predictable cash flows. Portfolio relatively well diversified by type of use, and thus less ex-posed to industry trends. Extensive expertise along the value chain for real estate investments. Secured order backlog for approximately one full year in the projects and development division. Comparably conservative property portfolio valuation, leading to a potentially better recoverability in case of market weakness.

General contractor activities are subject to strong competition, and are thus less profitable. Strong regional concentration (Zurich area) and tenant clusters. High indebtedness compared to peers, as evidenced by the high loan-to-value ratio. Significant cash use, due to the company's strong growth focus, and resulting investment needs.


The ability to develop own real estate projects allows Allreal to grow without overpaying in the market for existing properties. Development of larger sites could unlock further value potential and increase the investment portfolio. Building renovations could increase the attractiveness of properties, and reduce vacancy rates. A disciplined approach in the selection of general contracting projects could further improve margins.

Sales of apartments are becoming increasingly difficult, due to high prices and heightened equity requirements for buyers. Declining demand for office and retail space could put rents and vacancy rates under pressure. Owing to the negative interest rate environment, the large amount of payer swaps somewhat increases interest costs.

Allreal, whose roots can be traced back to the Swiss capital goods manufacturer Oerlikon, is one of the leading real estate companies in Switzerland. Its activities include the development and management of a stable real estate portfolio, real estate management services via its subsidiary Hammer Retex, property trading, as well as general contractor services. The property portfolio, valued at roughly CHF 3.8 bn at end-2015, features real estate in prime locations, mainly in the City and Canton of Zurich (52% and 37% of market value at end-2015, respec-tively). Compared to its peers, Allreal's property portfolio leans more towards stable residential spaces (20% of FY 2015 rental income), although office/services properties (57%) still represent the largest exposure. The largest ten tenants account for 59% of rental income. Wetherefore see some tenant cluster risk which is partially mitigated by the involvement of the Canton of Zurich as the largest tenant (19%). Allreal continuously optimizes its portfolio, and expands it by acquiring proper-ties or developing own projects. However, after completing several large

projects in 2014 and 2015, the development pipeline for its own projects has depleted momentarily. Allreal has started construction on a number of new projects, such as the Bülachguss site, and office buildings on the Escher-Wyss-Areal, which will likely fuel growth of its investment portfolio. Allreal's vacancy rate of 7.5% (–40 bp YoY) should further decline, due to a reduction of initial vacancies of completed projects, building renova-tions, and a low number of expiring rental contracts. Allreal is also active as a general contractor, offering planning, architecture and construction management services to the group and external clients. This segment accounts for the lion's share of its revenue, but is characterized by weaker margins. Allreal improved project selection, and increased the share of higher-margin first-party projects, which should support margins in the mid-term. For FY 2016, management is guiding for a completed project volume of CHF 500–700 m in its Projects & Development unit, a reduced vacancy in the Real Estate segment, and operating net profit comparable to FY 2015.

The business profile is characterized by its good diversification, arising from the stable real estate and slightly riskier general contractor activi-ties. Allreal's property portfolio is distinguished by good locational quality and a high diversification by type of use. Moreover, the large share of residential properties in Allreal's portfolio limits its exposure to the eco-nomic cycle. Conversely, the portfolio is regionally concentrated. Tenant cluster risk is somewhat mitigated by the stability of Allreal's largest tenant, the Canton of Zurich. Allreal's vacancy rate is high compared to its past, but is still in line with its peers and should normalize going forward. Its general contractor activities are slightly riskier, as they are more exposed to short-term swings in the construction market, and face

competitive pressure. However, Allreal improves project selectivity, and plans to increase its share of own projects in such a way as to protect margins. The average financial profile is formed by its solid balance sheet, albeit with an elevated loan-to-value ratio compared to peers. Allreal's credit metrics are sound, but have weakened slightly. Operating cash flows are strong, but are somewhat impaired by high capex and dividends. Allreal has a high share of secured financing. However, the risk for bond-holders is limited, due to the 70% share of unencumbered assets. The Stable outlook is based on our expectation that Allreal will, over time, increase margins in the project & development business, reduce its va-cancy rate further, and stabilize its free-cash flows.

30




P&L

Revenues 832 1,071 925 775 705

Adjusted EBITDA 179 171 175 161 166


Adjusted EBIT 173 165 169 156 162


Revaluation of properties –8 8 –6 16 1


Net profit 97 122 104 122 105

Cash flow

Adjusted FFO 41 178 196 99 105

Adjusted CFO 76 161 162 37 106

Adjusted CAPEX –200 –325 –238 –20 -103

Adjusted FCF –124 –164 –77 17 3

Dividends –75 –88 –88 –88 -92

Net M&A –5 208 35 42 -20

Net share buyback 266 –3 4 –4 0

Adjusted pre-financing cash flow 62 –47 –125 –33 -108

Balance sheet





Adjusted equity 1,907 1,969 1,954 1,994 2,008



Total value of property portfolio 3,754 3,828 3,815 3,813 3,917

Value of investment properties 2,531 2,610 3,510 3,468 3,572

Development properties as % of total portfolio 32.6% 31.8% 8.0% 9.1% 8.8%

Vacancy rate 5.0% 4.7% 7.9% 7.5% 6.9%

Capital structure

Adjusted net loan-to-value 41.9% 42.4% 46.1% 46.8% 48.2%


Secured debt as % of total debt 76.8% 68.5% 74.5% 63.0% 63.1%

Unencumbered assets as % of total portfolio 67.5% 70.7% 65.2% 70.3% 69.3%







Capital structure

Debt coverage




Chairman: Bruno Bettoni 2016

CEO: Roger Herzog 2015

CFO: Bernhard Marti 2015


Helvetia Gruppe 10.0%

PK der Oerlikon Contraves 4.1%

GastroSocial Pension Fund 3.4%

BVK PK des Kt. Zürich 3.4%

PKE-CPE Vorsorgestiftung 3.3%

Rating trend

2013 2014 2015 2016

n.r. n.r. Mid BBB Mid BBB

Source (table and charts): Company data, S&P, Bloomberg, Credit Suisse Bubble size corresponds to CHF property value

10%

15%

20%

25%

30%

0

300

600

900

1,200

2012 2013 2014 2015 2016E

CHF m

Other Income Services

Rental Income Sales Income

Development Adj. EBITDA marg. (r.h.s.)

35%

40%

45%

50%

55%

0

500

1,000

1,500

2,000

2012 2013 2014 2015 2016E

CHF m



35%

40%

45%

50%

55%2012 2013 2014 2015 2016E

Adj. net loan / valueAdj. net loan / value (3Y avg.)Threshold

0

300

600

900

1,200

Year end2015

2016 2017 2018 2019 2020 thereafter

CHF m

Cash Committed credit facility Bonds & loans

Unibail

Gecina

PSP

SPS

Allreal

Klepierre

HIAG

Mobimo

0%

20%

40%

60%

80%

100%

25%30%35%40%45%50%

Adj

uste

d EB

ITD

A m

argi

n


31



Alpiq – Mid BBB, Negative Daniel Rupli

Sector: Utilities Bond ticker: ALPHSW

Company description www.alpiq.com


SWOT analysis


Alpiq is a strong power producer in Switzerland. The power production mix offers some opportunities to react to market conditions and adds diversification. It is a leading international wholesaler in Central Eastern Europe. It already holds a strong position in selected energy services, aiming to bolster it further. Although indirectly owned, the company enjoys a relatively high share of public sector ownership (>60%). The sale of part of its Swiss hydropower production assets should help to reduce financial leverage.

The balance sheet is highly leveraged, and earnings and cash flows will most likely further decrease. The difficult environment has resulted in impairments, and substan-tially lower earnings and cash flow generation in recent years. Having a long electricity position as a Swiss power producer pres-sures Alpiq's earnings capability further. The current business model with high international trading activities is exposed to volatile energy prices. Alpiq is dependent on currency exchange rates (mainly CHF/EUR).


Increasing trend for potential support from regulators with regard to hydropower generation in Switzerland, in our view. Alpiq aims to increase its service offering, which requires less capital and should increase earnings and cash flow stability. Although currently not in sight, a rebound of wholesale power prices in Europe could positively impact the group's profitability over the medium term. The importance of electricity in society is growing, which should bring long-term opportunities in European electricity trading.

The regulatory environment adds uncertainties to the sector overall, although we see some potential support in the Swiss hydro segment. Losing its investment grade rating would add pressure on refinancing activities. Expansion in electricity services brings investment and execution risks. Storage power stations are less profitable due to fewer opportunities following the decreasing spread between base load and peak load.

As energy services power company, Alpiq is split into three divisions: (1)Generation comprises electricity production across Europe; (2) Com-merce & Trading includes the sale of energy, the dispatch of power plants and standardized trading activities; (3) Energy Services focuses on service activities in the areas of building technologies, energy and transport technologies, as well as power plant production. At end-2015, the company owned an electricity power park with a combined capacity of 6,345 MW across Europe (55% in Switzerland, 13% in Spain, 9% in the Czech Republic, 8% in Italy, and 15% in other European countries). The production capacities are spread across hydroelectric power plants (42%), conventional thermal power plants (41%), nuclear power plants (12%) and renewable power plants (5%). These plants produced 17,814 GWh of electricity in 2015. Being an electricity power producer with a long position in the market has become a substantial challenge in recent years due to record-low wholesale electricity prices. To stabilize earnings quality and generate more stable cash flows, Alpiq aims to

better position itself in the energy services business. As such, the man-agement announced plans to dispose of non-core assets to shape the company's profile. Earlier this year, the company also opened its hydro-power generation assets to potential investors with the aim of selling up to 49% of its portfolio to national and/or international investors. This should help to reduce Alpiq's dependence on wholesale electricity prices as well as shrink the indebtedness in line with the lower expected profit-ability. Management reiterated its aim to maintain capital market viability together with its new strategy. The company is targeting a net debt/EBITDA ratio of 2.0x–2.5x over the medium term. The European electricity market will likely remain challenging, in our view, with low electricity prices, low price volatility, reduced spreads between peak and base load energy, and regulatory pressure. For FY 2016, Alpiq guided for another challenging year with the focus being on cost savings, effi-ciency gains and net debt reduction through disposals.

Alpiq's Mid BBB credit rating is based on its average business and financial profiles. The business profile is supported by both production and the services business, providing some form of diversification. In Switzerland, the company is a well-positioned power producer, while in Europe it is a small niche player. As an exporter to the European whole-sale market, Alpiq faces immense pressure from the record-low whole-sale prices and strong domestic currency. We think the increased focus on services should add to earnings stability. Alpiq remains exposed to record-low electricity prices in Europe and fewer trading opportunities,and the expansion into services could lead to investment and execution risks. The financial profile benefits from the company's continued solid

liquidity. However, the balance sheet remains heavily leveraged on an adjusted basis. The company needs to further reduce its indebtedness as another drop in earnings is expected. The outlook is Negative as Alpiq's current key credit metrics fall short of an investment grade rating. We would like to see an adjusted FFO/net debt ratio clearly above 10%. Such a substantial change in a business profile is very time-consuming and we want to see the progress at least over the cycle. The key ele-ment in the short term remains Alpiq's positive free cash flow generation in our view. Should the company fall short of its targets and if the head-wind from low electricity prices increases further, a downgrade to sub-investment grade cannot be ruled out.

32




P&L

Sales 12,723 9,370 8,058 6,715 6,282

Gross margin 17.6% 19.6% 17.4% 16.7% 16.3%

Adjusted EBITDA 1,832 1,335 835 751 661


Adjusted EBIT -915 293 -666 -506 -139

Adjusted EBIT margin -7.2% 3.1% -8.3% -7.5% -2.2%


Net profit -1,054 22 -879 -825 -194

Cash flow

Adjusted FFO 1,025 858 736 629 575

Working capital changes -222 83 23 258 0

Adjusted CFO 803 941 759 887 575

Adjusted CAPEX -667 -592 -610 -622 -569

Adjusted FCF 136 349 150 266 7

Dividends -54 -65 -63 -10 0

Net share buybacks 0 503 0 0 0

Net M&A 547 598 117 273 250

Adjusted pre-financing cash flow 629 1,377 180 503 231

Balance sheet

Adjusted cash near near cash 750 2,046 1,240 1,217 1,167




Adjusted equity 4,828 5,331 4,204 3,311 3,117


Key ratios







Capital structure


Adjusted cash & near cash/debt 8.0% 22.2% 14.9% 15.7% 15.7%






Capital structure

Debt coverage




Chairman: Jens Alder 2015

CEO: Jasmin Staiblin 2013

CFO: Thomas Bucher 2015


EOS Holding 31.4%

EDF Alpes Investments 25.0%

Elektra Birseck Muenchenstein 13.6%

Elektra Baselland Liestal 7.1%

Rating trend

2013 2014 2015 2016

Mid BBB Mid BBB Mid BBB Mid BBBSource (table and charts): Company data, S&P, Bloomberg, Credit Suisse Bubble size corresponds to CHF sales

0%

4%

8%

12%

16%

0

4,000

8,000

12,000

16,000

2012 2013 2014 2015 2016E

CHF m

Energy Energy ServicesOthers GenerationCommerce & Trading Adj. EBITDA margin (r.h.s.)

50%

55%

60%

65%

70%

0

2,500

5,000

7,500

10,000

2012 2013 2014 2015 2016E

CHF m

Adj. Cash & near cash Adj. Net debtAdj. Equity Adj. Net leverage (r.h.s.)

0%

5%

10%

15%

20%

2012 2013 2014 2015 2016E

Adj. FFO / Net debtAdj. FFO / Net debt (3Y avg.)Threshold investment grade

0

500

1,000

1,500

2,000

Year-end2015

2016 2017 2018 2019 2020 thereafter

CHF m

Cash Bonds & loans

Alpiq

Axpo

BKW

EnBW

Repower

EVN AG

0%

10%

20%

30%

40%

0% 10% 20% 30% 40%

Adj

uste

d EB

ITD

A m

argi

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33



Aryzta – High BB, Negative Roman Ochsner

Sector: Food Bond ticker: ARYNSW

Company description www.aryzta.com

Rating rationale Business profile: Average Financial profile: Below-average

SWOT analysis


Leading market position as a diversified and one of the largest global specialty bakery companies. The integrated business model spans procurement, production, marketing, and distribution of bakery products. Sound geographic, product and customer diversification. A mix of business-to-business and consumer brands, such as Spunkmeyer, Hiestand, Klemme, La Brea, Delice de France, Maid-stone, etc.

Frequent acquisitions have put pressure on the financial profile, as increased indebtedness is not yet matched by higher cash flows. Limited visibility around synergies between a frozen food company (Picard minority stake), and the specialty bakery business. Price pressure in consumer industries prevails, despite sound client relationships, contract business, and high-quality products. Sizeable goodwill position following acquisitions; related amortization or impairments could impact profitability. Mixed transparency/quality of financial statements (e.g. Q3 2016 amendment, frequent guidance revisions and restructuring costs).


Free-cash-flow guidance of >EUR 200 m for FY 2016 might indicate that deleveraging the balance sheet has become higher priority. Intact industry growth drivers offer sound long-term growth potential. Well-balanced customer base, market channels, products and geo-graphic diversification enable Aryzta to grow with its global clients. The completed ATI enables cross-selling across customer channels, as well as improving operations and the supply chain. Economies of scale and increasingly efficient operations could con-tribute to lower capex investments in the coming years. Picard could boost future growth in the B2C segment.

Potential risk that a renewed acquisition cannot be integrated suc-cessfully, or will occur largely debt-financed, given an aggressive fi-nancial policy and management's shareholder-oriented focus. Unexpected renewed increase in capex and high restructuring costs. Picard debt is non-recourse, but this could change if call option to buy the remaining 51% between 2019 and 2021 is exercised. While no customer accounts for more than 10% of sales, the poten-tial loss of a key client would have a negative impact. Impact from currency moves, especially EUR/USD on reported debt.

Aryzta is one of the leading global companies in the fragmented bakery industry, with strong positions in the specialty frozen bakery niche. It produces and distributes frozen, branded and non-branded bakery products to customers in food service, retail and quick-serve restaurants (QSR). In 2015, Aryzta sold its stake in Origin, an integrated agronomy business, using the proceeds to acquire a 49% stake in Picard, a spe-cialty premium French food producer which remains separately man-aged, and whose debt is non-recourse to Aryzta. The firm has a call option to purchase the remaining 51% between 2019 and 2021. With the disposal of Origin, Aryzta thus further emphasized its focus on its Food Group. In 2015, Aryzta generated EUR 3.8 bn in revenues, of which 51% came from North America, 43% from Europe and 6% from Rest of the World, indicating a fairly well-balanced geographical diversifi-cation. This also holds for the split between Aryzta's customer channels. The Large Retail channel accounts for 32% of revenues, QSR for 25%, Other Food Services for 33% and Convenience and Independent Retail

for 10%. Aryzta acts as a consolidator in the still-fragmented industry. As such, the main growth driver in recent years has been acquisition-driven (e.g. Great Kitchens, Klemme, Pineridge, and Cloverhill), targeting ca-pacity expansion to adequately supply clients, expanding geographically and optimizing customer channels. Aryzta is subject to contract renewal risk, as its top 20 customers currently account for 54% of revenues, which is somewhat mitigated by the fact that no customer accounts for more than 10% of sales. Despite negative underlying earnings growth in Food North America in recent quarters, and ongoing margin pressure expected by the management for H2 2016, this adds some resilience to partially mitigate macroeconomic fluctuations. In March 2016, Aryzta reduced the revolving credit facility from CHF 1,977 m to CHF 1,400 m, whilst also extending it, with CHF 500 m maturing in 2019 and CHF 900 m maturing in 2021. In the near term, management is aiming to focus on underlying revenue growth, and generating free cash flow in excess of EUR 200 m in FY 2016.

Aryzta has leading business positions in the specialty bakery market, and is well-diversified both regionally and in terms of its customer mix, which supports the business profile even though pressure in North America and on margins has persisted in H1 2016. We understand the strategic rationale to act as a consolidator in the fragmented industry in order to drive scale and efficiency. However, the financial profile has weakened in recent years due to the largely debt-financed nature of the acquisition spree and weak cash generation, seen in the high amount of deprecia-tion and amortization charges per year, a track record of high restructur-ing costs, as well as a high ratio of goodwill to equity. We appreciate the company's efforts to improve free cash flow in FY 2016, and expect the

company to abstain from further leveraging up, but also highlight that a large proportion of the planned free-cash-flow improvement in FY 2016 is stemming from debtor securitization. Management's investment case post-2020 assumes EBITDA of EUR 1.1 bn and free cash flow of EUR 500 m (Picard fully consolidated), but in our view this could be challeng-ing, given increasing customer concentration and the difficult environment for contract wins, while the targeted sales growth might also require renewed capex increases. Given our expectation that Aryzta's credit metrics will not return to the thresholds required for the current rating, (e.g. adjusted FFO/net debt ratio in excess of 20%), we downgrade the rating to High BB. The rating outlook remains Negative.

34



Financial overview (EUR m) 2012 2013 2014 2015* 2016E

P&L

Sales 4,208 4,504 4,809 3,820 3,870

Gross margin 46.9% 46.2% 47.7% 48.6% 48.3%



Adjusted EBIT 230 283 290 –196 91

Adjusted EBIT margin 5.5% 6.3% 6.0% –5.1% 2.4%


Net profit 90 113 106 –362 –39

Cash flow

Adjusted FFO 373 413 472 258 346

Working capital changes –8 –15 58 41 88

Adjusted CFO 365 398 531 298 434

Adjusted CAPEX –156 –210 –300 –399 –220

Adjusted FCF 209 188 231 –101 214

Dividends –48 –52 –59 –69 –69

Net M&A –121 –368 –976 165 –27


Adjusted pre-financing cash flow 181 –232 –804 –5 117

Balance sheet





Adjusted equity 2,208 2,140 2,178 2,490 2,381


Key ratios





Adjusted FCF/net debt 12.3% 10.0% 8.6% –3.6% 7.8%


Capital structure

Core working capital/sales –2.5% –0.6% –4.1% –5.7% –7.9%





n.a. = not available; hybrid bonds included as 100% debt; accounting standard: IFRS,* discontinued operations excluded


Capital structure

Debt coverage




Chairman: Denis Lucey 2008

CEO: Owen Kilian 2008

CFO: Patrick McEniff 2008

Aryzta was formed in 2008

Major shareholders (end-FY 2015)

MassMutual 5.9%

BlackRock Inc. 5.3%

ARYZTA Treasury shares 3.3%

Rating trend

2013 2014 2015 2016

Low BBB Low BBB Low BBB High BB

Source (table and charts): Company data, S&P, Bloomberg, Credit Suisse Bubble size corresponds to CHF sales

5%

10%

15%

20%

0

1'000

2'000

3'000

4'000

2012 2013 2014 2015 2016E

EUR m

Food Europe Food North America

Food RoW Adj. EBITDA margin (r.h.s)

40%

45%

50%

55%

60%

0

750

1'500

2'250

3'000

2012 2013 2014 2015 2016E

EUR m



5%

10%

15%

20%

25%


0

450

900

1'350

1'800

Year end 2015 2016 2017-19 thereafter

EUR m

Cash Bonds & loansNestlé

Lindt & Sprüngli

George Weston

Barry Callebaut

Unilever

MondelezDanone

Kellogg

Aryzta

Bell

Emmi

5%

10%

15%

20%

25%

0% 25% 50% 75% 100%

Adj

uste

d EB

ITD

A m

argi

n


> or net cash

35



Axpo – Mid A, Negative Daniel Rupli

Sector: Utilities Bond ticker: AXPOSW

Company description www.axpo.com


SWOT analysis


The regulated distribution business adds earnings and cash flow predictability. Liquidity and the balance sheet are still solid even after substantial impairments in recent years. The public shareholding structure adds stability and eases pressure on shareholder distribution. The power production park is broadly diversified and CO2 neutral, with a high share of nuclear and hydropower generation, as well as an increasing trend in renewables.

Electricity prices are at record lows due to lower demand and heavy subsidies with no indications of a short-term recovery. Having a long electricity position as a Swiss power producer pres-sures Axpo's earnings capability further. The Plant Closure Fund and the Waste Disposal Fund are exposed to trends in the global financial markets. The industry is facing high investment needs and large capital re-quirements versus currently pressured cash flows. As electricity exporter, Axpo is exposed to the strong Swiss franc.


Although less profitable than originally expected, the pump storage plant Linth-Limmern could serve as an electricity battery being fully on-stream now. The long-term view under "Axpo 2030" should address the current challenges and provide opportunities in the long run. The rising importance of electricity for society supports a growth case. The diversified power production park offers flexibility to capitalize on market opportunities.

The regulatory environment adds uncertainties to the sector overall, although we see some potential support in the Swiss hydro segment. The shift in the business model results in execution risk. There are long-term uncertainties with regard to the long-term costs of nuclear decommissioning and disposal. Storage power stations are less profitable due to fewer opportunities because of the decreasing spread between base and peak loads.

As a vertically integrated electrical utility, Axpo is present in various countries across Europe offering electricity services along the value chain. Its businesses include power generation, trading activities, regu-lated transmission and distribution business, as well as energy services. The company benefits from its public ownership, with the Canton of Zurich and the Elektrizitätswerke des Kanton Zürich (EKZ) being the largest shareholders (18% each), followed by the Canton of Aargau (14%), AEW Energie AG (14%), SAK Holding AG (13%), EKT Holding AG (12%), with the Cantons of Schaffhausen, Glarus and Zug holding the rest. The company owns power production facilities in Switzerland (mainly nuclear and hydroelectric) and Europe (focusing on gas-fired production assets and renewable energies). As a power producer, Axpo holds a long electricity position that exposes the company to record-lowEUR-denominated wholesale electricity prices. Nuclear power is sourced through its ownership in the nuclear power plants, Beznau, KKW Leib-stadt (50%) and KKW Gösgen (40%), and drawing rights companies,

AKEB, KBG and ENAG. In hydropower, Axpo holds interests in more than 40 run-river and pump-storage plants across Switzerland. The largest contribution from outside Switzerland came from its three gas-fired combi-cycle plants in Italy. In FY 2014/15, Axpo produced 21,305 GWh of electricity from nuclear generation (–7% versus the prior year), 8,825 GWh from hydro (+5%), 6,187 GWh from gas-fired plants (+74%) and 646 GWh from other renewables (+12%). The company sourced 44,670 GWh or 55% of its electricity from the market. With regard to the regulated business, the company is focused on its supply areas in Northeastern and Central Switzerland, mainly through its subsid-iary CKW. Axpo Trading is an active trader in the European electricity market. As a result of the current very challenging wholesale electricity market, Axpo will remain exposed to earnings and cash flow generation pressure. Furthermore, the current forward price trend does not point toward a short-term recovery for the industry. Hence, Axpo will remain focused on efficiency gains and preserving cash.

Axpo's rating is based on the group’s above-average business and financial profiles. The business profile benefits from the company's EBITDA contribution from the regulated business, which adds earnings and cash flow predictability. The diversified power production mix offers opportunities even in difficult markets. Axpo enjoys a one notch rating uplift due to its shareholder structure (full public sector ownership). In contrast, record-low wholesale electricity prices put power generators in a challenging environment where production costs often come in above market prices. Furthermore, Swiss utilities are exposed due to a strong domestic currency. Although we appreciate the focus on increasing theless capital-intense services business, we highlight the group's limited

financial flexibility and execution risk. The financial profile benefits from the company's sound liquidity and adequate balance sheet, despite the recent large impairments. Cash flow generation has weakened and the expansion program for the pump-storage plant has pressured capex and increased indebtedness markedly. At the same time, the current market environment does not offer substantial opportunities in the shorter term. Returning to positive free cash flow generation remains key for Axpo. The rating outlook is Negative in light of another difficult year with pres-sure on profitability and cash flow generation. We would like to see an adjusted FFO/net debt clearly above 20% over the credit cycle for the current rating.

36




P&L

Sales 7,231 6,736 6,533 5,596 5,070

Gross margin 26.6% 30.0% 24.1% 23.5% 23.5%

Adjusted EBITDA 2,118 2,136 1,537 1,435 1,318


Adjusted EBIT 571 468 -675 -771 -221

Adjusted EBIT margin 7.9% 7.0% -10.3% -13.8% -4.4%


Net profit 259 179 -746 -1,010 -396

Cash flow

Adjusted FFO 1,701 1,780 1,522 1,110 1,084

Working capital changes -115 -321 -132 -57 0

Adjusted CFO 1,587 1,459 1,390 1,053 1,084

Adjusted CAPEX -1,272 -1,326 -1,423 -1,321 -1,434

Adjusted FCF 314 134 -33 -268 -350

Dividends -88 -82 -84 -7 0


Net M&A 0 0 0 0 0

Adjusted pre-financing cash flow 227 52 -118 -275 -350

Balance sheet

Adjusted cash and near cash 3,665 3,888 3,108 3,137 2,808




Adjusted equity 7,702 8,127 7,389 5,665 5,269


Key ratios





Adjusted FCF/net debt 4.7% 2.3% -0.5% -3.8% -4.8%


Capital structure






*FY ending 30 September n.a. = not available; accounting standard: IFRS


Capital structure

Debt coverage




Chairman: Thomas Sieber 2016

CEO: Andrew Walo 2014

CFO: Martin Schwab 2011


EKZ 18.4%

Canton of Zurich 18.3%

AEW 14.0%

Canton of Aargau 14.0%

Rating trend

2013 2014 2015 2016

Low AA Low AA High A Mid A Source (table and charts): Company data, S&P, Bloomberg, Credit Suisse Bubble size corresponds to CHF sales

20%

25%

30%

35%

40%

0

2,000

4,000

6,000

8,000

2012 2013 2014 2015 2016E

CHF m

Energy Business Energy Derivatives

Other Adj. EBITDA margin (r.h.s.)

20%

30%

40%

50%

60%

0

2,500

5,000

7,500

10,000

2012 2013 2014 2015 2016E

CHF m


0%

10%

20%

30%

40%

2012 2013 2014 2015 2016E

Adj. FFO / Net debtAdj. FFO / Net debt (3Y avg.)Threshold

0

1,500

3,000

4,500

6,000

End-Sep2015

2016 2017-2021

thereafter

CHF m


Alpiq

Axpo

BKW

EnBW

Repower

EVN AG

0%

10%

20%

30%

40%

0% 10% 20% 30% 40%

Adj

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37



Baloise – Low A, Stable Michael Kruse

Sector: Insurance Bond ticker: BALHOL

Company description www.baloise.ch


SWOT analysis


Solid market share in Switzerland, Belgium and Luxembourg, supplemented by a good niche position in Germany. Strong and sustainable underwriting performance. Conservative asset allocation and strong capitalization. Good name recognition and no subordinated debt, thus resulting in attractive refinancing costs for the company.

Profitability and growth opportunities are limited by concentration on competitive and mature markets. Limited scale compared to European and larger Swiss peers. Solvency under SST not fully disclosed.


Baloise has some financial headroom for external growth under its current rating. The consolidation process in the industry is driven by the new regulatory environment and could result in acquisition opportunities in Baloise's existing markets.

Persistent record-low interest rates could weigh on profitability in life insurance, given the pressure on investment returns. The growth strategy, particularly with external growth, could be costly due to the high level of competition. The Swiss insurance market is currently very profitable, but at some point the underwriting margins may deteriorate.

Baloise, based in Basel, is an insurance group providing life, non-life,pension and banking solutions (Baloise Bank SoBa) with a focus on individual and small/medium-sized enterprises. Non-life was the largest earnings contributor in FY 2015 (58% of pre-tax income), complement-ed by life (41%) and banking (12%). Geographically, Switzerland is the group's major market (60% of FY 2015 pre-tax income), followed by Belgium (28%), Germany (9%) and Luxembourg (3%). In order to focus on its core markets, the group has sold its subsidiaries in Croatia, Serbia and Austria over the last few years, which were minor in size and often not profitable. Baloise continued its solid underwriting performance in FY 2015, as reflected in a good and sustainable net combined ratio of 93.3%. Switzerland remained the country with by far the strongest combined ratio (83%). The performance in Germany (107%) was re-peatedly impacted by a high level of large claims, while initiated coun-termeasures have so far worked slower than expected. The life unit

benefited from resilient risk and savings results, while last year’s result included extraordinary profits from the sale of its stake in Nationale Suisse and Basler Austria. The new business margin decreased to 9.8% in FY 2015 from 15.0% in FY 2014, though. The lion's share of Baloise's group investments (insurance assets of CHF 54.6 bn as of December 2015) is conservatively invested in bonds (57% vs. 56% in December 2014), policy and other loans (11%/13%), real estate (11%/10%) and mortgage loans (8%/8%). Equities/funds (8%/7%) and alternative investments (2%/2%) hold a minor share. 90% of the bond portfolio is at least single A rated (AAA: 39%). Baloise Bank SoBa focuses on the northwestern part of Switzerland (Solothurn) and supple-ments the needs of Baloise's insurance clients with banking products. The group's strategic focus is on simplifying processes in its core busi-nesses, broadening its offering beyond traditional insurance products and focusing on customer needs.

We assign a Low A rating to Baloise, reflecting its above-average busi-ness and financial profiles. The insurer holds a more than solid market position in Switzerland with attractive (niche) positions in European countries such as Belgium and Germany complementing its geographicalfootprint. Key reasons for the rating are broad business diversification in terms of business lines (life and non-life) and the strong underwriting performance. The Swiss operations are clearly pivotal due to the strength of the underwriting margins. The low interest rate environment is a burden on overall profitability, but the firm knows how to cope with this situation. Baloise has also reduced its geographical footprint in

countries where it did not have enough scale. Strong capitalization of the firm under Solvency I allows for a capital return strategy, but solvency under SST is not fully disclosed. We therefore affirm our Low A rating on Baloise with a Stable outlook since the company has demonstrated resilient credit metrics. The senior bonds issued by Baloise Holding AG are rated High BBB, i.e. one notch lower to reflect the subordination versus the operating company, Basler Versicherung AG, as the holding company depends on the dividend payments from its subsidiary to service its debt.

38




P&L

Gross premiums written 6,742 7,213 7,168 6,832

Net premiums earned 6,554 7,045 7,005 6,684

Net investment income 1,782 1,765 1,702 1,522

Net capital gains on investments 839 670 1'363 386

Net attributable profit 437 453 711 512

Comprehensive income 1,171 456 1,155 -85

Balance sheet

Total investments 60,428 61,242 64,495 62,275

Deferred acquisition costs 749 812 678 607

Goodwill & other intangibles 267 227 217 200

Total assets 73,129 75,301 78,921 78,373

Technical liabilities: Life (other than linked) 38,295 38,672 39,848 37,196

Technical liabilities: Life (linked business) 2,258 2,521 2,678 2,623

Technical liabilities: Non-life business 6,149 6,242 6,213 5,947

Less: Reinsurer share of technical provisions -399 -396 -421 -411

Financial debt 2,018 1,698 1,702 1,708

Shareholders' equity 4,831 4,856 5,791 5,428

Market capitalization 3,925 5,680 6,390 6,058

Key figures - Life


Business operating profit 177 261 481 277

Embedded value 2,753 3,809 3,610 3,876

New business margin 8.9% 13.5% 15.0% 9.8%




Loss ratio 60.3% 62.1% 61.7% 62.1%

Expense ratio 33.1% 32.1% 31.9% 31.2%

Combined ratio 94.1% 94.9% 93.6% 93.3%

Other key ratios

Net investment return 3.4% 3.2% 3.9% 3.0%

Total investment return 6.0% 2.2% 6.3% 1.7%

Dividend payout ratio 48.5% 46.8% 31.5% 45.8%

Return on average equity 10.0% 18.6% 13.4% 10.0%

Comprehensive return on average equity 26.9% 18.8% 21.7% -1.7%

Leverage (financial debt/[debt + equity]) 29.3% 25.7% 22.6% 23.8%

Shareholders' equity/gross premiums written 71.7% 67.3% 80.8% 79.4%

Solvency margin (excl. banking assets) 277% 267% 354% 341%


Business operating profit and combined ratio

Embedded value - Life

Shareholders’ equity and solvency

Investment portfolio allocation



Chairman: Andreas Burckhardt 2011

CEO: Gert De Winter 2016

CFO: German Egloff 2004


Chase Nominees Ltd 6.0%

BlackRock Inc. >5.0%

UBS Fund Management AG >3.0%

LSV Asset Management >3.0%

Mellon Bank N.A. 3.1%

Rating trend

2013 2014 2015 2016

Low A Low A Low A Low A

Source (table and charts): Company data, S&P, Bloomberg, Credit Suisse Bubble size corresponds to CHF total assets

80%

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-330

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2011 2012 2013 2014 2015

CHF m

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CHF m

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2012 2013 2014 2014 2015

Government bonds Corporate bonds Mortgage loans

Policy & other loans Short-term investments Real Estate

Shares & funds Alternative investments

Zurich Ins. AXA

HelvetiaAllianz

Baloise

Aviva

Generali

0%

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90%93%96%99%102%105%

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Combined ratio

39



Bell – Mid BBB, Stable Roman Ochsner

Sector: Food Bond ticker: BELLSW

Company description www.bellfoodgroup.com


SWOT analysis


Largest Swiss meat-processing company; European niche player. Market leader in the Austrian poultry market. Strong, mutually beneficial relationship with Coop through extensive retail network and supply contract for large share of revenues. Well-known brand associated with high quality. High degree of vertical integration in Switzerland, encompassing own slaughtering facilities and cooperation with animal farmers as well as processing. Footprint in fast-growing convenience food and other niche markets. Full consolidation of Hilcona accretive to margins and high growth.

Client and – to a lesser degree – supplier concentration in Switzer-land due to specific market characteristics. Higher raw material prices cannot be fully passed onto customers immediately. Competition from discount retailers and hypermarkets in Europe impacts profitability, particularly in France and the Czech Republic. Fresh meat and meat processing is not a high-margin business.


International expansion offers more attractive growth prospects than the mature domestic market. Potential margin improvement with further expansion of convenience food with full consolidation of Hilcona and the Eisberg acquisition. Efficiency improvements and turnaround in the European businesses, with France expected to break even in 2016.

Cross-border shopping continues to grow and affect domestic sales. Partial market liberalization would likely disadvantage local producers. Food scares (although these tend to support high-quality food and high-quality producers like Bell). Integration risk of recent acquisitions. Pending EUR 100 m fine from the German Federal Cartel Office (alleged price-fixing by Zimbo/Abraham before their acquisition by Bell). Bell has appealed; legal proceedings could last several years.

In 2015, Bell Group AG (Bell) generated CHF 2.8 bn (+8.5% YoY) in revenues and processed 275 million kilograms of food (+27.7% YoY) in31 production sites with the help of over 8,000 employees. In recent years, the leading Swiss meat processor has bolstered its footprint in Europe, e.g. through strengthening its presence in Germany and Austria by taking over poultry producer Huber Group in March 2016. This pro-vides new growth opportunities against the more muted prospects in the domestic market. Sales in Switzerland account for 76%, Germany 15%, France 3%, Eastern Europe and Austria 4% and Spain/Benelux 2% of total revenues. Being highly vertically integrated, Bell operates five strategic brands in Switzerland through which it offers all fresh and processed meat products. Bell has high-quality requirements for itssuppliers and continuously works on optimizing internal processes. The largest client Coop – with 78% of Swiss revenues – is also the main shareholder, with 66.3% of equity. Coop obtains all fresh meat and a major share of processed meat, charcuterie and seafood from Bell. In

turn, Bell has access to Coop's wide retail distribution network and a high degree of security through a supplier contract with Coop, but operates as an independent entity. Since 1 May 2015, Bell has fully consolidated the fresh convenience food producer Hilcona by increasing its stake to 51%, adding CHF 361 m to 2015 group revenues. Bell's ambition to grow in the area of fresh convenience is also reflected in the acquisition of the Eisberg Group as of 1 May 2016, a producer of ready-to-eat salad products. For 2016, Bell is focusing on integrating the Huber and Eisberg acquisitions while launching its investment program for Swiss production facilities which is planned to last until 2025. The objective is to add capacity and improve productivity on the sites. Given expected higher raw material prices paired with an ongoing elevated level of cross-border shopping, management aims to compensate for this through the continu-ous restructuring of product ranges and further efficiency improvements.

Bell's business profile is supported by the group's leading market posi-tion in Switzerland and the rising internationalization resulting from grow-ing operations in Europe. Diversification has been further enhanced by the full consolidation of convenience food specialist Hilcona and the Huber Group acquisition, offering sound niche growth characteristics. We view the growing footprint in convenience food and new products as positive since these items tend to have higher added values. Also, the non-domestic market offers higher growth prospects. Bell remains exposed to the fast-rising cross-border shopping. The resulting intenseretail price competition and volatile input costs put a cap on the rating. In recent quarters, Bell has been acquisitive. While the financial policy has

so far remained rather conservative and credit metrics are above the required thresholds for the Mid BBB rating (e.g. adjusted FFO/net debt of 40%), we expect leverage to increase in 2016. Despite the challenging environment with CHF-appreciation in 2015 as well as difficulties in France and the Czech Republic, sales and profitability have remained stable. Also, cash generation has been robust, supporting a strong cash position and a healthy balance sheet. Owing to management's focus on operating efficiency and the removal of unprofitable items from the offer-ing, we think margins can gradually edge higher. Bell continues to see the EUR 100 m fine imposed by the German Cartel Office in 2014 as unjusti-fied and has not raised any provisions. The outlook is Stable.

40




P&L

Sales 2,508 2,598 2,578 2,781 3,218

Gross margin 33.0% 32.1% 33.0% 36.9% 36.7%



Adjusted EBIT 103 108 114 126 166



Net profit 76 77 88 95 118

Cash flow

Adjusted FFO 181 165 198 232 257

Working capital changes -26 -39 -36 -27 -67

Adjusted CFO 155 126 163 205 190

Adjusted CAPEX -88 -99 -103 -129 -141

Adjusted FCF 67 27 60 76 49

Dividends -25 -24 -24 -26 -26

Net M&A -36 -8 7 25 -200

Net share buybacks 0 -36 1 1 0

Adjusted pre-financing cash flow 6 -42 43 77 -177

Balance sheet

Adjusted cash and near cash 0 72 101 138 253


Adjusted gross debt 376 453 442 558 871

Adjusted net debt 376 381 341 420 619

Adjusted equity 675 731 787 909 1,002

Market capitalization 798 923 979 1,356 n.a.

Key ratios







Capital structure


Adjusted cash & near cash/gross debt 0.0% 16.0% 22.9% 24.8% 29.0%




n.a. = not available; accounting standard: Swiss GAAP


Capital structure

Debt coverage




Chairman: Hansueli Loosli 2009

CEO: Lorenz Wyss 2011

CFO: Marco Tschanz 2015


Coop-Group Cooperative 66.3%

Rating trend

2013 2014 2015 2016



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Cash Bonds & loans

Tyson Foods

Hormel

JBS

ConAgra

Aryzta

Bell AG

Smithfield

Campofrio

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> or net cash

41



BKW – Mid A, Stable Daniel Rupli

Sector: Utilities Bond ticker: BKWSW

Company description www.bkw.ch


SWOT analysis


The regulated business provides earnings stability and predictable cash flows. As majority owner, the Canton of Bern provides some implicit support with less shareholder pressure than with publicly held entities. Diversified power production parks in various European countries. A broadly diversified geographical supply region across several Swiss cantons, with a high proportion of direct customers resulting in close customer ties. Balance sheet remains sound and liquidity strong at end-2015.

Record-low wholesale electricity prices weigh on earning capabilities and future cash flow generation. 2019 closure of Mühleberg nuclear power plant will burden earnings. Having a long electricity position as a Swiss power producer pres-sures BKW's earnings stability further. The strong Swiss franc weighs on earnings and wholesale electricity markets in Europe are trading in EUR. The Decommissioning and Waste Disposal Fund is exposed to trends in the global financial markets.


Some indication of potential political support for hydro power produc-tion in Switzerland could slightly ease pressure. Investments in subsidized electricity generation projects such as wind in Europe or small hydro in Switzerland to aid earnings stability. The shift in the business model and the increased focus on energy services could add earnings stability and sustainable cash flows. Additional earnings in the distribution business from investment recovery could counterbalance headwinds. Over the long term, demand for electricity should recover and sto-chastic energy procurement should offer trading opportunities.

Decreasing profitability of hydro pump storage generation plants, given lower peak-load prices in Europe. The increasing focus on energy services and planned external growth could result in investments and execution risks. The decommissioning of the Mühleberg nuclear power plant in 2019 will add execution risks. BKW has fewer opportunities in the trading business due to the converging peak- and base-load power prices.

Located in the canton of Bern, BKW is an internationally active vertically integrated electric utility. The company is present in electricity production and wholesale trading, with its backbone in the regulated distribution business in Switzerland. It also offers a wide range of electricity services. BKW owns electricity production facilities in Switzerland, Italy, Germany and France. The electricity generation plants range from nuclear (Mühleberg, as well as stakes in Leibstadt and KGB) to hydroelectric (stakes in Kraftwerke Oberhasli, Grande Dixence, Blenio, Engadiner Kraftwerke, Mauvoisin, Maggia and others), fossil-thermal (Germany (coal), Italy (gas) to renewables (mainly wind). While the company's production capacity is meant to be 59% base-load and 41% peak-loadrelated, actual capacity was 75% base- and 25% peak-load in 2015.With regard to energy procurement, BKW generated and purchased a total of 20,975 GWh in 2015, of which trading accounted for 44%, nuclear power for 28%, hydropower for 19%, thermal power for 5%,and renewables for 4%. The bulk of energy procurement was carried out

via trading activities (56%), followed by consumption in Switzerland (32%), 10% international sales and 2% for own consumption. The fully regulated distribution business in Switzerland adds earnings stability and cash flow predictability. BKW supplies electricity to more than one million people in the cantons of Bern, Neuchatel, Jura, Solothurn and Basel-Land. Its largest shareholder is the Canton of Bern with a 53% stake. Being a power exporter in Switzerland with a long position in electricity exposes the company to the strong Swiss franc and the currently weak euro. While the company benefits from a good share of regulated EBIT (around 50%), it aims to further expand its services business, which should help it to become less dependent on wholesale electricity prices and to focus on less capital-intensive businesses. For FY 2016, BKW guides for flat operating profit thanks to its regulated business combined with efficiency measures and an increased profitability from services that should offset the weak traditional power generation business.

BKW's Mid A credit rating is based on the company’s above-average business and financial profiles. The business profile is supported by the roughly 50% profitability share of the regulated distribution business in Switzerland, which adds cash flow stability. Although electricity genera-tion is exposed to record-low wholesale prices, the company benefits from a diversified production park that offers opportunities. On the other hand, the company is exposed to a strong domestic currency that weighs on electricity exports. We see the dominant shareholder position of the Canton of Bern, which supports the rating by one notch uplift, as positive. The decommissioning of the Mühleberg (starting in 2019) adds execution risks and the regulatory and political environment is difficult,

but we see increasing support for hydropower generation activities in Switzerland. Energy trading activities expose BKW to earnings volatility and FX risks. The financial profile is supported by the company's sound balance sheet and strong liquidity. Operating profitability has held up well compared to peers, thanks to the regulated business, and the company is guiding for a stable earnings trend despite the weak environment. The expansion of its services business could expose BKW to execution risks and slightly weaken its credit metrics in the short term, depending on the size of acquisitions. The outlook is Stable after another solid set of results in a difficult market. We expect adjusted FFO/net debt to be above the threshold of 15%–20% over the cycle.

42




P&L

Sales 2,743 2,734 2,845 2,645 2,513

Gross margin 36.7% 33.8% 38.8% 43.1% 41.9%



Adjusted EBIT 350 -133 372 382 341

Adjusted EBIT margin 12.8% -4.9% 13.1% 14.4% 13.6%


Net profit 129 -217 288 277 207

Cash flow

Adjusted FFO 703 651 775 631 578

Working capital changes -72 -20 67 205 27

Adjusted CFO 632 631 842 836 605

Adjusted CAPEX -574 -614 -541 -510 -459

Adjusted FCF 58 17 301 326 146

Dividends -48 -59 -61 -79 -79


Net M&A 7 -126 -9 -99 -100

Adjusted pre-financing cash flow 18 -152 232 150 -33

Balance sheet

Adjusted cash and near cash 696 661 1,122 1,262 1,236




Adjusted equity 2,344 2,326 2,377 2,383 2,511

Market capitalization 1,498 1,383 1,425 1,843 0

Key ratios







Capital structure








Capital structure

Debt coverage




Chairman: Urs Gasche 2011

CEO: Suzanne Thoma 2013

CFO: Ronald Trächsel 2014


Canton of Bern 52.5%

Groupe E 10.0%

E.ON Energie AG 6.7%

Rating trend

2013 2014 2015 2016

High A Mid A Mid A Mid A Source (table and charts): Company data, S&P, Bloomberg, Credit Suisse Bubble size corresponds to CHF sales

0%

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BKW

EnBW

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43



Bobst Group – High BB, Stable Jannick Dousse

Sector: Capital Goods Bond ticker: BOBST

Company description www.bobstgroup.com

Rating rationale Business profile: Below-average Financial profile: Average

SWOT analysis


Leading positions in the packaging machinery and equipment busi-ness, underpinned by technological and innovative strength. Sound global sales presence in developed and growth markets. Profitable and competitive presence in the Greater China region through its subsidiary, Gordon, providing basic and to lesser extent entry and medium-level machines. Solid balance sheet, liquidity and credit metrics. Willingness to adapt to the new environment through cost cuts, and increasing focus on the growing entry-level machine segments.

Vulnerable to foreign exchange rate movements, in particular to an appreciation of the Swiss franc, due to its limited natural hedge. Business is fairly sensitive to the economic cycle, albeit less than its capital goods peers. Limited scale, diversification and stable cash-flow generation com-pared to global capital goods peers. Limited presence in the low-end machinery segments. A capital-intensive business model requiring high investments in relation to its cash-flow generation.


Ability to seize growth opportunities in emerging markets supported by the strong position of Gordon in Asia. Packing consumption is expected to grow globally, underpinned by resilient and increasing demand from the consumer goods sectors. As an innovation leader, Bobst launches a number of products every year, highlighting its technological edge. If digital printing receives high market demand, Bobst could benefit strongly as the innovator and manufacturer of one the first high-end digital printing presses worldwide.

As a high-end producer, Bobst is vulnerable to competition from low-price equipment, but we appreciate the change in its product mix to-ward low and medium-priced machines. The cyclicality of the capital goods sector to the global economy. Further appreciation of the Swiss franc, mainly against the euro and the US dollar.

The Lausanne-based Bobst Group is a leading global manufacturer of packaging machines for folding cartons, corrugated boards and flexible materials (plastic, foil, and paper). With its product range, Bobst covers about 53% of the world market for packaging and labelling, which hadreached total sales of USD 820 bn in 2015, and is expected to rise to USD 1 tn by 2020. The main business segments are Sheet-fed (49% of FY 2015 sales), Web-fed (23%) and Services (28%). The Sheet-fedunit produces machinery for printing, folding, stamping, die-cutting, gluing and laminating, in the folding carton and corrugated board indus-tries. The Web-fed unit supplies machines to print and manufacture flexible materials and web-fed folding cartons. The Services unit provides after-sales support, including advice, spare parts, machinery mainte-nance and improvements, through its worldwide network of service centers. In the packaging market supply chain, Bobst supplies to pack-aging manufacturers, who in turn supply to packaging users. While these end-markets (food & beverage, personal and home care, pharmaceuti-

cals, and tobacco) are stable sectors with a growing demand for packag-ing, Bobst – as a supplier to suppliers – is sensitive to the overall eco-nomic environment. Geographically, its largest markets are the USA (20% of sales), followed by Germany (9%) and Greater China (6%). Bobst is strongly export-oriented. Only about 1% of sales are generated in Switzerland, while about 52% of the group's non-current assets and 35% of the workforce are situated in the country. Therefore, Bobst is heavily exposed to exchange rate fluctuations due to its CHF cost/revenue mismatch, which led to considerable exchange rate losses in FY 2015. However, Bobst reacted quickly and cut costs, to partially compensate for the profitability gap. Moreover, the group is slowly but steadily working on better aligning its geographical presence. In 2015, the company acquired Italy-based Nuova Gidue, and the full ownership of its Chinese low-cost subsidiary Gordon. For 2016, management expects some price pressure, which is likely compensated for by new product releases, and full-year consolidation of its acquisitions.

Bobst's below-average business profile reflects the company's limited scale and diversification, cyclical operating performance and heightened vulnerability to external shocks. Further, its small size only allows for a limited natural hedge, which exposes the company strongly to the ex-change rate environment in Switzerland. The business profile is support-ed by its strong position in the packaging machinery and equipment business, its sound geographic sales and improving production footprint,with presence in the growth markets of Asia and Latin America. Bobst maintains its technological and innovative strength by capitalizing on industry trends such as mass customization and digital printing. In the lower-priced market, the company is increasingly successful with its

Chinese subsidiary Gordon, which Bobst now fully owns. In the eye of rising price pressure, Bobst has taken quick and effective action to maintain cost control. The average financial profile is based on improving credit metrics over recent years. In FY 2015, the three-year average adjusted FFO/net debt met our criterion (i.e. at least 25%) for a High BB rating. However, the group has not yet been able to catch up with its cash flow generation in the 2006–08 period, when we had assigned an investment-grade rating to Bobst. Despite the difficult Chinese market and exchange rate pressures, we expect Bobst to remain solidly posi-tioned in the High BB category, supported by additional cost-cutting measures. Therefore, our rating outlook is Stable.

44




P&L

Sales 1,264 1,354 1,300 1,331 1,348

Gross margin 53.0% 54.5% 55.4% 53.0% 53.0%



Adjusted EBIT 15 77 89 66 86



Net profit 2 26 51 59 56

Cash flow

Adjusted FFO 41 89 96 87 100

Working capital changes 72 –15 29 15 6

Adjusted CFO 113 73 124 101 106

Adjusted CAPEX –71 –37 –32 –28 –30


Dividends –1 –1 –13 –22 –22

Net M&A 36 51 4 –3 0


Adjusted pre-financing cash flow 5 –15 75 54 55

Balance sheet



Total adjusted debt 682 511 675 492 477

Total adjusted net debt 427 248 266 266 211

Adjusted equity 560 508 455 414 448

Market capitalization 516 539 634 693 n.a.

Key ratios







Capital structure








Capital structure

Debt coverage




Chairman: Alain Guttmann 2013

CEO: Jean-Pascal Bobst 2009

CFO: Attilio Tissi 2011


JBF Finance 50.01%

Silchester International Investors 9.9%

Sarasin Investmentfonds 4.3%

Rating trend

2013 2014 2015 2016

High BB High BB High BB High BB


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RieterBucher Ind.

Georg Fischer

Sandvik

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45



Bucher Industries – High BBB, Stable Jannick Dousse

Sector: Capital Goods Bond ticker: BUCNSW

Company description www.bucherindustries.com

Rating rationale Business profile: Average Financial profile: Above-average

SWOT analysis


A broadly diversified business profile serving multiple end-markets. Leading positions in most of its businesses, particularly in the agricul-tural machinery division (Kuhn Group). Milder competition due to its focus on niche markets. Technological and innovative strength. Sound cash flow and low leverage. Natural hedging in place to some extent. A conservative financial policy underpinned by reasonable shareholder remuneration and recent bolt-on acquisitions.

Bucher is exposed to the investment propensity of its clients. Hence, demand is largely early and mid-cycle, resulting in a relatively high sensitivity to economic trends. A high geographic concentration in mature markets, especially in Europe (given the group's limited presence in the high-growth mar-ket of Asia and the uncertain outcome in Latin America). Limited scale (in terms of sales and cash-flow generation). Fluctuations in demand require cost and process optimization.


Long-term growth trends for agricultural machinery are favorable, due to strong population growth and rising meat consumption. Geographic expansion into high-growth regions, i.e. emerging mar-kets, is laid out by Bucher's strategy. A leaner and more efficient cost structure, and thus higher profitabil-ity following the group's optimization efforts (e.g. centralization of production).

The strong exposure to the prices of agricultural commodities, as evidenced by the strong sales decline in Kuhn Group. Exposed to translational exchange rate risk, considerably affecting the company's top line. The capital goods industry is generally cyclical in nature and highly capital-intensive.

Bucher Industries is a global and broadly diversified capital goods com-pany with leading positions in niche markets. The group consists of five divisions, which have responsibility for products, markets and re-sults. Kuhn Group accounted for 43% of FY 2015 sales, Bucher Mu-nicipal (15%), Bucher Hydraulics (19%), Bucher Emhart Glass (14%), and Bucher Specials (9%). Kuhn Group is the world’s largest manufac-turer of specialized agricultural machinery. The segment has suffered from the deep downturn in agricultural equipment markets, caused by price deterioration in agricultural commodities. Bucher Municipal is a manufacturer of communal vehicles, specializing in street cleaning and snow clearance, as well as waste disposal. In March 2016, Bucher acquired JHL, a Danish manufacturer of truck-mounted sewer-cleaning units. Bucher Hydraulics is a leading manufacturer of customized hy-draulic systems for mobile and stationary applications. Bucher Emhart Glass is the global market leader for equipment and services related to the manufacturing and inspection of glass containers. Bucher Specials

consists of four independent businesses: wine-making machinery (Bucher Vaslin); machinery for fruit juice, beer, instant products and sewage sludge (Bucher Unipektin); the distribution of tractors and agricultural machinery in Switzerland (Bucher Landtechnik), and control systems for automation technology (Jetter). Bucher Industries' activities are centered in Europe (58% of FY 2015 sales), and North America (23%), while its presences in South America (5%) and Asia (8%) remain comparatively small. Generally, the group is exposed to the economic cycle, but its broad product diversification mitigates the cyclicality somewhat. Similarly, its exchange-rate sensitivity is eased by the comparably good natural hedge of its product and sales footprint. Nevertheless, Bucher faced considerable translational effects in 2015. In spring 2016, Jacques Sanche, former CEO of Belimo, took over as CEO of Bucher Industries, replacing Philip Mosimann who became Chairman. For FY 2016, the group expects to maintain sales almost flat vs. FY 2015 and a slight decrease in profitability.

Bucher's average business profile is strengthened by its broad product diversification across the major divisions, which all serve multiple end-markets. Moreover, its leading market positions in several markets show the company’s technological leadership and innovative strength. Its clear strategic direction and sensible bolt-on acquisitions (e.g. JHL in 2016) enhance its growth opportunities. The business profile is constrained by the company's concentration on mature markets and its generally limited scale (in terms of absolute sales and cash-flow generation), compared to global capital goods companies. Moreover, the company has considera-ble exposure to the economic cycle, as evidenced by the impact of the deep downturn in agricultural markets on Kuhn Group's results. Its

financial profile is supported by solid operating profitability, a sound liquidi-ty and funding structure, low leverage, strong financial metrics, and a conservative financial policy (as evidenced by the 15% dividend cut follow-ing the JHL acquisition). It is constrained by the generally capital-intensive nature of Bucher's operations, and the vulnerability to (translational) exchange rate risk. Credit metrics are strong, and we expect them to remain well above our required threshold for a High BBB credit rating (e.g. adjusted FFO/net debt ratio of 45%). For 2016, we expect profita-bility to weaken, but leverage to remain stable. Bucher still has significant financial headroom under its current rating for further bolt-on acquisitions. Our rating outlook is Stable.

46




P&L

Sales 2,609 2,691 2,806 2,490 2'344

Gross margin 47.4% 50.2% 49.5% 49.9% 50.8%



Adjusted EBIT 235 291 265 209 196



Net profit 150 195 187 138 126

Cash flow

Adjusted FFO 257 294 236 249 231

Working capital changes –45 –62 –60 –4 40

Adjusted CFO 212 232 177 245 271

Adjusted CAPEX –104 –145 –121 –83 96

Adjusted FCF 108 87 55 162 175

Dividends –44 –52 –68 –68 56

Net M&A –1 –45 –60 –7 -70

Net share buybacks –3 44 13 –2 0

Adjusted pre-financing cash flow 60 34 –60 86 49

Balance sheet


Adjusted total asset base 2,318 2,499 2,677 2,416 2'479



Adjusted equity 925 1,084 1,212 1,154 1'223


Key ratios







Capital structure








Capital structure

Debt coverage




Chairman: Philip Mosimann 2016

CEO: Jacques Sanche 2016

CFO: Roger Baillod 1996

Major shareholders (mid-2016)

Shareholder pool (Rudolf Hauser) 35.2%

BlackRock >3%

Harris Associates <3%

Rating trend

2013 2014 2015 2016

High BBB High BBB High BBB High BBB


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47



Cembra Money Bank – Mid A, Stable Michael Kruse

Sector: Banks Bond ticker: CMBNSW

Company description www.cembra.ch


SWOT analysis


Clear and focused strategy with proven management track record. Leading provider of consumer credit products in Switzerland (personal loans and auto leasing) and major issuer of credit cards. Stable profitability, sound asset quality and robust capitalization metrics.

Relatively small size, no support from anchor investor. Active in niche market, leading to high product (consumer finance, credit cards) and geographic (Switzerland) concentration.


Growing market for cashless payments further supported by electron-ic and mobile commerce. Persistently low interest environment could support the consumer credit business. New technologies and product features could attract new customers, drive revenues and increase market share.

Higher costs to address the increasing risk of credit card fraud. Adverse regulatory developments, e.g. recent introduction of maxi-mum interest rate for consumer loans. Slowdown in Swiss economy could lead to higher credit costs.

Cembra Money Bank AG (Cembra) provides financial services to clients in Switzerland. It is headquartered in Zürich and has more than 700 employees. The bank was solely owned by GE Capital (GE) until its partial stock market flotation on 30 October 2013. GE reduced its shareholding thereafter and completely sold its remaining stake on 7 May 2015. Cembra specializes in consumer finance products and ser-vices with five major product lines: personal loans, auto leases and loans, credit cards, insurance, and deposits and savings. Personal loans (44% of total loans as of year-end 2015) and auto financing (41%) form the largest blocks of Cembra's lending book. The company holds a top position in advancing unsecured loans to retail clients in Switzerland. It is present throughout the country and uses a broad range of sales chan-nels, including branches, online, and independent agents. Auto financing is its second major business segment, which arranges secured leasing and loans for new and used vehicles. Cembra enjoys a leading position among independent providers (i.e. it is not a financing arm of an auto

manufacturer), collaborating with around 3,200 dealers. Since 2006, the bank has also been offering credit cards via partner programs (e.g. Mi-gros, Conforama or TCS) or its own brand. Credit card receivables ac-counted for 15% of its loan portfolio as of year-end 2015. It currently has around 655,000 cards outstanding, reflecting average growth rates of 20% p.a. over the last ten years. The insurance segment provides pay-ment protection related to its personal and auto loans (i.e. loan payments are covered in case of involuntary unemployment, illness or accident) as well as insurance services related to credit cards. The bank also intro-duced savings products for individuals and institutional clients in 2010, which helps the bank to diversify its funding mix. Cembra's main revenue source is interest income (78% of FY 2015 total income), reflecting the structure of its business mix, and to a lesser extent fees and commissions (22%). The bank does not undertake any proprietary trading activities or facilitate any transactions for its clients.

We rate Cembra Mid A based on the company's above-average busi-ness and financial profiles. The business profile benefits from a focused strategy and an experienced management team. The bank is only active in Switzerland, enjoying a stable and (relatively) predictable operatingenvironment. Furthermore, Cembra holds a leading position as a supplier of personal loans and auto leasing services, and is a major issuer of credit cards. Its profile is constrained by the lack of an anchor investor, which could provide support in a critical situation. The rather small size of the company also results in a high product and geographic concentra-tion. The above-average financial profile takes into consideration the group’s robust capitalization and sound asset quality, which is reflected

in the low non-performing loan ratio. We also appreciate the bank's resilient level of profitability. However, net interest income, its main earn-ings driver, has come under pressure due to the ultra-low interest rate environment, increasing competition and regulatory changes (cap on maximum interest rate for consumer loans). Mitigating factors include higher fee and commission income, which reflects the growing number of its outstanding credit cards, lower refinancing costs and cost saving initiatives. The bank has also continuously improved its funding mix in recent years. While wholesale funding sources still play an important role, Cembra has managed to increasingly attract retail and institutional depos-its. Our rating outlook is Stable.

48




P&L









Net income 133 133 140 145

Balance sheet

Total assets 4,439 4,590 4,812 4,749





Customer deposits 1,280 1,660 1,941 2,246

Senior debt 1,904 2,000 1,900 1,575



Shareholders' equity 1,081 799 842 799

Market capitalization n.a. 1,684 1,696 1,758

Key ratios

Profitability






Capital adequacy

Tier 1 ratio 26.7% 19.7% 20.6% 19.8%

Total capital ratio 40.0% 19.8% 20.7% 19.8%

Equity/net loans 27.0% 20.0% 20.7% 19.7%



LLP/NII 7.9% 14.2% 13.6% 14.5%

Coverage ratio 253.6% 282.8% 261.5% 265.7%




Profitability

Asset quality

Capital adequacy




Chairman: Felix A. Weber 2013

CEO: Robert Oudmayer 2009

CFO: Haldun Kuru (ad-interim) 2016


Cembra Money Bank AG 6.0%

Allianz SE 5.8%

UBS Fund Management 5.4%

Pictet Asset Management 5.0%

Rating trend

2013 2014 2015 2016

n.a. n.a. Mid A Mid A


0%

25%

50%

75%

100%

0%

5%

10%

15%

20%

2011 2012 2013 2014 2015

Return on average equity (ROAE) Cost/income ratio (r.h.s.)

0.0%

0.2%

0.4%

0.6%

0.8%

0%

4%

8%

12%

16%

2011 2012 2013 2014 2015

Loan loss provision / Net interest income

Non-performing loan ratio (r.h.s.)

0%

7%

14%

21%

28%

2011 2012 2013 2014 2015

Tier 1 ratio

0

110

220

330

440

2011 2012 2013 2014 2015

CHF m

Net Fee & Commission Income Net interest income Other operating income

Raffeisen

ZKB

LUKB

BEKB

Valiant

AKB

Cembra Money Bank

Aduno

40%

60%

80%

100%5% 10% 15% 20% 25% 30% 35%

Cos

t/in

com

e ra

tio

CET1 ratio (Basel 3, fully-loaded; for Aduno: Equity/net loans)

49



CFT – High BB, Stable Michael Kruse

Sector: Financials Bond ticker: CFTSW

Company description www.tradition.ch


SWOT analysis


Strong global franchise as one of top three interdealer brokers with leading market positions in Asia. Solid long-term track record, also in difficult times. Revenue diversification across continents and asset classes. As a pure intermediary, CFT does not hold any market positions and its credit limit is very short-dated. Low share of intangibles thanks to mainly organic growth over the last few years.

Decreasing volumes represent a burden on margins, which need to be mitigated by cost saving initiatives. Lower margins and higher compensation compared to peers. Highly competitive market with intense price competition among all market players. Challenging market conditions globally, and in Europe and North America in particular.


CFT could access new revenue streams with its new IT developments using its proprietary technology. Exposure limited to credit risk, which is spread across a large cus-tomer base worldwide. Electronic initiatives in partnerships, with global investment banks as liquidity providers. New business potential could arise due to regulatory reforms – new markets could open.

Cost pressure (lower margins) could result due to regulatory costs. Increasing transparency due to clear market regulation (i.e. swap market) could impact trading volume overall. Regulatory uncertainty surrounding the OTC derivative markets.

Compagnie Financiere Tradition (CFT) is a leading interdealer broker, specializing in derivatives. It was founded in 1959 and has been majority owned by VIEL & Partner since 1996. It has experienced a rapid expan-sion over the last 20 years, primarily through organic growth. CFT is headquartered in Lausanne, but mainly operates in the UK (35% of FY 2015 total revenues) and the Americas (32%). The remaining revenues (33%) are mainly generated in Asia-Pacific (25%) – where the group holds leading positions – and in Continental Europe. Overall, the group offers services in 28 countries and has around 2,175 employees (year-end 2015). Its brokerage services cover derivatives in all major financial markets (money markets, rates, bonds, credits, repurchase agreements, equities and foreign exchange) and commodity markets (oil, natural gas, power, coal, weather, emissions, precious metals, pulp and paper, and property). In addition, CFT offers cash bonds and equities brokerage services. The foreign exchange and rates business contributes thelargest share (FY 2015 revenues: 45%), followed by securities and

derivatives (33%) and commodities (22%). Non-interdealer broker opera-tions only form a minor part of the business. CFT's revenues continued to recede, but were only down by 1.7% YoY at constant exchange rates, with especially Q4 2015 exhibiting a notable decline in activity, resulting in a weak H2 2015 performance. By product category, volumes were lower in rates and securities products, whereas volumes of commodity products increased and FX revenues were largely unchanged. Nevertheless, the bottom line benefitted from ongoing focus on cost cutting, resulting in a 46% YoY increase in net income to CHF 41 m. Regulatory initiatives regarding the OTC derivative markets could lead to uncertainty, but the company has proven to be highly flexible and pro-active to any change in the regulatory environment. In terms of 2016 guidance, the company will concentrate on external and organic growth opportunities arising from the changing regulatory environment and industry consolidation. However, costs and technology investments will also remain as a focus area.

CFT's rating is based on its below-average business profile and its average financial profile. The business profile is underpinned by its strong positions in the interdealer broker market, particularly in Asia, as well as its global franchise and organic growth in recent years. Its reve-nues are diversified across asset classes and geographically across continents. In contrast, increasing industry regulation is weighing on revenues and profitability as interdealer brokers are dependent on trading volumes in general. CFT's size and profitability margins somewhat lag those of its peers. We highlight the company's concentration of income in brokerage fees, which generate almost the entire revenue base. Theaverage financial profile benefits from a sound balance sheet with limited

credit risk, as the company does not hold own trading positions. CFT maintains a relatively low amount of goodwill and a solid equity base compared. Liquidity is good, but we highlight that upstreaming cash from subsidiaries might be challenging. Capitalization is solid, while profitability is improving slightly due to strict cost management. If profit margins continue to increase and leverage ratios drop further (i.e. no major, debt financed acquisitions), a rating upgrade could be feasible. This would especially be the case if CFT can permanently return to EBITDA margins in the double-digits and to an adjusted debt/EBITDA ratio of below 2.5x. Our outlook is Stable as our non-investment grade rating already factors in the challenging operating environment.

50




P&L

Revenues 1,018 876 840 817 795






Net profit 19 15 28 40 40

Cash flow

Adjusted FFO 62 68 80 70 78

Working capital changes −44 −8 1 0 0

Adjusted CFO 18 60 80 70 78

Adjusted CAPEX −26 −30 −26 −36 −28

Adjusted FCF -8 30 54 34 50

Dividends −11 −6 −20 −7 −7

Share buybacks 0 -4 -3 −10 0

Balance sheet


Core working capital 33 34 30 24 12

Adjusted total asset base 1,767 996 1,054 1,175 1,141




Market capitalization 325 326 305 405 305

Key ratios



Adjusted EBIT/net interest coverage 7.8x 4.1x 5.7x 6.2x 7.4x



Adjusted FCF/net debt −5.2% 14.4% 31.8% 20.4% 42.3%

Adjusted debt/EBITDA 3.4x 3.7x 3.2x 3.5x 2.9x

Capital structure







Revenues by segment and profitability

Capital structure

Debt coverage

Liquidity and debt coverage



Chairman: Parick Combes 1996

CEO: Patrick Combes 1996

CFO: Francois Brisebois 2012


Financière Vermeer 69.2%

Compagnie Financiere Tradition 5.0%

Rating trend

2013 2014 2015 2016

High BB High BB High BB High BB


0%

4%

7%

11%

14%

0

300

600

900

1'200

2012 2013 2014 2015 2016E

CHF m

FX & rates Securities & derivativesCommodities Non IDBAdj. EBITDA margin

0%

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0

100

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2012 2013 2014 2015 2016E

CHF m


Adj. Equity Adj. net leverage (r.h.s.)

1.0x

2.0x

3.0x

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5.0x

2012 2013 2014 2015 2016EAdjusted Debt/EBITDA (3Y avg.)Adjusted Debt/EBITDAThreshold

0

90

180

270

360

Year end2015

2016 2017-2020 thereafter

CHF m

Cash Bonds & loans

CFT

BGC Partners

Tullet Prebon

ICAP

0%

10%

20%

30%

40%

50%

0.0x1.0x2.0x3.0x4.0x

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. EB

ITD

A m

argi

n

Adj. debt/EBITDA

51



Clariant – Low BBB, Negative Misha Weber

Sector: Chemicals Bond ticker: CLNVX

Company description www.clariant.com


SWOT analysis


Less volatile end-markets and higher-margin products after the repositioning of the company, though the recent carve-out of Plastics & Coatings suggests further portfolio actions may be necessary. Reasonable diversification in terms of businesses and products, as well as from a geographic perspective. Management remains committed to further deleverage its balance sheet in order to achieve/maintain an investment grade rating over the cycle.

The specialty chemicals industry is exposed to the economic cycle and typically faces volatile raw material prices. Cash flow dynamics are rather poor. Higher operating profit margins should boost cash flows, but appear to be held back by continued high restructuring costs/payments. Deleveraging has been fully reliant on disposal proceeds, with pro-gress slower than expected. This has left credit metrics weak for current ratings.


Better working capital efficiency would free up capital, boost cash flow and support key credit metrics.

Specialty chemicals invariably face a threat from commoditization over time, including emerging new competitors in China. This pro-cess may accelerate. Industry consolidation increases uncertainty. Clariant may overreach as a consolidator or pursue defensive actions unfriendly to creditors to remain independent.

Clariant is a global specialty chemicals company serving a variety of end-markets across different sectors. In FY 2015, the company generatedCHF 5,807 m in revenues. The company is organized into four key business areas: 1) Care Chemicals (25% of FY 2015 sales) delivers specialty chemicals for applications in Personal Care, Industrial Applica-tions (ethylene oxide derivatives), Home Care, Crop Care (additives for crop protection) and Enzymes & Industrial Biotechnology; (2) Natural Resources (21%) consists of Oil Services (currently seeing a retrench-ment in the opening-up of new fields, especially in shale gas), Mining Solutions (a sector also experiencing margin pressure and hence, ag-gressively seeking lower input costs), Refinery Services, and Functional Minerals; (3) Catalysis (12%) offers catalysts for the petrochemicals, plastics, and refining industries, and likely benefits from a relatively dynamic growth outlook; 4) Plastics & Coatings (42%) comprises Addi-tives (products for functional plastic effects), Pigments (organic pig-ments and pigment preparations) and Masterbatches (color and additive

concentrates). The latter division has effectively been carved out from the rest of the group, providing Clariant with strategic flexibility. Geographical diversification is credit supportive, with 33% of its FY 2015 sales gener-ated in Europe, 24% in Asia Pacific, 18% in North America, 18% in Latin America, and 7% in the Middle East and Africa. While the business portfolio shift in recent years has added some faster-growing, higher-margin activities (in particular the Catalysis business), significant parts of the portfolio remain less favorably positioned. In 2016, Clariant has adopted a fairly cautious outlook, pointing to an even more challenging environment in emerging markets, moderate growth in the US, while growth in Europe is expected to remain stable but weak. It expects to achieve growth in local currencies, as well as in operating cash flows and EBITDA margins before exceptional items. In a slightly longer timeframe, Clariant is targeting a reported EBITDA margin of 16%−19% before exceptional items, and a return on invested capital (ROIC) above the peer group average.

Clariant's Low BBB rating is under some pressure. The business profile benefits from the company's reasonable diversification across products and regions. The repositioning of the company toward higher-margin products lessens exposure to economic swings, which should add anelement of stability. Nevertheless, the company has not fully exited more commoditized chemicals, especially in plastics/coatings. Limited pricing power, the competitive nature of the industry and input price volatility at times weigh on the business risk assessment, in our view. The financialprofile is under some pressure due to the consistently poor cash flow dynamics. In particular, working capital has remained a persistent source of cash absorption despite the relatively muted growth in reported reve-

nues. Restructuring cash outlays have also been a consistent source of cash outflow, amounting to almost CHF 1 bn since 2009. Clariant strug-gles to self-fund the dividend payment. This has meant that any delever-aging in recent years has come from disposal proceeds. We think Clariant needs to demonstrate sustainably stronger cash flow generation to im-prove its financial flexibility, and which would position the company more firmly in the investment grade category. Our Negative outlook reflects the pressure on Clariant's Low BBB rating should cash flow dynamics not demonstrate clear improvement in 2016. Clariant has sizable refinancing requirements over the next 18 months making the company potentially vulnerable to any disruption in capital markets.

52




P&L

Sales 6,038 6,076 6,116 5,807 5,908

Gross margin 57.9% 56.5% 57.4% 58.4% 58.4%



Adjusted EBIT 396 432 453 479 540



Net profit 190 306 175 217 258

Cash flow

Adjusted FFO 678 554 559 554 626

Working capital changes −231 −339 −266 −75 −11

Adjusted CFO 447 215 293 479 615

Adjusted CAPEX −407 −375 −373 −456 −408

Adjusted FCF 40 -160 -80 23 207

Dividends −99 −120 −139 −166 −170

Net share buybacks -56 15 8 13 0

Net M&A 16 293 407 59 0

Adjusted pre-financing cash flow −99 28 196 −71 37

Balance sheet

Adjusted cash and near-cash 1,546 795 806 825 860




Adjusted equity 2,457 2,704 2,733 2,494 2,582


Key ratios





Adjusted FCF/net debt 1.4% −6.1% −3.1% 0.9% 7.9%


Capital structure


Adjusted cash/gross debt 34.4% 23.2% 24.0% 24.8% 24.7%






Capital structure

Debt coverage




Chairman: Rudolf Wehrli 2012

CEO: Hariolf Kottmann 2008

CFO: Patrick Jany 2006


D. Stockhausen & K. Winterstein shareholder group

13.89%

APG Asset Management N.V. 5.01%

Causeway Cap. Mgmt. 3.82%

BlackRock 3.10%

Rating trend

2013 2014 2015 2016

Low BBB Low BBB Low BBB Low BBB


0%

5%

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15%

20%

0

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2012 2013 2014 2015 2016E

CHF m

Care Chemicals Plastics & Coatings

Natural Resources Catalysis

Group sales Adj. EBITDA (r.h.s.)

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2016 2017 2018 2019 2020 thereafter

CHF m

Cash & near cash Bonds & loans

Givaudan

Lonza Syngenta

BASF

Air Liquide

Clariant

Linde

5%

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53



Coop – Low A, Stable Heike Halsinger

Sector: Retail Bond ticker: COOPSW

Company description www.coop.ch

Rating rationale Business profile: Above-average Financial profile: Average

SWOT analysis


Dominating positions in Swiss food and non-food retail. Sound diversification across retail segments, formats and prices. Attractive, high-quality and innovative product range. Growing share of international revenue and outside retail. Long-term, sustainable strategy and financial policy as a cooperative. Continued pursuit of efficient, lean processes and structures. Vertical integration diversifies business risk, suppliers and customers.

Structural shift in industry - opportunistic clients and price pressure. Intensifying competition from online retail and discounters. Exposure to macroeconomic swings, primarily in non-food products. Financial information is published only annually, but good manage-ment access and adherence to own financial targets offer comfort.


Better negotiation power with Alidis to support margins. Cross-selling potential between retail and wholesale. "Coop To Go" complements supermarkets. Sustainability & lifestyle brands with still-high growth; Coop accounts for 50% of organic products sold in Switzerland (CHF 1.1 bn). "Siroop" (JV with Swisscom) to promote Swiss online retail. Newly formed 'division 7' IT/Production/ Services (with board repre-sentative) to help Coop prepare for the challenges of digitalization.

Online retailing is set to stay (albeit still small in food retail) and to add to competitive pressure.is still small in Switzerland, Potentially adverse impact from regulation, infrastructure and volatile raw material prices. High sensitivity to food scandals, although these are typically short-lived. Coop selects its partners very carefully. Margin pressure due to shopping tourism and domestic production.

The Swiss retail landscape remains characterized by the two heavy-weight, incumbent retailing cooperative groups, Coop and Migros, which together account for about 70% of the domestic food retail market and a fair share of the non-food market. Although they are industry leaders by a wide margin, a number of structural challenges affect them too, causing pullbacks in reported revenues and profitability, and making it harder to protect margins. Challenges include price competition (online, discount), market share gains by Aldi and Lidl, cross-border shopping (totaling CHF 11 bn in 2015) and the strong Swiss franc. Coop has 2.5million members and 80,000 employees, generating CHF 26 bn of revenues in 2015. Revenues are made up of 70% food retail/wholesale and 30% non-food products and services. The majority of revenues are still generated in Switzerland (71%), with a growing share of internation-al revenues. The group comprises the Retail (two-thirds of revenues) and the Wholesale/Production units. In addition to its flagship Coop super-markets (61% of revenues), Retail includes department stores (Coop

City), electronics (Interdiscount), and various other formats in the home improvement, personal care, restaurant and pharmacy segments, while Wholesale/Production encompasses essentially Transgourmet, Bell and Coop Cooperative Production. Several smaller acquisitions continue to round out Coop's offering. Coop is highly regarded as a pioneer and ardent supporter of animal welfare, sustainability across the entire value chain and innovative products (e.g. BioKnospe, Hochstamm Suisse). It accounts for almost 50% (or CHF 1.1 bn) of organic products sold in Switzerland, illustrating the benefit of integrating this philosophy into its corporate strategy (attractive pricing, family friendliness, sustainability, freshness, enthusiasm). Given the market challenges, EBIT margins in Retail and Wholesale have narrowed their traditionally wider gap. The impact on the group was thus more muted, illustrating the benefits of the group's wider scope and diversification, pursued through organic addi-tions (e.g. Siroop JV) and selected acquisitions. Supplier negotiations benefit from the larger scale through the Alidis purchasing organization.

Coop's business profile is supported by its strong oligopolistic market positions in Swiss retail with a sound diversification across retail seg-ments, retail formats and price ranges. Its strong presence in wholesale and gastronomy adds business diversification, size and cross-selling benefits. Coop continues to generate organic growth despite a saturated domestic market, a strong Swiss franc and growing price pressure. Growth is supported by a comprehensive, innovative and appealing offering in food retail, a wide range of sustainable products, as well as wholesale and gastronomy. Acquisitions also enhance growth, and Coop has a good track record in integrating acquisitions, supported by its long-term and cautious approach as a cooperative. The rating is capped by

intense price pressure, competition from discount stores and cross-border shopping. Diversification acts as a buffer, but a keen focus on pricing, efficiency and investments in logistics remains vital. The financial profile is supported by satisfactory profitability margins for the sector as well as consistently strong cash flow generation and good debt-service coverage. Leverage has gradually come down following the sizeable Transgourmet transaction. Credit metrics have remained commensurate with our required thresholds for the rating, e.g. adj. FFO/net debt of >30%, as Coop uses spare cash toward debt reduction, reflecting its own fairly conservative financial targets. Nevertheless, headroom under the rating thresholds remains limited. The outlook is Stable.

54




P&L

Sales 26,731 26,967 27,162 25,895 25,377

Gross margin 29.0% 28.0% 28.5% 29.8% 30.1%

Adjusted EBITDA 2,482 2,445 2,536 2,432 2,378


Adjusted EBIT 852 865 932 820 771



Net profit 452 461 471 416 386

Cash flow

Adjusted FFO 2,138 2,229 2,147 2,173 2,065

Working capital changes 10 -159 -201 -125 30

Adjusted CFO 2,148 2,070 1,946 2,048 2,094

Adjusted CAPEX -1,304 -1,484 -1,604 -1,850 -1,755

Adjusted FCF 844 586 342 198 339

Dividends -58 -67 -67 -80 -80

Net M&A -84 42 -497 -37 n.a.

Net share buybacks n.a. n.a. n.a. n.a. n.a.

Adjusted pre-financing cash flow 702 561 -222 81 259

Balance sheet

Adjusted cash and near cash 517 1,036 693 586 843




Adjusted equity 7,263 7,739 8,089 8,400 8,706


Key ratios







Capital structure






n.a. = not available; accounting standard: Swiss GAAP FER


Capital structure

Debt coverage





CEO: Joos Sutter 2011

CFO: Adrian Werren 2016¹

¹ in Coop Group since 1995


2.5 million members 100%

(six regional organizations)

Rating trend

2013 2014 2015 2016



0%

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0

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2012 2013 2014 2015 2016E

CHF m

Retail Wholesale Adj. EBITDA margin (r.h.s.)

35%

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CHF m


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CHF m

Cash Bonds & loans

Metro

Carrefour

CoopMigros

Tesco

Casino

Valora

Auchan*

Rewe

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8%

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*FY 2014

55



Emmi – Low A, Stable Roman Ochsner

Sector: Food Bond ticker: EMMI

Company description www.group.emmi.com


SWOT analysis


Leading market position in the Swiss dairy industry and the leading exporter of Swiss cheese. Its well-known and trendy brands are associated with superior quality. High-quality and well-diversified product portfolio, with a high level of innovation and higher-margin niches. Operational excellence, with Swiss production facilities serving as a role model for subsidiaries outside Switzerland. Conservative balance sheet and financing policy.

Stagnating Swiss market faces strong pricing pressure and in-creased cross-border shopping activities, but is still by far the largest market. The strength of the Swiss franc affects roughly CHF 400 m of exports. Growth in key European markets remains muted. Although the product range is extensive, it focuses on the relatively narrow segment of milk, fresh dairy and cheese products.


Enhanced global diversification, especially in developed countries, and the export of premium products such as Swiss cheese and Caffè Latte. International expansion through acquisitions and organic growth offers better growth prospects, especially in niches like goat cheese or high-protein food. Innovation based on megatrends and society's focus on quality food. Potential for cost-savings in its operations and the transfer of domes-tically gained experience abroad.

Partial market liberalization in Switzerland could increase competition. Reliable and consistent sourcing of high-quality raw materials is a challenge. Integration risk of new acquisitions, which were run by different management teams previously. Unexpected changes in consumer sentiment toward dairy products.

Emmi Group is the largest Swiss milk processing company, focusing on the development, production, marketing and trading of various dairy and fresh products such as cheese, yoghurt, milk and desserts. Its ambitionis to become an internationally leading company for premium dairy products. In 2015, it employed over 5,400 people and generated net sales of roughly CHF 3.2 bn. Emmi's products are split into six groups of which dairy and fresh products as well as cheese account for 85% of sales, with fresh cheese, powder/concentrates and others making up the other 15%. Well-known brands include the Caffè Latte drink andKaltbach cheese, with which it is positioned as the global leader for Swiss cheese. Emmi has a strong pipeline of new products to be launched and advertised, particularly in profitable and trendy niche categories (e.g. protein-rich or additive-free products). The company manages and markets products differently depending on global reach, either at group level (e.g. Global Categories) or regionally if they are sold only in individual countries (Local Model). It exports to ~60 countries and

has production sites in seven of its 12 international markets – with 15–18 markets targeted in the long term. While Switzerland still accounts for 56% of sales (Europe: 15%, Americas: 25%, Global Trade: 4%) and despite the impact of CHF appreciation, management still sees a 50:50 split as feasible in the longer term, with growth coming from high-potential markets like the USA or Tunisia in particular. Growth has largely occurred inorganically (e.g. the acquisition of Gläserne Molkerei in Germany, Cow-girl Creamery Corporation in the USA or the recent increase in its stake in Group Surlat in Chile), but the financial policy has remained conservative, with net debt declining constantly since 2013. Management is committed to retain a strong domestic market, to further optimize costs and constant-ly improve its product portfolio by reducing non-core and unprofitable items. For 2016, Emmi expects import pressure and cross-border shop-ping to persist or even increase, pressuring domestic sales. All in all, managements guides for group sales growth of 0%–1%, which is below the 2%–3% medium-term forecast.

Emmi's well-known products are associated with high quality and sup-ported by clever marketing campaigns. The firm has established a strong market position, particularly in the higher-end and niche dairy product segments. Emmi's position as the largest Swiss milk processor and leader of the premium dairy market is supportive of the business profile, but the size is still relatively small with sales slightly above CHF 3.2 bn. We view the increasing international diversification positively as it en-hances the mature Swiss market. While its position in the value chain between raw material suppliers and customers exposes it to rising input costs and price competition, establishing premium brands helps to strengthen pricing power. As such, European sales did not fall as much

as expected in 2015, despite price increases abroad following the CHF appreciation. In 2016, we expect a mixed picture, with domestic sales remaining under pressure due to cross-border shopping and declining tourism, but see solid growth particularly in the Americas business. The financial profile is underpinned by stable EBITDA margins and healthy cash generation, which has enabled it to deleverage in recent years. Its financial policy is conservative and shareholder remuneration modest, supporting solid credit metrics as illustrated by an adjusted FFO/net debt ratio comfortably above the 50% required for the current rating. Emmi has some financial headroom for acquisitions, but large debt-financed acquisi-tions would stretch its metrics. Our rating outlook is Stable.

56




P&L

Sales 2,981 3,298 3,404 3,214 3,228

Gross margin 34.5% 33.0% 33.2% 34.8% 34.9%



Adjusted EBIT 168 171 138 191 187



Net profit 106 105 79 120 117

Cash flow

Adjusted FFO 217 242 266 292 279

Working capital changes 31 30 -26 -10 13

Adjusted CFO 248 272 240 282 292

Adjusted CAPEX -134 -125 -113 -76 -119

Adjusted FCF 115 148 127 207 173

Dividends -22 -24 -25 -24 -26

Net M&A -7 -52 -60 -61 -30


Adjusted pre-financing cash flow 85 72 42 127 117

Balance sheet



Adjusted gross debt 658 702 675 622 657


Adjusted equity 1,165 1,258 1,313 1,394 1,484


Key ratios







Capital structure








Capital structure

Debt coverage




Chairman: Konrad Graber 2009

CEO: Urs Riedener 2008

CFO: Jörg Riboni 2013


ZMP Invest AG 54.3%

Zentralschweizer Milchkäufer-verband

4.2%

MIBA Milchverband Nord 3.6%

Capital Group Companies 5.1%

Rating trend

2013 2014 2015 2016

n.r. Low A Low A Low A


0%

5%

10%

15%

20%

0

900

1'800

2'700

3'600

2012 2013 2014 2015 2016E

CHF m

Fresh products Dairy productsCheese Fresh cheesePowder/ concentrates OtherAdj. EBITDA margin (r.h.s.)

0%

25%

50%

75%

100%

0

400

800

1'200

1'600

2012 2013 2014 2015 2016E

CHF m



40%

70%

100%

130%

160%

2012 2013 2014 2015 2016E


0

100

200

300

400


CHF m


Lindt & Sprüngli

George Weston

Barry Callebaut

Unilever

MondelezDanone

Kellogg

Aryzta

Bell

Emmi

5%

10%

15%

20%

25%

0% 25% 50% 75% 100%

Adj

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d EB

ITD

A m

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n


> or net cash

57



Flughafen Zürich – Mid A, Negative Jannick Dousse

Sector: Airport Service Bond ticker: FHZHSW

Company description www.flughafen-zuerich.com


SWOT analysis


Flughafen Zürich holds a strategically favorable position in Switzer-land, underpinned by a large catchment area and a quasi-monopoly. Its role as a provider of infrastructure and as the main employer in the region of Zurich underpins its importance for the Swiss economy. The group generates stable cash-flows through its diversified busi-ness profile, made up of aviation and non-aviation operations. Its credit metrics are strong, due to deleveraging in recent years, despite heightened capital expenditure. Minor (indirect) exposure to the strong Swiss franc.

There are very limited growth opportunities in aviation, given the impossibility of airstrip expansion due to aircraft noise issues. Customer concentration reduces diversification in the aviation busi-ness, especially in the case of Swiss Airlines and Star Alliance, ex-posing the group to a fairly cyclical industry. Pending noise-related litigation with residents living close to the airport. However, recent decisions of the Swiss Federal Court have been in favor of Flughafen Zürich's position.


The approved "Circle" project adds diversification potential, by strengthening the group's non-aviation business. The company could monetize its strong expertise in airport operation through targeted expansion into international airports. An increase in outbound travel due to the strong Swiss franc could add to its aviation revenues from local travelers, given their higher purchasing power in the Eurozone.

"The Circle" project requires a large amount of investments to be made (roughly CHF 1 bn) over the coming years. Leveraging its balance sheet (target of 3x net debt/EBITDA) will put pressure on financial profile. Operational risks arising from its foreign investments are considera-bly higher than in Switzerland.

Flughafen Zürich is the owner and operator of the largest airport in Switzerland, used by 26.3 m passengers (+3.2% YoY), and mandated under a concession from the Swiss Confederation (ending in May 2051).Its activities can be divided into aviation and non-aviation segments. Theformer generated about 60% of sales in FY 2015, including passenger fees, security fees, landing fees, noise charges, baggage sorting, and others. These segments' revenues are largely regulated by the Federal Office of Civil Aviation (FOCA), which eliminates the airport's pricing power. As of September 2016, lower security charges will be imple-mented for the period up to 2020. Any lost revenue will however becompensated by higher parking charges (PRM) and growing passenger volumes (between 3.0% and 3.5%). Flughafen Zürich is the home carrier for Swiss International Air Lines, which accounted for 55% of passenger volume, or 67% when adding the Star Alliance network, which constitutes a rather high customer concentration. Moreover, transfer passengers represent roughly 28% of total passenger volume,

which exposes the airport to strong competition from larger European hubs (e.g. London, Frankfurt, and Amsterdam). Flughafen Zürich also remains exposed to regulatory issues, for example restrictions on ap-proaches over German territory, and concerning noise emissions. The non-aviation segment generated 40% of revenues in FY 2015, mainly from rents, retail, tax and duty free, parking, utilities, food and beverag-es, and others. This business is largely unregulated, which results in better profitability. Flughafen Zürich continues to invest large sums in infrastructure, in order to further expand and optimize the airport. Con-struction in the major “The Circle” project has started, which will require an investment of around CHF 1 bn, shared with minority partner Swiss Life (49%). Moreover, Flughafen Zürich is currently involved in several airports in Latin America and Asia. It has announced the sale of its stake in its most successful investment, Bangalore International Airport, after it lost the mandate for its operation. Nevertheless, management has stated that it intends to increase investments into its international expansion.

Flughafen Zürich's business profile is supported by its strong strategic positioning, and its quasi-monopoly within Switzerland. In terms of ownership, we appreciate the fact that one-third can be attributed to the Canton of Zurich. Continued passenger volume growth and an increase in sales in both the aviation and non-aviation businesses, have supported its strong cash-flow from operations. Its solid non-aviation business adds diversification, and contributes to making Flughafen Zürich less depend-ent on passenger volume and flight movements. This development of the non-aviation business is likely to continue with “The Circle” project. Despite somewhat lower turnover in its airside shops, the appreciation of the Swiss franc does not directly affect the airport, as almost all of its

revenues and costs are generated in Switzerland. Key constraints of its business profile are the pressure on charges in its regulated business, the dependence on SWISS/Star Alliance, and unresolved regulatory issues. In recent years, Flughafen Zürich has constantly deleveraged, and now comfortably exceeds our adjusted FFO/net debt guideline (40%) for the current rating. However, management has announced a considerable increase in shareholder distributions via special dividends (CHF 500 m additionally over five years), and M&A investments. In our view, its target net debt/EBITDA metric of 3x will exert pressure on the credit rating going forward. In anticipation of this, we changed our rating outlook from Stable to Negative at the beginning of the year.

58




P&L

Sales 949 975 963 989 992

Gross margin 83.3% 83.4% 83.5% 83.9% 83.9%



Adjusted EBIT 278 299 288 312 317



Net profit 95 137 206 180 215

Cash flow

Adjusted FFO 400 457 435 444 493

Working capital changes –4 –17 9 –3 0

Adjusted CFO 396 440 444 441 493

Adjusted CAPEX –205 –235 –262 –242 –267

Adjusted FCF 191 205 182 200 226

Dividends –57 –58 –61 -83 –190

Net M&A 5 0 –14 68 49

Net share buybacks 1 –1 –1 0 0


Balance sheet




Total adjusted net debt 1,159 1,093 964 957 870

Adjusted equity 1,787 2,058 2,148 2,212 2,237


Key ratios







Capital structure








Capital structure

Debt coverage




Chairman: Andreas Schmid 2000

CEO: Stephan Widrig 2015

CFO: Daniel Schmucki 2008


Canton of Zurich 33.3%

City of Zurich 5.1%

Rating trend

2013 2014 2015 2016

Low A Low A Mid A Mid A


40%

45%

50%

55%

60%

0

250

500

750

1,000

2012 2013 2014 2015 2016E

CHF m

Aviation Operations Commercial RevenueFacility Management ServicesAdj. EBITDA margin (r.h.s.)

25%

30%

35%

40%

45%

0

600

1,200

1,800

2,400

2012 2013 2014 2015 2016E

CHF m



20%

30%

40%

50%

60%

2012 2013 2014 2015 2016E


0

300

600

900

1,200

Year-end2015

2016 2017 2018 2019 2020 thereafter

CHF m


Dublin Airport

Flughafen ZHAeroporti di Roma SpA

Auckland Airport WellingtonAirport

Aeroports de Paris

LuchthavenSchiphol

0%

25%

50%

75%

100%

0% 10% 20% 30% 40% 50% 60% 70%

Adj

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59



Galenica – Restricted Heike Halsinger

Sector: Healthcare Bond ticker: GALNSW

Company description www.galenica.com

Rating rationale Business profile: Restricted Financial profile: Restricted

SWOT analysis


Integrated business model balances risk-return profile: lower-margin, stable business and higher-margin, higher-growth business. Superior iron deficiency treatment franchise with leading market positions particularly in intravenous iron deficiency treatment. Iron franchise continues to grow (e.g. Ferinject: +33% to CHF 251 m in 2015) with rollout in additional countries and therapeutic areas. The healthy financial profile reflects the merits of the business model.

Exposure to patent expiration/replacement risk, with revenue loss exacerbated by limited number of products. Strong price pressure in the industry due to competition, regulation and health cost austerity measures. Retail and Logistics are exposed to tight regulation and price pres-sure, countered by high share of non-prescription revenue.


Complementing its iron franchise with own products and strategic partnerships increase operating leverage. Building momentum in the largest global healthcare market (USA). Further rollout of iron franchise in additional countries. Focus on therapeutic areas outside dialysis with high medical need (e.g. gastroenterology and cardiology). Strategic partnerships (FMC, Roche) and acquisitions bolster growth.

Business separation of Pharma and Santé is complex, time-consuming and still-uncertain in outcome. Acquisitions or licensing agreements to boost size bear integration and financial risk (but Galenica has good track record). Potential loss of synergies in the iron franchise through separating non-dialysis (Vifor) and dialysis (J.V. Vifor-FMC Renal Pharma).

Over 20+ years, Galenica has evolved from a wholesale to a diversified healthcare and pharma company. Targeted acquisitions have added retail and pharma units to the logistics business, fundamentally impacting the company's business profile and size with net sales trebling to CHF 3.8 bn and employees rising to 7,800. Galenica operates via two distinct strategic pillars, Vifor Pharma and Galenica Santé. The international specialty pharma company researches, develops, manufactures andmarkets pharmaceutical products with a focus on iron deficiency and related treatments (e.g. phosphate binder, hyperkalemia treatment), aswell as infectious diseases/OTX. It occupies globally leading market positions in iron deficiency products, accounting for 34% of the total CHF 2.5 bn iron deficiency market and a 64% share of the CHF 1.2 bnintravenous iron products market. Growth potential for the iron franchise remains strong in the therapeutic areas Galenica concentrates on, i.e. nephrology, gastroenterology and cardiology, based on scientific evi-dence and unmet medical needs. Santé is fully focused on Switzerland,

where it is the clear market leader with 491 own and partner pharmacies, the OTC business, pharmaceutical logistics, and tools for information management. Santé is the larger unit measured by net sales and gener-ates stable, though relatively low, margins. Pharma earns significantly higher margins, which reflect its higher business risk. Galenica has been working toward separating its business units into two independent compa-nies. The timing of the split has been pushed back by 6-12 months (end-2017) following the departure of the CEO of the Pharma unit while a successor is found. To boost the Pharma unit's size further in preparation of this split, Galenica favors (1) the further rollout of its existing product franchise (Venofer, Ferinject, Velphoro), (2) strategic partnerships (e.g. with Roche on Mircera, which added CHF 207 m to net sales over eight months in 2015, Patiromer), and (3) smaller-scale acquisitions of busi-nesses or products in late-stage pipeline. Development of new patent-protected drugs absorbs significant time and resources, which is challeng-ing even for bigger companies.

Restricted

60




P&L

Sales 3,294 3,359 3,416 3,792 4,091

Gross margin 35.0% 35.1% 36.0% 38.5% 38.5%



Adjusted EBIT 364 381 383 463 500



Net profit 255 296 284 301 324

Cash flow

Adjusted FFO 425 422 441 552 553

Working capital changes -93 -49 -40 15 -41

Adjusted CFO 333 373 400 566 512

Adjusted CAPEX -92 -116 -114 -209 -172

Adjusted FCF 241 257 286 357 340

Dividends -93 -93 -129 -102 -117

Net M&A 3 -44 -5 -43 -50

Net share buybacks -8 -14 -6 -10 -20


Balance sheet




Adjusted net debt 1,126 943 967 932 803

Adjusted equity 1,293 1,555 1,723 1,910 2,096


Key ratios







Capital structure








Capital structure

Debt coverage




Chairman: Etienne Jornod 1996

CEO Santé: Jörg Kneubühler 2014

Vice-CEO Pharma: Gianni Zamperi 2016

CFO Group: Jörg Kneubühler 2012


Sprint Investments Ltd 2* 25.5%

*old: Alliance Boots, voting rights 20.0%

Patinex AG and BZ Bank 16.4%

voting rights 5.0%

Alecta pensionsförsakring 3.2%

Rating trend

2013 2014 2015 2016

Mid BBB High BBB High BBB Restricted


5%

10%

15%

20%

25%

0

1'100

2'200

3'300

4'400

2012 2013 2014 2015 2016E

CHF m

Santé (from 2015) PharmaRetail Health CareAdj. EBITDA margin (r.h.s.)

0%

15%

30%

45%

60%

0

500

1'000

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2012 2013 2014 2015 2016E

CHF m


0%

20%

40%

60%

80%

2012 2013 2014 2015 2016E


0

200

400

600

800

Year-end 2015 2016 2017-2021 thereafter

CHF m

Cash Bonds & loans

GSK

Merck & Co

Galenica

Pfizer

Novartis

Sanofi

Roche

AstraZeneca

Bayer

10%

20%

30%

40%

50%

0% 30% 60% 90% 120% 150%

Adj

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ITD

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61



Geberit – High BBB, Positive Misha Weber

Sector: Building Materials Bond ticker: GEBNVX

Company description www.geberit.com


SWOT analysis


Strong market shares in the more affluent, albeit relatively mature, developed European markets. A large part of the business is geared toward the less cyclical renova-tion and refurbishment segments. Strong trade distribution channel, particularly to wholesalers, plumb-ers, sanitary engineers, and interior decorators/architects. Pricing power enables Geberit to recoup potentially higher raw mate-rial costs.

A generally cyclical new construction industry with its high correlation to economic swings, although the high renovation/refurbishment share of overall sales is far more stable. Geographic diversification is quite narrow, with Europe accounting for 90% of group sales. A strengthening Swiss franc has had mostly a translational effect, although with head office costs in Switzerland and some exports out of Switzerland, the group has some smaller transactional exposure.


The Sanitec acquisition adds a complementary bathroom ceramics design capability. Combining Geberit's behind-the wall-plumbing ex-pertise with the design competence of Sanitec could improve Geberit's competitive position/addressable market. While the Sanitec business was previously owned by private equity, and we therefore assume it to be reasonably efficient, Geberit may still pursue synergies beyond the EUR 45 m initially targeted. Rising affluence in emerging markets or even peripheral European markets should enable Geberit to gradually penetrate new geogra-phies.

The Sanitec acquisition likely increases cyclicality, adding a higher fixed cost base, reflecting its lower operating margin than standalone Geberit and its higher manufacturing intensity. Integration risk stemming from the Sanitec acquisition. The rationale for the acquisition relies on the ability to effectively merge two very different business models. Future integrated product innovations, combining Geberit's behind-the-wall technology with in-front-of-the-wall Sanitec design capability will take several years to bring to the market.

Geberit is the leading European manufacturer of sanitary products. The two divisions – Sanitary Systems and Piping Systems – accounted for44% and 31% of its CHF 2.6 bn sales in FY 2015, respectively. TheCHF 1.25 bn acquisition of Sanitec, announced in October 2015 and consolidated from February 2016, added a third business area. Sanitec broadens the product offering into bathroom ceramics (toilets, wash basins, shower trays, etc.), representing about 75% of the acquired business, and ceramics complementary products (bathroom furniture, bathtubs, shower solutions, etc.) accounting for about 25% of the acquired business. Geberit was already venturing into bathroom ceramics with its ambitions to grow its presence in the shower toilet market. Sanitec's bathroom ceramics design/manufacturing business will be integrated with the behind-the-wall sanitary technologies of legacy Geberit products. Geberit has identified synergies of approximately EUR 45 m, which will help bring Sanitec's margins closer to those of Geberit. The combination with Sanitec increases the addressable market of the

group. Geberit has traditional strengths with the professional or tradesman (typically the plumber) and was less well represented in product show-rooms targeting end clients (architects, interior decorators and their cli-ents). Sanitec's ceramic products have this wider public showroom distri-bution model, which should be beneficial to Geberit's market penetration efforts. However, the acquisition also increases the asset intensity of the group, adding to fixed costs and increasing business complexity. Its main markets, Germany and Switzerland, account for 31% and 11% of sales, respectively. Europe accounts for 90% of group sales, which the acquisi-tion did little to alter. The sanitary market can roughly be divided into bathroom equipment, sanitary fittings and sanitary technology. Geberit has traditionally focused on higher-value-added sanitary technology and plumbing products, which typically command higher margins than the average bathroom fittings and sanitary equipment.

Geberit's High BBB rating is based on its above-average business profile and its above-average financial profile. Usually, this would align with a Mid A rating, but we effectively cap the rating at High BBB, reflecting the overall size of the group, limited geographic diversification and exposure to the cyclical building & construction sector. Nonetheless, the business profile is supported by strong European market positions and high market shares, strong operating profitability, an element of pricing power and a high share of renovation/refurbishment sales (ap-proximately 60% of Geberit stand-alone sales). The financial risk profile is also above-average, in our view, based on the strength of operating cash flow generation, fairly low capital intensity and the resulting strong

free cash flow generation. This has typically enabled Geberit to maintain a very strong capital structure, with cash and liquid assets exceeding indebt-edness, and to return excess cash to shareholders via a progressive dividend policy and periodic share repurchases. With the acquisition of Sanitec, financial leverage has increased to a moderate level for our assigned credit rating. Geberit has suspended its share repurchase pro-gram in 2016 and will prioritize restoring its financial flexibility. We have acknowledged this change in priority with a revision in our outlook to Positive from Stable. On an adjusted basis, we expect net debt/EBITDA to improve to 1.2x by end 2016 from 1.8x in FY 2015. Our High BBB rating is quite firmly positioned.

62




P&L

Net sales 1,920 2,000 2,089 2,593 2,780

Gross margin 69.2% 70.1% 71.1% 69.8% 70.2%



Adjusted EBIT 456 507 574 498 630



Net profit 388 436 499 422 527

Cash flow

Adjusted FFO 510 558 616 569 702

Working capital changes −16 2 −35 40 −24

Adjusted CFO 494 560 581 609 678

Adjusted CAPEX −86 −98 −110 −161 −149

Adjusted FCF 408 462 471 448 529

Dividends −242 −248 −282 −311 −318

Net share buybacks −198 −27 −42 −204 0

Net M&A 26 -9 76 −1'179 0

Adjusted pre-financing cash flow −7 178 222 −1'246 212

Balance sheet



Adjusted gross debt 221 154 282 1,516 1,558

Adjusted net debt −145 −399 −405 1,134 970

Adjusted equity 1,431 1,687 1,717 1,452 329


Key ratios


Adjusted EBITDA/net interest coverage 335.1x −280.7x 496.8x 52.7x 45.3x


Adjusted FFO/net debt −352.7% −139.7% −152.1% 50.2% 72.4%

Adjusted FCF/net debt −282.1% −115.7% −116.2% 39.5% 54.6%

Adjusted net debt/EBITDA −0.3x −0.7x −0.6x 1.8x 1.2x

Capital structure

Core working capital/net sales 11.7% 11.2% 12.9% 11.8% 11.8%


Adjusted net leverage −11.2% −31.0% −30.9% 43.9% 74.7%


Adjusted net gearing −10.1% −23.7% −23.6% 78.1% 295.0%


Net sales and profitability

Capital structure

Debt coverage




Chairman: Albert M. Baehny (former CEO 2005-2014)

2011

CEO: Christian Buhl 2015

CFO: Roland Iff 2005


BlackRock Inc. 5.11%

Capital Group Companies Inc. 4.94%

Sun Life Financial Inc. 2.98%

Geberit AG 2.32%

Rating trend

2013 2014 2015 2016

n.r. n.r. High BBB High BBB


15%

20%

25%

30%

35%

0

750

1'500

2'250

3'000

3'750

2012 2013 2014 2015 2016E

CHF m

Sanitary Systems Piping Systems

Ceramics Products Adj. EBITDA margin (r.h.s.)

-50%

0%

50%

100%

150%

-750

0

750

1'500

2'250

2012 2013 2014 2015 2016E

CHF m



0%

50%

100%

150%

200%

2012 2013 2014 2015 2016E

>or net cash

Adj. FFO / Net debt ThresholdAdj. FFO / Net debt (3Y avg.)

0

250

500

750

1'000

Year end2015

2016 2017 2018 2019 thereafter

CHF m


LafargeHolcimHilti

Cemex

CRH

Geberit

0.0%

7.5%

15.0%

22.5%

30.0%

0% 20% 40% 60% 80% 100%

Adj

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ITD

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argi

n


> or net cash

63



Georg Fischer – Mid BBB, Stable Jannick Dousse

Sector: Capital Goods Bond ticker: GEOFIS

Company description www.georgfischer.com


SWOT analysis


Leading positions worldwide in its three distinct business divisions. Increasing low-cyclical Piping Systems business and reducing, repo-sitioning or optimizing medium/high-cyclical Automotive and Machin-ing Solutions operations. Broad geographic diversification outside of Europe. Solid business diversification targeting various end-markets. Healthy cash flow generation and prudent financial policy. A technological and innovative edge.

Strong, albeit declining geographic sales concentration in Europe. Exposure to the business cycle present in GF Automotive and GF Machining Solutions. Exposure to raw material prices, mitigated by pass-through clauses in certain areas. Heightened competition in its markets, thus constraining pricing power.


Growth opportunities in Asia, especially in China, which is already the group's second largest single country market. Broadening regional presence, thus reducing dependence on West-ern Europe. Potential to participate in the trend in water treatment. Improving earnings stability with an increasing share of the more stable and profitable piping business and re-orientation on less vola-tile end-markets in the two remaining segments.

General cyclicality of the capital goods sector. High dependence on the European economy. High capital intensity and general risks associated with expansion into new markets. Large-scale M&A activities or shareholder distributions could weaken credit metrics considerably. Lower business diversification with the focus on GF Piping Systems.

Georg Fischer AG (GF) is a medium-sized capital goods company, withleading market positions through three distinct segments: GF Piping Systems (39% of FY 2015 sales), GF Automotive (36%), and GF Machining Solutions (25%). GF Piping Systems supplies piping products made from plastics and metal for the safe transport of water and gas. Its customers include utilities and companies active in building technology and industry. GF Automotive specializes in manufacturing high-value iron and lightweight metal cast components, mainly for passenger cars and trucks. GF Machining Solutions (electric discharge, milling and laser machines, and automation solutions) is the world's leading supplier to the tool, molding and precision components industry, predominantly the IT, aerospace and car industries. Georg Fischer regularly participates in bolt-on strategic M&A to purchase specialized knowledge and innovative technologies. In recent years, GF has taken considerable measures toreduce the exposure to the two more cyclical segments of Automotive and Machining Solutions. Moreover, the group has increasingly refo-

cused on stable end-markets, such as IT, aerospace and medical equipment. Overall, the group's geographical footprint is global, but skewed toward Europe (57% of FY 2015 revenues). In comparison, operations in Asia (23%), the Americas (14%) and other parts of the world (6%) are considerably smaller. With the introduction of the new mid-term targets until 2020, GF plans to take further steps to increase product and geographical diversification, as well as growing its top line. With a combination of increasing growth and market exposure, improving productivity (particularly in Europe), and expanding into more attractive market segments, GF aims to increase sales to CHF 4.5 – CHF 5.0 bn by 2020 while leaving margins untouched (assuming stable FX rates). For FY 2016, management expects the good momentum in GF Piping Systems to persist, despite increasing market uncertainty. Sales growth is expected between 3% and 5%, while margins are likely to be stable. A change in leadership has also been announced, with Andreas Müller taking over the CFO position from Roland Abt at the beginning of 2017.

Georg Fischer's average business profile is based on the leading market positions of each of its three segments, its good diversification across end-markets, and its innovative capabilities and technological leadership. We appreciate the successful repositioning towards the less-cyclical GF Piping Systems, as well as to more stable end-markets. Georg Fischer's geographic diversification is limited by its concentration on Europe. However, the company is continuously shifting toward a more balanced geographical footprint. The rating is constrained by the company's limited size, and the fairly cyclical character of capital goods businesses in general. The limited pricing power and exposure to volatile raw materi-al prices further limit Georg Fischer's business profile. The average

financial profile benefits from the group's improving profitability and good cash-flow generation. Moreover, the group is strongly committed to a prudent financial policy, as evidenced by the commensurate shareholder distributions and M&A transactions. GF has improved its credit metrics steadily, and now has a comfortable margin on the adjusted FFO/net debt metric above our threshold for the current rating category (above 35%). We expect the company to maintain strong headroom in the coming year, despite the likely higher M&A activity. With its newly-announced mid-term targets, the top line is likely to expand, while con-tinuing to shift to a better geographical alignment and less cyclical busi-ness lines. We have a Stable rating outlook.

64




P&L

Sales 3,602 3,766 3,795 3,640 3,788

Gross margin 50.6% 51.1% 51.5% 52.2% 52.2%



Adjusted EBIT 239 263 286 307 326



Net profit 121 139 184 188 205

Cash flow

Adjusted FFO 344 348 354 359 389

Working capital changes –77 –2 –67 3 –12

Adjusted CFO 267 346 287 362 377

Adjusted CAPEX –170 –171 –194 –203 –207

Adjusted FCF 97 175 93 159 170

Dividends –68 –68 –73 –77 –81

Net M&A –75 –68 –6 28 –35

Net share buybacks –1 –6 –3 –1 0

Adjusted pre-financing cash flow –47 33 11 109 55

Balance sheet





Adjusted equity 1,181 965 1,094 1,111 1,236


Key ratios







Capital structure








Capital structure

Debt coverage




Chairman: Andreas Koopmann 2012

CEO: Yves Serra 2008

CFO: Roland Abt 2004


LSV Asset Management > 3%

UBS Fund Management > 3%

Rating trend

2013 2014 2015 2016

Low BBB Mid BBB Mid BBB Mid BBBSource (table and charts): Company data, S&P, Bloomberg, Credit Suisse Bubble size corresponds to CHF sales

0%

4%

8%

12%

16%

0

1,000

2,000

3,000

4,000

2012 2013 2014 2015 2016E

CHF m

GF Automotive GF Piping Systems

GF Machining Solutions Adj. EBITDA margin (r.h.s.)

20%

30%

40%

50%

60%

0

350

700

1,050

1,400

2012 2013 2014 2015 2016E

CHF m



30%

38%

45%

53%

60%


0

300

600

900

1,200


CHF m


Schindler

ABB

Bobst

Metso

Oerlikon

Sulzer

RieterBucher Ind.

Georg Fischer

Sandvik

5%

9%

13%

17%

21%

0% 25% 50% 75% 100% 125% 150%

Adj

uste

d EB

ITD

A m

argi

n


65



Givaudan – Low A, Stable Misha Weber

Sector: Chemicals Bond ticker: GIVNVX

Company description www.givaudan.com


SWOT analysis


No. 1 market position in the very defensive Flavors and Fragrances markets, with a 25% global market share. Well-diversified and defensive customer base encompassing many of the largest food, beverages and household goods producers. Size and scale provide a competitive advantage, as does the deep global knowledge about consumer tastes and preferences.

Raw material price volatility from the 11,000 separate ingredients (half of which are natural and half synthetic, sourced from 100 coun-tries in some of the remotest parts of the world) can introduce an el-ement of volatility into near-term profitability. Growing contribution from emerging markets can expose the com-pany to periodic FX volatility.


Rising living standards in emerging markets will likely increase de-mand for higher-quality flavors and fragrances and should help take market share from local less sophisticated companies. The replacement of sugar and salt in the food industry with a focus on health & wellness should provide growth opportunities. In the longer term, Givaudan may be able to de-risk its supply chain if efforts in fermentation/biochemistry technology can replicate other-wise difficult-to-source and expensive natural flavor and fragrance in-gredients.

Strong shareholder distribution commitment could conflict with its relatively conservative financial leverage target. Natural raw material ingredients availability and/or costs can be constrained by weather/disease and politics.

Givaudan is the largest manufacturer of natural and synthetic flavors and fragrances in the world and claims a market share of above 25%. The top four companies account for 60%–65% of the global market (the top ten generate 90% of sector sales, according to Givaudan). The compa-ny's two divisions, Flavors (52% of FY 2015 sales) and Fragrances(48%), are both global market leaders. The Flavors division comprises Beverages (37% of divisional sales), Savory (34%), Dairy (14%) and Confectionary (15%). The Fragrances division comprises Consumer Products (69% of divisional sales), Fragrance and Cosmetic Ingredients (13%) and Fine Fragrances (18%). Givaudan now discloses Fragrance and Active Cosmetics Ingredients separately. The cosmetics ingredients industry is fragmented, and the company is targeting this segment for expansion. Cosmetics ingredients also require scents and fragrances toappeal to consumers, and hence, are related to Givaudan's core compe-tencies in flavors and fragrances. Global sales are well diversified, with an increasing share in developing countries accounting for almost half of

FY 2015 sales. Since 2008, developing markets have recorded a 9.3% CAGR, while mature markets have recorded a much slower CAGR of 1.7%. The company invests a high amount in R&D to maintain a strong product pipeline. The reduction of salt and sugar should act as a growth driver for the company in the coming years. Givaudan targets organic sales growth of 4%–5% p.a., with underlying market growth of 2.0%–3.0% p.a. over the medium term, assuming some market share gains and/or bolt-on acquisitions. In May 2016, Givaudan announced the acquisition of the ConAgra Foods' Flavors & Seasonings business for around USD 340 m (full-year sales approximately USD 185 m). The company is aiming for best-in-class EBITDA margins and free cash flow generation in the area of 12%–17% of sales as an average over the period to 2020. The dividend distribution policy remains central to the stock's appeal to equity investors, in our view. Management aims to return more than 60% of free cash flow to shareholders, while maintain-ing a leverage ratio below 25%.

The business profile is supported by the company's strong geographicaldiversification, with a good split among more mature and developing economies. Both the company's divisions hold leading market positions,supported by a strong and diversified product range and a solid end-consumer diversification. Givaudan sells to the highly defensive food andbeverage sectors, with an element of cyclicality arising from the more volatile Fine Fragrance sector. As an industry leader and with around 80%–85% of products effectively carrying over, we think Givaudan is well placed to capture a good share of new formulations. Some expo-sure to raw material prices can affect margins in the shorter term, but Givaudan is usually able to offset the impact of higher costs through

pricing, albeit with some time lag. In addition, the rising proportion of sales to emerging markets can lead to some periodic FX volatility. De-spite having 15% of its workforce in Switzerland (and little more than 1% of sales), Givaudan is fairly comfortable about its CHF exposure. Some emerging market sales are priced in USD (mainly Latin America) and the company benefits from lower input costs when materials are imported. The main credit concern is about the shareholder distribution and the possible conflict this could have over maintaining conservative financial metrics. The Stable outlook reflects our view that Givaudan will at least maintain its credit metrics to meet the required adjusted FFO/net debt threshold of 40% over the cycle.

66




P&L

Sales 4,257 4,369 4,404 4,396 4,548

Gross margin 45.0% 47.3% 48.7% 46.4% 46.4%

Adjusted EBITDA 911 1,018 1,028 1,043 1,069


Adjusted EBIT 615 716 710 740 783



Net profit 410 490 521 636 653

Cash flow

Adjusted FFO 723 867 972 1,026 939

Working capital changes 17 14 −126 −80 −42

Adjusted CFO 740 881 846 946 897

Adjusted CAPEX −261 −201 −239 −188 −217

Adjusted FCF 479 680 607 758 680

Dividends −200 −331 −433 −461 −497

Net share buybacks 14 −4 −37 −43 0

Net M&A 50 2 4 −104 −325

Adjusted pre-financing cash flow 330 333 120 154 −142

Balance sheet





Adjusted equity 2,900 3,170 2,899 2,974 3,130


Key ratios







Capital structure








Capital structure

Debt coverage




Chairman: Dr. Jürg Witmer 2005

CEO: Gilles Andrier 2005

CFO: Matthias Währen 2004


Cascade Investments 12.02%

Sun Life Financial Inc. 6.89%


Rating trend

2013 2014 2015 2016



10.0%

15.0%

20.0%

25.0%

30.0%

0

1'250

2'500

3'750

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2012 2013 2014 2015 2016E

CHF m

Flavour CompoundsFragrance and Active Cosmetics IngredientsFragrance CompoundsAdj. EBITDA margin (r.h.s.)

20%

30%

40%

50%

60%

0

1'000

2'000

3'000

4'000

2012 2013 2014 2015 2016E

CHF m


0%

20%

40%

60%

80%

2012 2013 2014 2015 2016E


0

150

300

450

600

Year end2015

2016 2017 2018 2019 2020 thereafter

CHF m

Cash Bonds & loans

Givaudan

Lonza

BASF

Air Liquide

Linde

IFF

Clariant

10%

15%

20%

25%

30%

0% 25% 50% 75%

Adj

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67



Glencore – Mid BBB, Stable Misha Weber

Sector: Metals & Mining Bond ticker: GLENLN

Company description www.glencore.com


SWOT analysis


Strong, generally relatively low cost and long reserve-life market positions in copper, zinc, coal and nickel. Commodity trading/marketing activities are less sensitive to commod-ity prices, and can generate positive earnings and cash flows in both up and down markets. Commitment to solid investment grade credit rating, with safeguard-ing the balance sheet a clear priority in the current environment. Diversified and large-scale activities mean that Glencore has plenty of assets it could sell if necessary.

Commodity prices have generally fallen for several years and leave the industry and Glencore with a low return on invested capital. Efforts to lower costs are typically pursued across the industry and lower the industry cost curve, and are thereby deflationary. Limited visibility into the trading/marketing activities makes Glencore potentially vulnerable to market speculation about trading losses, whether fair or not.


Well positioned to benefit from a potential upcycle in the more con-sumer-focused metals such as copper and zinc, although this looks more likely to be an event for 2017 and beyond.

The renewed material downward pressure in commodity prices, particularly in copper, coal and zinc would pressure earnings and cash flow generation. The trading/marketing activities are capital intensive – any renewed market concerns over counterparty exposure and/or access to capi-tal would put pressure on Glencore securities.

Glencore is one of the world's largest commodity companies. The groupis a mining company, with strong positions in copper, zinc, coal and nickel in particular, with lesser positions in other minerals. It is also a leading commodity trader, with a very broad span of activities from minerals to energy to agricultural commodities. Importantly, the trading activities take next-to-no price exposure. Contracts are hedged to elimi-nate commodity price risk. Glencore has 91 separate and discrete P&Ls across its trading activities, according to the company. This is a capital-intensive business activity and market speculation about counterparty risk and possible trading-related risks have at times caused volatility in Glencore securities. The track record in the trading/marketing activities demonstrates that Glencore can generate positive earnings in both rising and falling commodity price environments. It typically generates around 25% of group EBIT from this side of the business. Glencore is one of the largest copper producers worldwide, generating 25% of group EBITDA in 2015. The company also has around a 10% share of the zinc

production market, accounting for a further 12% of EBITDA in 2015. Another key mineral is coal, which contributed around 20% of EBITDA. Commodity prices have seen steep falls in recent years, in many cases burdened by an unfavorable demand and supply balance, and uncertain demand trends in China, the world's most important market for many commodities. The company has responded to these pressures by curtail-ing supply (particularly copper and zinc) and pursuing productivity im-provements to lower the cost of production. Further, Glencore suspended the dividend in 2016, conducted a USD 2.5 bn rights issue, lowered its capex spending, and is targeting asset disposals in an effort to deleverage and alleviate pressure on its credit profile. The company is guiding for EBITDA 2016 of USD 8.1 bn and free cash flow (prior to working capital changes and any asset disposals) of USD 3 bn, assuming commodity prices from early March 2016. Adding in targeted asset disposals of USD 4–5 bn could see Glencore lower its net funding and net debt materially.

Glencore's business profile is supported by its strong market positions in copper, zinc, coal and nickel. The trading/marketing activities are a positive distinguishing feature compared to more mining-focused peers, in our view. The bulk of free cash flow is currently being generated by the trading/marketing activities, given the low commodity price environ-ment. In response to market concerns earlier in 2016 on the back of steep declines in commodity prices, Glencore has focused on safeguard-ing its balance sheet. This includes the rights issue, dividend suspension, capex curtailment and asset disposals. These measures have strength-ened the liquidity profile. Adding end-2015 balance sheet cash, commit-ted credit facilities and readily marketable inventories (RMI) suggests

Glencore has USD 30 bn in liquidity. We expect positive free cash flow generation and asset disposals in 2016 in the amount of USD 6–7 bn, supporting the liquidity profile and enabling further deleveraging. Risks include the usual regulatory, country and legal issues that the sector is exposed to. A renewed material decline in commodity prices, particularly in copper, coal and zinc, would undermine profitability and cash flow generation, which in the absence of further offsetting company measures would pressure credit metrics. Our Stable outlook reflects the sweeping company measures adopted to counter industry pressures and the expec-tation that we have likely passed the low point in the commodity cycle. Over the cycle, we look for adj. FFO/net debt of 25%.

68




P&L

Sales 214,436 232,694 221,073 170,497 154,513

Gross margin 2.6% 4.1% 5.5% 5.4% 6.1%

Adjusted EBITDA 4,956 9,578 11,949 8,318 9,259


Adjusted EBIT 3,414 5,387 6,306 2,446 3,578


Adjusted interest expense 1,401 1,883 1,848 1,692 1,545

Net profit 1,004 −8,046 2,308 −4,964 1,077

Cash flow

Adjusted FFO 4,198 7,379 10,272 6,126 7,008

Working capital change 727 2,599 −703 6,625 901

Adjusted CFO 4,925 9,978 9,569 12,751 7,909

Adjusted CAPEX −3,117 −9,587 −9,060 −5,519 −3,750

Adjusted FCF 1,808 391 509 7,232 4,159

Dividends −1,620 −2,668 −2,713 −2,423 0

Net share buybacks −624 −479 −868 2,172 0

Net M&A −6,680 2,067 4,586 714 4,000

Adjusted pre-financing cash flow −7,199 −932 1,210 7,502 7,993

Balance sheet




Adjusted net debt (less RMI) 23,695 47,027 42,445 34,574 27,761

Adjusted equity 34,173 52,681 51,480 41,343 42,419


Key ratios




Adjusted FFO/(net debt-RMI) 17.7% 15.7% 24.2% 17.7% 25.2%


Adjusted (net debt-RMI)/EBITDA 4.8x 4.9x 3.6x 4.2x 3.0x

Capital structure



Adjusted net leverage (RMI adjusted) 40.9% 47.2% 45.2% 45.5% 39.6%





Capital structure

Debt coverage




Chairman: Anthony Hayward 2014

CEO: Ivan Glasenberg 2002

CFO: Steven Kalmin 2005


Qatar Holding 9.0%

Ivan Glasenberg 8.4%

Harris Associates 8.0%

BlackRock 7.3%

Rating trend

2013 2014 2015 2016



0%

2%

4%

6%

8%

0

60

120

180

240

2012 2013 2014 2015 2016E

USD bn

Metals & minerals Energy products

Agricultural products Adj. EBITDA margin (r.h.s.)

0%

15%

30%

45%

60%

0

15'000

30'000

45'000

60'000

2012 2013 2014 2015 2016E

USD m

Cash & near cash Adj. Net debt


0%

10%

20%

30%

40%

2012 2013 2014 2015 2016EAdj. FFO / (Net debt-RMI)Adj. FFO / Net debt-RMI (3Y avg.)Threshold (25%)

0

7'500

15'000

22'500

30'000

Year-end2015

2016 2017 2018 2019-2020

2021+

USD m

Cash & equivalents Unused credit lines Bonds & loans RMI

Glencore

Rio Tinto

BHP Billiton

Anglo American

-15%

0%

15%

30%

45%

60%

0% 25% 50% 75%

Adj

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69



Helvetia – Low A, Stable Michael Kruse

Sector: Insurance Bond ticker: HELNSW

Company description www.helvetia.ch


SWOT analysis


Solid position in the Swiss insurance market. The European core markets add diversification and scale, but dilute financial metrics. Good business diversification, balanced between non-life and life. Sound underwriting performance reflected in a solid combined ratio, particularly in its key market Switzerland. Conservative asset allocation with a large share of high-rated bonds and Swiss real estate property. Strong capitalization with solvency measures under the Swiss Solven-cy Test amounting to 150%–200% as of FY 2015.

Limited scale, particularly abroad, given its relatively small market share outside of Switzerland. The company's actively executed ex-ternal growth strategy addresses this issue, though. Weaker underwriting performance abroad versus Switzerland pres-sures its group combined ratio. The lack of presence in emerging markets limits organic growth potential and exposes Helvetia to highly competitive mature markets.


Increased scale and synergy opportunities through the Nationale Suisse acquisition. Solid position in the group life business in its Swiss home market provides growth opportunities.

The external growth strategy could result in integration risks. Persistently low interest rates combined with a defensive asset allocation could pressure investment income. Helvetia depends on the Swiss insurance market, which for the time being is very profitable.

Helvetia, based in St. Gallen, offers life (53% of FY 2015 gross written premiums) and non-life (44%) insurance solutions, complemented by reinsurance and other businesses. It is the third-largest life insurance group in Switzerland after AXA and Swiss Life, and a top-five P&C insurance provider. The firm acquired Nationale Suisse and Baloise Austria in 2014 which was in line with its strategy to conduct both large and bolt-on acquisitions. The integration of these insurance operations has largely been completed with further rationalization/synergies to be realized over the coming years. Switzerland is Helvetia's largest market (around 70% of group-wide underlying profit). In addition, the group is present in Spain (6%), Austria (6%), Germany (4%) and Italy (4%). Inlife, Helvetia's product portfolio comprises products such as term and pension insurance and new unit- and index-linked products, where it aims to grow in order to counter the generally declining demand for

individual life insurance policies. The life segment is dominated by its home base Switzerland. In non-life, the company provides mainly car and property insurance (68% of non-life), complemented by liability, transport and accident/health. Helvetia's strong underwriting performance has enabled it to maintain solid combined ratios over many years. In reinsur-ance, the group is a niche provider, diversified across industries and focusing on the OECD countries. The group's investment portfolio (close to CHF 48 bn at year-end 2015) largely comprises debt securities (60% of total investments), of which 86% are rated single A or higher. The somewhat lower share of bonds compared to peers is compensated by its vast real estate investments (22%), situated mostly in Switzerland. In-vestments in the Italian and Spanish markets (government, corporate, bank bonds and real estate) represent only a fraction of overall invest-ments, amounting to around 4% of the overall portfolio.

Our Low A rating for Helvetia reflects its above-average business and financial profiles. The business profile is underpinned by its solid position in the Swiss insurance market, which benefits from a strong economy and market structure. This results in steady income streams. The group's business is well diversified between life and non-life. The low combined ratios in the non-life sector reflect prudent underwriting. We regard the geographic presence outside Switzerland as positive in terms of diversification and scale benefits. However, Helvetia's combined ratios are clearly weaker outside its home market. Growth is very difficult to achieve for the time being, both in Switzerland and abroad. Thus the

realization of merger synergies is pivotal for improving momentum. The integration of Nationale Suisse and Baloise Austria is on track, but some additional integration work needs to be done. The above-average financial profile reflects the strong solvency margins, with a Solvency 1 ratio of 206% as of December 2015 and the latest ratio under the SST falling into the 150%–200% target range. Helvetia's leverage has increased due to recent acquisitions, but remains at very comfortable levels, in our view. The investment portfolio has a conservative setup, including a large share of high-quality bonds and real estate and a low equity share. We thus maintain our Stable rating outlook.

70




P&L




Net capital gains on investments 218 227 283 117


Comprehensive income 573 274 754 -89

Balance sheet


Deferred acquisition costs 378 401 504 468

Goodwill & other intangibles 337 335 1,273 1,177

Total assets 42,065 44,046 54,489 53,639




Technical liabilities: Other 1,473 1,679 2,040 1,975


Financial debt 406 429 914 935



Key figures - Life



Embedded value 2,648 2,923 2,979 3,196





Loss ratio 64.8% 63.4% 62.9% 62.7%

Expense ratio 28.7% 30.2% 30.6% 29.4%

Combined ratio 93.5% 93.6% 93.5% 92.1%

Other key ratios





Comprehensive return on average equity 16.1% 7.2% 17.3% -1.9%










Chairman: Pierin Vincenz 2015

CEO: Stefan Loacker 2007

CFO: Paul Norton 2007


Patria Genossenschaft 30.1%

Vontobel Beteiligungen 4.0%

Raiffeisen Schweiz 4.0%

Rating trend

2013 2014 2015 2016

Low A Low A Low A Low A Source (table and charts): Company data, S&P, Bloomberg, Credit Suisse Bubble size corresponds to CHF total assets

80%

85%

90%

95%

100%

0

125

250

375

500

2011 2012 2013 2014 2015

CHF m

Non-Life Life

Reinsurance & other P&C combined ratio (r.h.s.)

0%

4%

8%

12%

16%

20%

0

700

1'400

2'100

2'800

3'500

2011 2012 2013 2014 2015

CHF m


0%

6%

12%

18%

24%

0

1'250

2'500

3'750

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2011 2012 2013 2014 2015

CHF m

Adjusted shareholders' equity Adjustd leverage (r.h.s.)

0%

25%

50%

75%

100%

2011 2012 2013 2014 2015Government bonds Corporate bonds Mortgages / Loans

Others Real Estate Investment Funds

Equities Alternative Investments

Zurich Ins. AXA

HelvetiaAllianz

Aviva

Baloise

Generali

0%

10%

20%

30%

40%

90%93%96%99%102%105%

Fina

ncia

l lev

erag

e

Combined ratio

71



HIAG Immobilien – Low BBB, Stable Jannick Dousse

Sector: Real Estate Bond ticker: HIAGSW

Company description www.hiag.com


SWOT analysis


HIAG's long-term ownership focus, interim use of properties, and long-term tenant structure provide a stable income stream. Strong team of experienced site developers with a proven track record in developing complex real estate projects. Good relationships with local stakeholders. Strongly diversified portfolio by type of use. High revaluation upside potential from development projects in the industrial space and partial re-zoning. Solid, albeit increasing, loan-to-value ratio.

Smaller in size compared to Swiss peers. Its focus on industrial/commercial real estate exposes the group more strongly to the economic cycle. Geographic portfolio concentration in Aargau and Zurich, which is somewhat mitigated by regional diversification. High structural vacancy rate compared to peers, which can be largely explained by its development-focused business profile.


The complex large-sized industrial real estate market has high entry barriers, and thus minimal competition. Off-market deals offer price advantages and share deals potentially feature tax-loss carry-forwards. Less competitive environment ensures a full project pipeline.

Generally higher risk of redevelopment projects compared to regular property transactions (e.g. opposition of stakeholders). Non-prime locations in residential and retail could negatively impact HIAG's occupancy rate. The group's expertise is concentrated on a limited number of people and could be lost when employees leave.

HIAG Immobilien (HIAG) originated in 2008 from the Basel-based Holzindustrie-Aktiengesellschaft, a company with roots in the production and trade of wood, and is listed since 2014. HIAG is primarily a real estate developer, focusing on comprehensive, long-term development of industrial sites into mixed areas with residential buildings (condominiums and rented apartments), commercial and industrial spaces. During the concept and planning phase, HIAG is also letting development properties for interim use. As per FY 2015, the portfolio of HIAG Immobilien was valued at CHF 1.2 bn and includes a large share of development proper-ties and land reserves. The property portfolio has a high share of indus-trial tenants (28% of market value), and is thus more exposed to the economic cycle. This is largely offset by the long-term nature of its leases, as the average historical stay in HIAG's properties (based on the 30 main tenants) is 19 years. The remaining properties are used as residential (21%), retail (14%), office (12%), and logistics (9%) spaces,as well as properties for other uses (8%). Roughly 8% of portfolio value

is attributable to building land. HIAG's tenant structure is well diversified. The largest tenant, ABB, accounts for only 5.2% of rental income, and the largest ten tenants account for roughly 36%. Given its focus on redeveloping industrial sites, HIAG is mainly active in the suburban areas around major Swiss cities. The majority of properties are based in Aargau and on the outskirts of Zurich, accounting for 28.6% and 26.8% of portfolio value, respectively. The remaining real estate is more dispersed all over Switzerland. Thus, HIAG's office, retail and part of its residential spaces are in more peripheral locations than the properties of its peers. HIAG has a structurally higher vacancy rate than its peers (currently 16% of total portfolio), which is largely explained by its property developer characteristics. The company has made important progress in many development projects, including the successful commercialization of the “Spinnerei III” and Stegbünt properties, and the start of construction of the "Feinspinnerei" building. For 2016, HIAG expects property income to increase, albeit at a slower pace.

HIAG's business profile is supported by the group's diversified property portfolio by type of use, the long-term tenant structure, and a strong relationship with local stakeholders. Moreover, the company's team of site developers has a high competence in long-term property develop-ment and managing complex projects. Compared to its peers, HIAG generates a significantly higher yield on its projects due to its compre-hensive, long-term focus, the more radical approach of developing industrial sites into areas with mixed use (including re-zoning), and the resulting risk premia. The business profile is constrained by the group's small size compared to peers in terms of property portfolio size, revenue and cash flow generation. This results in a lack of business diversifica-

tion, despite HIAG's activities in multiple real estate formats. The periph-eral location of its properties poses higher risks compared to real estate at prime sites. Further, the overall vacancy rate of 16% is structurally higher than at its peers but largely explained by its developer characteristics. Moreover, the focus on industrial and commercial real estate exposes HIAG to the economic cycle. The group's financial profile is underpinned by a comfortable loan-to-value ratio and low interest expenses. HIAG's share of secured debt was initially high, but declined after it diversified debt capital sources towards bonds. Its leverage and debt coverage ratios have improved recently and are broadly in line with peers. We have a Stable rating outlook.

72




P&L Revenues 44 46 50 54 54





Revaluation of properties 33 58 29 31 10


Net profit 55 78 49 59 37

Cash flow


Adjusted CFO 28 21 18 26 27

Adjusted CAPEX –49 –104 –74 –60 –61

Adjusted FCF –21 –83 –56 –34 –33

Dividends 0 0 0 –26 –28

Net M&A –41 37 3 29 31

Net share buybacks 36 –35 123 0 0

Adjusted pre-financing cash flow –26 –81 70 –32 –30

Balance sheet


Adjusted total asset base 989 1,114 1,245 1,306 1,335




Market capitalization n.a. n.a. 668 761 n.a.


Total value of property portfolio 936 1,065 1,151 1,224 1,234

Value of investment properties 625 636 703 717 727


Vacancy rate (yielding portfolio) 6.6% 6.2% 11.7% 11.1% 10.9%

Capital structure











Capital structure

Debt coverage




Chairman: Felix Grisard 2010

CEO: Martin Durchschlag 2011

CFO: Laurent Spindler 2013


Grisard family 65.3%

Martin Durchschlag 2.6%

Rating trend

2013 2014 2015 2016

n.r. n.r. Low BBB Low BBB Source (table and charts): Company data, S&P, Bloomberg, Credit Suisse Bubble size corresponds to CHF property value

40%

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2012 2013 2014 2015 2016E

CHF m

Property incomeOtherAdj. EBIT margin (r.h.s.)

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2012 2013 2014 2015 2016E

CHF m


Adj. Equity Adj. net leverage (r.h.s.)

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100

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300

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Year-end 2016 2017 2018 2019 thereafter

CHF m

Cash Bonds & loans

Unibail

Gecina

PSP

SPS

Mobimo

Allreal

Klepierre

HIAG

0%

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ITD

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73



Hilti – High A, Stable Misha Weber

Sector: Building Materials Bond ticker: HILTI

Company description www.hilti.com


SWOT analysis


High brand recognition associated with high-quality, innovative prod-ucts, supported by a large salesforce that can partner/advise profes-sional customers at large construction sites. In addition to a direct and dedicated salesforce, we think the lease equipment alternative to purchasing is a competitive advantage. Family ownership helps to ensure a cautious long-term expansion strategy and has resulted in a very conservative financial policy.

The construction sector remains highly cyclical, leading to potentially significant demand/revenue retrenchment. Gradually improving geo-graphic diversity should lessen the amplitude of swings. Hilti faces some price pressure in the consolidated power tool mar-ket, mitigated by strong market positions, brand recognition, product quality and new product innovations. Volatile raw material prices (steel and energy in particular) cannot always be fully or immediately passed on to consumers, thus poten-tially impacting margins.


Substantial underutilized production capacity stemming from earlier expansionary investments means Hilti could absorb a 30%–40% production increase. Resulting high operating leverage would likely make this very profitable. Hilti generates around 30% of sales in emerging markets and is actively engaging with local regulators/standard setters to tighten building standards. This would help Hilti penetrate markets where lo-cal players are currently well represented.

Significant FX transaction exposure, primarily arising from the high proportion of Swiss franc costs in the organization. According to management, Hilti is long a net CHF 400 m in Swiss franc costs. Significant FX translation revenue exposure (Russia is a top 10 market, but the Brazilian real, Japanese yen and several Eastern Eu-ropean currencies have also suffered steep devaluations).

Privately owned Hilti manufactures fastening and demolition technology products for the professional construction industry. Its products include electric tools such as rotary hammer drills, diamond drilling, cutting and grinding equipment, screwdrivers as well as direct fastening tools, an-choring systems, and installation systems for piping, ductwork andfacades. It employs almost 24,000 people, almost 70% of whom are inthe salesforce, often serving in an advisory function at construction sites. Hilti also offers an equipment leasing alternative to larger customers in some markets, helping to further underpin customer loyalty. The bulk of Hilti's sales (70%) are generated in developed markets, with Western Europe and North America accounting for 47% and 24%, respectively. Hilti expects dynamic construction markets in North America in 2016(local currency sales rose by 12.5% YTD May). Europe also saw an encouraging expansion in sales in the first few months of 2016, withsales up 7.8%. Accounting for about 30% of group sales, emerging markets face a potentially more volatile outlook. In the longer term, as

these developing markets mature, building standards typically become more onerous. This represents an opportunity to penetrate such markets and displace local players. A strengthening Swiss franc in recent years has masked the underlying favorable trend in revenues. Since 2009 reported sales have increased by some CHF 600 m to around CHF 4.5 bn current-ly, amounting to a 16% increase. In local currency terms, however, sales rose by more than 50% to more than CHF 6 bn. Hilti has a relatively centralized production footprint. It aims to achieve as good a natural hedge as possible over time, but emphasizes that the scale benefits in production often outweigh the benefits of a more localized but fragmented manufac-turing footprint. The company remains confident that much of the potential FX earnings burden from volatile exchange rates can be offset and ex-pects to increase its operating result and grow its global market share.

Hilti's High A rating is based on its above-average business and financial profiles. The business profile benefits from the high recognition of the Hilti brand – which is associated with high quality products – as well asits leading market shares in professional power tools, fastening systemsand a comprehensive range of related products and services. It is further supported by a high innovation rate, with several new products and patent applications every year, and a strong sales/advisory capability. Geographic diversification is credit supportive. The roughly 30% of group revenues currently generated in emerging markets likely offer significant further growth opportunities. The rating is capped by the typical cyclicali-ty of the construction sector, the competitive market place in the consol-

idated power tool market, potentially volatile raw material prices and sizea-ble FX exposure. Hilti has achieved strong operational improvements in recent years, reporting 2015 EBIT margin of 12.5% (adj. 13.1%; up from 5%–7% in the four years to 2012). Credit metrics remain comfortable with the required thresholds for a High A rating, especially an adj. FFO/net debt ratio of at least 50% and low adj. net debt/EBITDA. The Stable outlook reflects Hilti's very conservative capital structure, overall good industry demand in mature markets and sound credit metrics. We also view the ownership structure as credit supportive. During the leaner construction years following the Lehman crisis, we note that the dividend payment was minimal.

74




P&L

Sales 4,205 4,340 4,497 4,384 4,487

Gross margin 68.3% 69.7% 69.8% 70.0% 70.1%



Adjusted EBIT 304 444 562 573 593



Net profit 186 306 420 410 448

Cash flow

Adjusted FFO 617 662 800 710 778

Working capital changes 135 5 −15 0 −28

Adjusted CFO 753 667 786 710 750

Adjusted CAPEX −253 −278 −327 −319 −347

Adjusted FCF 499 389 459 390 403

Dividends −47 −131 −393 −455 −205


Net M&A −4 14 11 27 0

Adjusted pre-financing cash flow 440 272 77 −40 198

Balance sheet

Adjusted cash and near cash 1,180 1,408 1,088 915 1,034




Adjusted equity 2,328 2,557 2,524 2,299 2,542


Key ratios







Capital structure








Capital structure

Debt coverage




Chairman: Pius Baschera 2007

CEO: Dr. Christoph Loos 2014

CFO: Jörg Kampmeyer 2011


Martin Hilti Family Trust 100%

Rating trend

2013 2014 2015 2016

High A High A High A High A

Source (table and charts): Company data, Credit Suisse Bubble size corresponds to CHF sales

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Bucher Ind.

Hilti

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75



Hirslanden – Mid BB, Stable Heike Halsinger

Sector: Retail Bond ticker: MEDCLI

Company description www.hirslanden.ch


SWOT analysis


Largest Swiss privately owned hospital group. Strong presence in densely populated economic centers. High barriers to entry given infrastructure needs and tight regulation. Strong underlying healthcare industry drivers underpin growth. Sound profitability with 57% semi- and privately insured patients. Presence on hospital lists of 11 cantons provides earnings security. Experienced, dedicated and committed management team.

Capital-intensive industry with sizeable investments in infrastructure, technology, logistics and IT. Fairly leveraged financial profile given acquisitive growth and lever-aged buy-out in 2007 despite healthy profitability and cash flows. Exposure to changes in Swiss healthcare regulation and, at the cantonal level, changes in the hospital lists.


Specialist hospitals tend to have a higher share of privately insured clients, which result in higher margins. Reputation, high patient numbers, high medical and infrastructure standards, and net income guarantees help attract specialists. Some Hirslanden hospital sites have extension potential to accom-modate higher patient numbers. The international patient segment is small yet lucrative and growing. Further acquisition opportunities in the still-fragmented market.

Intensifying competition from private and public hospitals vying for patients across cantons, as well as new hospitals. Potentially rising share of patients with basic insurance (and tight Swiss diagnosis related group compensation) could dilute margins. Base rates are negotiated annually with health insurers, resulting in low planning security. Potential loss/insufficient replacement of affiliated specialists.

The Hirslanden Private Hospital Group (Hirslanden) owns and operates 16 hospitals in 11 Swiss cantons. It has important footprints in and around Switzerland's economic and highly populated centers, i.e. the cantons of Zurich, Basel, Bern and Geneva, as well as larger cities. The group comprises over 100 centers of expertise and specialized institutes. Hirslanden was founded in 1990 through the merger of five hospitals. In 2007, it was acquired by Mediclinic International (an international private hospital group). Following the 2016 merger with Al Noor Hospitals Group, Mediclinic is headquartered in London and listed on the London and Johannesburg stock exchanges. Mediclinic's major shareholder is Remgro, an investment holding of various independently run long-terminvestments. Hirslanden offers a broad range of medical services with numerous applications and treatments, including highly specialized medical services. It is particularly renowned for its cardiologists and heart surgeons, and holds a strong position in orthopedics and surgery, asshown by the number of sports organizations that have chosen

Hirslanden as their primary partner. The group is also well known for its expertise in urology, oncology and gynecology. The offering varies with location and size of the hospitals. Hirslanden employs over 8,750 people and has access to 2,000 self-employed doctors through its network of affiliated specialists, employing only few specialists itself. The group treated almost 100,000 patients with a total of 469,167 hospital days generating CHF 1.7 bn of revenues in FY 2016 (ending March). Hirslanden focuses on semi-privately and privately insured patients (57% in FY 2016), providing a differentiated offering and partnerships with health insurance companies (e.g. Helsana, Sanitas). Patients with basic health insurance make up a stable 43% since the initial increase after the changes in the Swiss health insurance law (KVG). This indicates a clear need for private hospitals − in addition to public hospitals − for the provi-sion of basic healthcare. Hirslanden's hospitals are accredited to the hospital lists of all 11 cantons in which the company is present, for a varying range of medical indications.

The business profile is supported by the strong position as the largest private hospital group with 16 hospitals in 11 cantons, clustered around the country's economic centers. Hirslanden's specialized hospitals havea strong reputation for providing high-quality healthcare at a high stand-ard, and for attracting highly skilled practitioners. With CHF 1.66 bn in revenues and 2,000 specialists treating 98,600 patients, it is muchlarger than the no. 2 private hospital group, Aevis. As 15 hospitals in 11 cantons are accredited to the cantonal hospital lists, the share of pa-tients with basic insurance has risen from 36% to 43%. While this hasdiluted the EBITDA margin slightly, it is still healthy due to the still-high share of privately insured patients and efficient operations. The hospital

list presence aids a frequent patient flow and a good operational "base loading." We also view the Swiss economic environment and the sound credit quality of debtors (cantons, health insurers) as beneficial. The owners support Hirslanden's growth strategy, as illustrated by their signif-icant stakes, equity issue support, sizeable shareholder loans, and long-term investment. The financial profile is characterized by the high debt resulting from the 2007 leveraged buy-out, the sector's high capital intensity and acquisitions. Given sound profitability and cash flows, debt is reduced steadily, though only gradually. Nevertheless, we view debt-servicing capacity as adequate. We see potential for a rating upgrade with discernible and sustainable debt reduction. The outlook is Stable.

76



Financial overview (CHF m) 2013 2014 2015 2016 2017E*

P&L

Sales 1,314 1,437 1,563 1,657

Gross margin 41.4% 42.3% 41.5% 41.9%

Adjusted EBITDA 289 316 326 354

Adjusted EBITDA margin 22.0% 22.0% 20.9% 21.3%

Adjusted EBIT 208 231 227 244

Adjusted EBIT margin 15.8% 16.1% 14.5% 14.7%

Adjusted interest expense 138 81 88 86

Net profit -340 150 163 139

Cash flow

Adjusted FFO 133 248 247 286

Working capital changes -16 -25 35 -44

Adjusted CFO 117 223 282 241

Adjusted CAPEX -151 -133 -159 -161

Adjusted FCF -35 89 123 80

Dividends 0.0 -0.4 0.0 0.0

Net M&A 0.8 -120.8 1.1 -50.0

Net share buybacks 0 0 0 0

Adjusted pre-financing cash flow -34 -32 124 30

Balance sheet

Adjusted cash and near cash 42 81 183 159

Adjusted total asset base 4,859 4,954 5,296 5,373

Adjusted gross debt 2,554 2,500 2,697 2,707

Adjusted net debt 2,512 2,420 2,513 2,548

Adjusted equity 1,317 1,474 1,584 1,648


Key ratios


Adjusted EBITDA/net interest coverage 2.1x 3.9x 4.7x 4.2x

Adjusted FFO/gross debt 5.2% 9.9% 9.1% 10.6%

Adjusted FFO/net debt 5.3% 10.2% 9.8% 11.2%

Adjusted FCF/net debt -1.4% 3.7% 4.9% 3.1%

Adjusted net debt/EBITDA 8.7x 7.6x 7.7x 7.2x

Capital structure

Core working capital/sales 3.7% 6.2% 3.4% 3.4%

Adjusted cash & near cash/gross debt 1.7% 3.2% 6.8% 5.9%

Adjusted net leverage 65.6% 62.1% 61.3% 60.7%

Adjusted gross leverage 66.0% 62.9% 63.0% 62.2%

Adjusted net gearing 190.8% 164.2% 158.7% 154.6%

*FY ending March n.a. = not available; accounting standard: IFRS


Capital structure

Debt coverage




Chairman: Dr. Ole Wiesinger* 2008

CEO: Dr. Ole Wiesinger* 2008

CFO: Andreas Kappeler** 2008

*joined in 2004 **joined in 2002


Mediclinic International 100.0%

(ultimate shareholder)

Rating trend

2013 2014 2015 2016

n.r. n.r. Mid BB Mid BB


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End-March2016

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Cash Bonds & loans

Fresenius

HirslandenDaVita

LifePoint

UHS

Aevis

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77



Implenia – Mid BBB, Stable Jannick Dousse

Sector: Construction Bond ticker: IMPNSW

Company description www.implenia.com

Rating rationale Business profile: Average Financial profile: Above-average

SWOT analysis


Leading domestic market position, holistic offering, and increasingly diversified business model. Strong competitive positioning, as evidenced by the good order intake and successful tender offers inside and outside of its main markets (e.g. Paris Métro project). High share of orders from public clients, improving stability of sales. Solid capital structure with low leverage, adequate liquidity and solid cash-flow debt-coverage ratios. Careful international expansion strategy with bolt-on M&A.

The cyclicality of above-ground construction activities results in a somewhat high correlation to economic conditions. Small scale, in particular abroad, given its relatively small share of markets outside of Switzerland. Limited geographic diversification (five markets), even with the integration of Bilfinger Construction.


Selected investments, such as Norge and Bilfinger Construction, may accelerate growth and regional diversification. Low interest-rate environment allows attractive refinancing and may result in increased infrastructure spending. Infrastructure megatrend, i.e. in mobility and energy, potentially accelerates growth of infrastructure spending in Europe. Improved order book increases visibility and improved top line poten-tial when realized.

Price competition results in low profit margins in the sector, exacer-bated by the dilutive impact of the Bilfinger Construction integration. External growth strategies could result in integration risks, and larger acquisitions might weaken credit metrics.

Implenia, based in Dietlikon, Zurich, is Switzerland’s leading construction and construction services company. It came into existence with the merger between Batigroup and Zschokke in 2006. The group consists of four segments, two of which, Switzerland (64% of FY 2015 sales) and Development (4%), are purely domestic, while International (21%)and for the large part Infrastructure (11%) contain Implenia's foreign operations. The Switzerland segment is a construction generalist. It offers consulting, construction and total/general contracting services for new buildings and modernizations, as well as for civil engineering pro-jects, road construction, and other surface works. It also incorporates Implenia's national gravel and surface plants. Development is active as a Swiss site and real estate developer, using Implenia's full vertical range to accompany a real estate projects from development through to final construction. The segment develops green-field projects, but also opti-mizes, re-purposes and replaces existing properties. A large number of projects are developed on Implenia's own initiative, and then sold off to

third parties. As a result, the segment is asset-intensive, but by far the most profitable. International is a regional provider for civil works in Germany, Austria, Norway and Sweden as well as for building construc-tion in neighboring German-speaking countries. It also includes its foreign gravel plants (Mali and Ivory Coast). Lastly, Infrastructure is a leading player in underground construction (tunneling), foundation engi-neering, and other large projects outside of its home markets. Geo-graphical diversification is limited, but has improved considerably since the acquisition of Bilfinger Construction. Switzerland is still by far the largest market (~73% of sales), followed by Norway (~11%), Germany (~8%), Austria (~3%) and Sweden (~3%). Implenia has a strong, and growing, order backlog worth more than one year’s revenue. The majori-ty of orders come from public entities, which is due to the large share of infrastructure projects. For FY 2016, Implenia expects a growing top line (partially due to consolidation effects), and improved profitability. In addition, Hans-Ulrich Meister is taking over as new chairman of Implenia.

Implenia's average business profile benefits from the company’s leading market position in the Swiss construction industry, its holistic offering, and its proactive and experienced management. Moreover, the high share of orders from public clients adds to the stability of revenues. We also acknowledge the group’s effort to sustainably expand its business within Europe, with a strategy of capitalizing on infrastructure mega-trends such as energy and mobility. The business profile is constrained by the company's limited, albeit growing size internationally, the high cyclicality of its above-ground business, and limited geographic diversifi-cation. Furthermore, competition is generally strong in the construction industry. The above-average financial profile benefits from Implenia’s

very sound capital structure, with low leverage and ample liquidity. The cash reserves allow for further opportunistic acquisitions. Cash flows are healthy and stable over the cycle. The financial profile is constrained by the low operating profitability typical for the industry, although Implenia manages to generate slightly higher margins than its peers. Integrating Bilfinger Construction limits margin upside in the short term, but profita-bility is likely to recover when synergy potential and operational measures take effect. We have a Stable outlook, based on the strong infrastruc-ture spending in its core markets, the stabilization of margins, and our expectation that future expansion will continue to be conducted in a moderate strategic pace and scale.

78




P&L Sales 2,800 3,057 2,920 3,288 3,444

Gross margin 37.7% 36.8% 36.8% 37.4% 37.4%



Adjusted EBIT 120 129 120 100 135



Net profit 70 75 69 48 76

Cash flow

Adjusted FFO 170 159 148 185 207

Working capital changes 52 11 21 28 2

Adjusted CFO 222 169 168 213 208

Adjusted CAPEX –74 –92 –86 –119 –120

Adjusted FCF 148 78 82 94 88

Dividends –20 –26 –29 –33 –35

Net M&A 4 8 0 –74 –5

Net share buybacks 3 1 –3 15 0


Balance sheet



Total adjusted debt 576 531 642 1,063 978

Total adjusted net debt 123 40 –2 284 241


Market capitalization 737 1,202 1,067 944 n.a.

Key ratios




Adjusted FFO/net debt 138.7% 396.2% Net cash 65.2% 85.8%

Adjusted FCF/net debt 120.5% 193.6% Net cash 33.1% 36.7%

Adjusted net debt/EBITDA 0.6x 0.2x Net cash 1.2x 0.9x

Capital structure



Adjusted net leverage 18.3% 6.0% Net cash 31.3% 26.5%


Adjusted net gearing 22.4% 6.4% Net cash 45.5% 36.0%



Capital structure

Debt coverage




Chairman: Hans-Ulrich Meister 2016

CEO: Anton Affentranger 2011

CFO: Beat Fellmann 2008


Parmino Holding AG 16.1%

Chase Nominees Ltd. 7.8%

Rudolf Maag 5.4%

Rating trend

2013 2014 2015 2016

n.r. n.r. Mid BBB Mid BBB


6.4%

6.6%

6.8%

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Mod. & Dev. Buildings Tunnel.& C.E.Const. CH Norge DevelopmentSwitzerland Infrastructure InternationalAdj. EBITDA m.

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Vinci

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Bouygues

Ferrovial

HochTief

Implenia

Allreal

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79



LafargeHolcim – Mid BBB, Stable Misha Weber

Sector: Building Materials Bond ticker: LHNVX

Company description www.lafargeholcim.com


SWOT analysis


Post-merger market positions are strong and geographic diversifica-tion is excellent, if skewed to emerging markets. This should reduce cash flow volatility in anything but a synchronized global downturn. Cement and aggregate markets are typically local or very regional markets, given their low value-to-weight ratio. This limits competition and can contribute to relatively stable or favorable pricing for cement and aggregates, but less so for the less capital-intensive concrete ac-tivities.

Cyclical industry with a strong correlation to local economic condi-tions, impacting profitability due to the high share of fixed costs. The high capital intensity in the industry requires substantial capital spending, potentially impacting free cash flow and leverage. The industry has generally suffered margin compression in recent years, as higher input costs (raw materials, energy and transporta-tion/logistics costs) could not be passed on into weak construction markets via higher prices.


Management is targeting CHF 1.5 bn in synergies by end-2017, or roughly 6%-7% of sales. This is margin supportive, though past in-dustry experience suggests the sector struggles to hold on to cost cutting gains in a weak demand/pricing environment. A more selective approach to capital allocation (company is aiming to hold capex to a cumulative CHF 3.5 bn over 2016-2017 and to less than CHF 2 bn annually thereafter) could lead to stronger and more sustainable cash flow generation.

A synchronized regional and/or global economic downturn could undermine cement/aggregate/concrete volume/pricing trends and ultimately lead to weak cash flow generation. Entry barriers in emerging markets look to have declined as the cost of capital is low and as plant & equipment costs can be sourced in China. This could undermine local demand supply balances. The heavy construction materials sector has periodically attracted the attention of anti-trust authorities. This can result in fines, but also potentially in more intrusive and onerous remedies as is currently the case in Brazil.

The company was formed by the recent merger of the world's two largest cement and heavy building materials firms. In 2015, Lafarge-Holcim sold 256 million tons (mt) of cement, 292 mt of aggregates and 57 million m³ of ready-mix concrete in around 90 countries. It is geo-graphically strongly diversified, with a balanced presence in mature andemerging markets, the latter benefitting from higher structural growth, although also accompanied by greater volatility. The strategic rationale for the merger was driven by regional complementarity, particularly in emerging markets: Holcim had strong positions in Latin America and inparts of Asia such as India, while Lafarge was strongly represented in the Africa/Middle East region. Both were present in the more mature markets of Europe and North America, necessitating disposals where market concentrations would otherwise have been too high. Looking forward, the merger presents an opportunity to further optimize the assetportfolio, either through additional smaller disposals or through a more selective application of capital investment. LafargeHolcim is targeting

synergies of CHF 1.5 bn by end-2017. It will need to secure and retain these synergies if it is to reach its goal of generating a free cash flow run rate of CHF 3.5–4 bn per annum, in our view. At this stage and given the generally weak overall construction markets outside of the buoyant US market, we would view these targets as aspirational. The company is also reviewing its business portfolio and has identified disposals of CHF 3.5 bn in 2016. Recent commentary from the company suggests more asset disposals could be forthcoming in 2017. LafargeHolcim intends to apply disposal proceeds to debt reduction and is guiding for net balance sheet debt to decline to CHF 13 bn by end- 2016. It has a dual listing (Zurich and Paris) and allocates head office functions to both former head offic-es. Since the heavy building materials industry is such a local or regional activity, we had not viewed potential cultural issues as particularly materi-al. The various management changes (Chairman/CEO/CFO) since the merger announcement may question this assumption.

The business profile is supported by the industry-leading geographic diversification. Construction markets remain cyclical, driven by the overall level of economic activity. A balanced geographical profile, especially if also strongly represented in faster-growing emerging markets, is more likely to display stability in operating margins and cash flows. The rating is constrained by the nonetheless cyclical, seasonal and capital-intensive nature of the industry. Many emerging markets/oil producing regions important to LafargeHolcim face cyclical/structural challenges. We alsothink sector entry barrier costs may have declined in emerging markets, driven by the seemingly abundant and low cost of capital and the availa-bility of lower cost plant & equipment from China. If this is true then

local/regional demand and supply balances and hence pricing may be less favorable today than in earlier periods. Looking forward, targeted synergies of CHF 1.5 bn by end-2017 and asset disposals of CHF 3.5 bn in 2016, with possibly more disposal proceeds to come in 2017 support credit metrics. LafargeHolcim is targeting solid investment grade credit ratings, which we believe implies a mid BBB rating. We are looking for the company to maintain a minimum adjusted FFO/net debt ratio of 25%. This is unlikely to be met in the current year, with restructuring costs impacting cash flow and debt still coming down via asset disposals. We have a Stable outlook, though failure to secure and retain the target-ed synergies and disappointment on disposals would challenge this.

80




P&L

Sales 21,160 19,719 19,110 23,584 29,057

Gross margin 57.8% 58.6% 59.3% 68.2% 69.2%

Adjusted EBITDA 4,056 4,038 3,905 4,031 5,556


Adjusted EBIT 1,794 2,407 2,378 2,106 3,052



Net profit 610 1,272 1,287 −1,469 1,245

Cash flow

Adjusted FFO 3,327 3,112 3,006 2,847 3,882

Working capital changes −554 −217 −393 −232 −217

Adjusted CFO 2,773 2,895 2,613 2,615 3,665

Adjusted CAPEX −1,833 −2,298 −2,064 −2,774 −2,210

Adjusted FCF 940 596 549 −159 1,455

Dividends −532 −576 −721 −720 −1,408


Net M&A 514 540 243 6,144 3,500

Adjusted pre-financing cash flow 1,205 546 64 5,257 3,514

Balance sheet





Adjusted equity 19,234 18,675 20,111 35,534 35,371


Key ratios





Adjusted FCF/net debt 7.3% 5.2% 4.6% −0.8% 8.1%


Capital structure








Capital structure

Debt coverage



Management/BoD since

Statutory Chairman: Beat Hess 2016

Co-Chairman: Bruno Lafont 2015

CEO: Eric Olson 2015

CFO: Ron Wirahadiraksa 2016


Thomas Schmidheiny 11.37%

Groupe Bruxelles Lambert 9.43%

NNS Holding (Nassef Sawiris) 4.77%

Rating trend

2013 2014 2015 2016



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2012 2013 2014 2015 2016E

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Cement Other construction materials

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HeidelbergCementCemex

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St. Gobain

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81



Lindt & Sprüngli – High A, Stable Roman Ochsner

Sector: Food Bond ticker: LISNSW

Company description www.lindt-spruengli.com


SWOT analysis


L&S has a leading position in the premium chocolate segment, with a good presence in the European and US markets. Sustained organic sales growth ahead of market average. Strong brand recognition of key products such as Lindor, and high product quality support customer loyalty. Greater pricing power through differentiation by high-quality premium products and innovations. Good profitability and margin visibility support cash-flow generation.

Correlation with economic cycles, as spending on chocolate and confectionery is discretionary in nature. Competition from bulk producers and private labels at much lower prices (although mitigated by marketing via own retail stores). Sourcing of high-quality raw materials can be complex, time-consuming and sometimes costly. Natural hedge given largely local production, but some translation impact from CHF strength remains.


The acquisition of Russell Stover in the USA strengthens L&S' footprint in the group's largest market, and cost synergies have yet to be fully realized. Targeted marketing campaigns through events or high-profile ambas-sadors support growth in new markets. Supportive margin outlook amid strong R&D aids innovation, and the introduction of new products adjusted to specific customer groups. Fast-growing Global Retail division (e.g. chocolate boutiques, cafés and factory stores) can support group sales growth. Growing wealth and chocolate consumption in key growth markets.

Potentially volatile swings in raw material prices (particularly cocoa, hazelnuts, sugar) and ensuring access to high-quality raw materials. Rising energy and transportation costs can weigh on profitability. Attractive products can draw imitators, and new brands require time to obtain brand recognition. Unexpected swings in consumer sentiment and view of chocolate. Credit metrics remain stretched following the Russell Stover acquisi-tion, significantly inhibiting financial flexibility under the current rating. Execution risk of integrating the Russell Stover business.

Lindt & Sprüngli (L&S) is a leading manufacturer of premium chocolate across the globe, with high market shares in the relatively mature Euro-pean and US markets, and set for expansion, particularly in North Amer-ica and Asia. L&S' business model embraces quality, brand, innovation, marketing expertise, process know-how and expansion. It distributesproducts according to local customs, using promotions, flagship stores and events for product launches and to attract new clients. To ensure the high quality associated with its brands, L&S' operations are vertically integrated to enable consistent quality from the sourcing of cocoa beans in a sustainable way, to the production, distribution and presentation of chocolate. In 2015, L&S generated revenues of nearly CHF 3.7 bn, withthe help of 13,180 employees across ca. 120 countries. The growth rate continues to exceed that of its peers. The sales split of the three geographical segments is Europe (46%), NAFTA (43%) and Rest of the World (11%). The largest single countries are USA (39% of group sales), and Germany (13%). L&S has shown strong organic growth over

the years, further enhanced by selected acquisitions, such as US compa-ny Russell Stover that complements its existing product portfolio and the Lindt and Ghirardelli brands. Through the acquisition, L&S became the leader in the seasonal business, climbed to being third-largest chocolate manufacturer overall and strengthened its position as the leader in the premium segment. In 2016, L&S aims to further work on positioning the brand, develop new products, strengthen advertising, eliminate non-profitable businesses and adjust the pricing. Under the "Global Retail" division, L&S has a global network of 325 own-brand shops, giving the firm access to over 80 m consumers, and enabling an exclusive presenta-tion of its product portfolio via one of its various different shop concepts. L&S continues to invest in the expansion of its retail network, planning to open 20–30 new Lindt shops every year (65 in 2016) and become the world's leading retailer of premium chocolate by 2020. L&S has mid to long-term targets of organic sales growth in the range of 6%–8% p.a., and an EBIT margin increase of 20–40 bp p.a.

We appreciate Lindt & Sprüngli's (L&S) success in establishing a lead-ing position in the premium chocolate segment, and building up a repu-tation of high quality as well as constant innovation of its product range. As such, well-known brands (e.g. Lindor) remain essential growth driv-ers, but are enhanced by new products for other client groups. The business profile is also supported by clever marketing, which has con-tributed to above-market growth rates as well as improving profitability in recent years. L&S remains relatively small in terms of sales, but has a good track record of integrating acquisitions, and is well-positioned in the high-end premium segment and seasonal business, such as Easter and Valentine's Day. In the coming years, we expect the Global Retail

division to contribute more to sales growth, enabling it to differentiate itself from mass producers by connecting with consumers to raise brand awareness, which bodes well for pricing power and margins in the longer term, and mitigates threats from increasing competition. However, the business profile is constrained by its currently still limited presence in new markets, and volatile raw material input costs. The financial profile benefits from above-market sales and profitability growth, with healthy margins supporting good cash-flow generation. Following the Russell Stover acquisition, credit metrics remain below the required thresholds for the current rating, but we view management's commitment to prioritizing debt reduction as credible. Our rating outlook is Stable.

82




P&L

Sales 2,670 2,883 3,385 3,653 3,917

Gross margin 65.1% 67.6% 64.0% 64.5% 64.6%



Adjusted EBIT 311 405 468 516 580



Net profit 245 303 342 380 418

Cash flow

Adjusted FFO 437 470 454 629 594


Adjusted CFO 433 450 347 531 531

Adjusted CAPEX –172 –223 –273 –294 –300

Adjusted FCF 261 228 74 236 231

Dividends -112 -130 -148 -166 -188

Net M&A 1 1 –1,473 4 0

Net share buybacks –67 84 –17 92 0

Adjusted pre-financing cash flow 83 183 –1,564 166 44

Balance sheet



Adjusted gross debt 226 254 1,321 1,415 1,443

Adjusted net debt –275 –419 1,217 1,083 1,068

Adjusted equity 1,694 2,635 3,002 3,490 3,720


Key ratios




Adjusted FFO/net debt –158.8% –112.1% 37.3% 58.1% 55.6%

Adjusted FCF/net debt –94.9% –54.3% 6.0% 21.8% 21.7%

Adjusted net debt/EBITDA -0.6x -0.8x 2.0x 1.6x 1.4x

Capital structure



Adjusted net leverage –19.4% –18.9% 28.8% 23.7% 22.3%


Adjusted net gearing –16.3% –15.9% 40.5% 31.0% 28.7%



Capital structure

Debt coverage




Chairman: Ernst Tanner 1994

CEO: Ernst Tanner (until 31 December 2016) succeeded by Dieter Weisskopf

1993

CFO: Dieter Weisskopf (until 31 December 2016)

1995


L&S Finanzierungsstif-tung, Fonds für Pen-sionsergänzungen, Lindt Chocolate Competence Foundation & Lindt Cocoa Foundation

20.2%

Rating trend

2013 2014 2015 2016



5%

10%

15%

20%

25%

0

1'000

2'000

3'000

4'000

2012 2013 2014 2015 2016E

CHF m

Europe North America

RoW incl. APAC Adj. EBITDA margin (r.h.s.)

-10%

0%

10%

20%

30%

-1'000

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2012 2013 2014 2015 2016E

CHF m


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50%

100%

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200%

2012 2013 2014 2015 2016E

>or net cash


0

200

400

600

800

2015 2016 2017-2018 thereafter

CHF m


Lindt & Sprüngli

George Weston

Barry Callebaut

Unilever

MondelezDanone

Kellogg

Aryzta

Bell

Emmi

5%

10%

15%

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0% 25% 50% 75% 100%

Adj

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> or net cash

83



Lonza – Low BBB, Stable Misha Weber

Sector: Chemicals Bond ticker: LONNVX

Company description www.lonza.com


SWOT analysis


Lonza is reasonably well diversified. It is well positioned in pharma and biologics ingredients custom manufacturing and also gains diver-sity from its more specialty chemicals-based activities with a range of applications in hygiene, nutrition, consumer care, agro ingredients, industrial solutions, wood protection and water treatment. It is also strongly positioned in active pharmaceutical ingredients (chemical and biological) and cell / viral therapy, an area that has significant barriers to entry.

Lonza has been gradually improving its financial flexibility, but still remains somewhat leveraged for the current rating when adjusting for off balance sheet operating leases and the underfunded pension obligations. High fixed cost base in CHF compared to revenues means FX exposure is material, though the company looks to be coping well with the stronger Swiss franc. Potentially volatile raw material prices may not be fully or only with a delay passed on to customers.


Well placed to benefit from the trend in out- and dual sourcing R&D and manufacturing for pharmaceuticals. Longer term, Lonza's custom manufacturing capability in biosimilars could present revenue opportunities.

The large individual contract nature of pharma/biosimilar projects means that any disruption could curtail capacity utilization, with a sig-nificant impact on operating earnings and cash flows. Management is on record as indicating that acquisitions could be considered from 2016 onward, but that it wants to retain investment grade ratings, limiting net debt/EBITDA to approximately 3x.

Lonza is organized into two business segments: Pharma & Biotech (FY 2015 sales of CHF 1,596 m) and Specialty Ingredients (CHF 2,167 m).Pharma & Biotech focuses on custom development, custom manufac-turing, and research and testing technology services. With nine produc-tion facilities spread across the globe, the segment develops and custom manufactures active pharmaceutical ingredients. The segment consists of chemical manufacturing (small molecules, conjugated antibodies, highly active pharmaceutical ingredients, peptides, cytotoxics), biological manufacturing (monoclonal antibodies and recombinant proteins, active substances and intermediates), cell therapy and viral gene therapy and development services (production platforms and technologies, feed systems). Specialty Ingredients is made up of five subgroups: Consumer Care (which consists of Personal Care, Hygiene and Nutrition Ingredi-ents), Agro Ingredients, Water Treatments (residential, commercial, and municipal), Coatings & Composites. Lonza is a global leader in the areas of hygiene, water treatment, active pharmaceutical ingredients (chemical

and biological) and cell therapy, as well as viral therapy. The company also holds leading positions in niche markets such as endotoxin detection, cell-based research products, nutrition ingredients and performance intermediates. In FY 2015, the company generated CHF 3,803 m in sales, of which 48% came from the Americas, 35% from EMEA, and 17% from the rest of the world. Lonza aims to grow sales by a low-to-mid single-digit percentage annually on average and approach a core EBITDA of CHF 1 bn by 2018 (from CHF 780 m in 2015). It aims to make better use of technology across the group, further optimize the portfolio, and improve the customer and target market orientation of the group. Capex has some upward pressure due to strong demand in the Pharma & Biotech area. Lonza is also seeking to restore its financial flexibility, aiming to lower debt by around CHF 200 m per year until its reported net debt/EBITDA ratio declines to around 2x from levels of 2.4x in 2015.

Lonza's rating is based on its average business and financial profiles. The business profile benefits from the company's reasonable diversifica-tion across business segments, end-markets, products and regions. Lonza enjoys leading market positions in some niche segments, andbenefits from the outsourcing and dual sourcing trends in the pharma-ceutical, biotechnology and life science sectors. Growth in the Pharma and Biologics segment is helping product and customer diversity. In 2015, the top four customers accounted for almost 40% of the seg-ment's revenues. The financial profile is supported by improving operat-ing profitability, with the company achieving its 20% EBITDA margin target already in 2014. The past year saw some further improvement in

credit metrics. FY 2015 net debt was reported at CHF 1'938 m, a CHF 283 m reduction, and equating to reported net debt/EBITDA of 2.4x (FY 2014 2.7x). However, adjusting credit metrics for operating leases and the pension deficit suggests Lonza still has some way to go to improve its financial flexibility to levels that might warrant a higher credit rating. On an adjusted FFO/net debt basis, we are looking for Lonza to achieve a minimum threshold of 30% over the cycle. The last financial year saw the company reach this threshold for the first time since 2010. We maintain our Stable credit outlook for now, but note that further progress in debt reduction and/or strengthening credit metrics would support an outlook revision to Positive.

84




P&L

Sales 3,925 3,584 3,640 3,803 4,022

Gross margin 61.6% 62.6% 65.3% 64.3% 64.7%



Adjusted EBIT 336 277 425 407 533



Net profit 174 87 314 277 388

Cash flow

Adjusted FFO 580 530 658 670 725

Working capital changes 163 25 −141 89 −69

Adjusted CFO 743 555 517 759 657

Adjusted CAPEX −304 −206 −169 −268 −288

Adjusted FCF 439 349 348 491 369

Dividends −111 −112 −112 −131 −132


Net M&A 18 −3 −14 −36 0


Balance sheet





Adjusted equity 1,842 1,901 1,658 1,649 1,905


Key ratios







Capital structure








Capital structure

Debt coverage




Chairman: Rolf Soiron 2005

CEO: Richard Ridinger 2012

CFO: Toralf Haag 2005


BlackRock 9.96%

Oppenheimer Funds Inc. 4.13%

Rating trend

2013 2014 2015 2016



10%

15%

20%

25%

30%

0

1'100

2'200

3'300

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2012 2013 2014 2015 2016E

CHF m

Specialty Ingredients Pharma & Biotech Adj. EBITDA (r.h.s.)

30%

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0

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2012 2013 2014 2015 2016E

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2012 2013 2014 2015 2016E

Adj. FFO / Net debtAdj. FFO / Net debt (3Y avg.])Threshold

0

250

500

750

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Year-end2015

2016 2017 2018 2019 2020

CHF m

Cash Unused com. credit lines Bonds & loans

Givaudan

Syngenta

BASF

Air Liquide

Linde

Clariant

IFF

Lonza

10%

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85



Meyer Burger – Low B, Negative Nathalie Dantès

Sector: Capital Goods Bond ticker: MBTNSW

Company description www.meyerburger.com

Rating rationale Business profile: Below-average Financial profile: Below-average

SWOT analysis


Global technology leadership as a supplier of machines and equip-ment to the solar (photovoltaic) industry. Diversified product portfolio in photovoltaic covering wafers, solar cells, solar modules and solar systems. Material reduction in operating expenses has lowered the level of sales needed to reach EBITDA break−even to CHF 400 m. Track record of accessing capital markets several times since 2012, despite poor financial performance.

Major business concentration in the solar industry exposed the group in full to the market's downturn in recent years, and the company has not recovered yet. Cost/sales mismatch with major production facilities in Switzerland and Germany, but most sales generated in Asia. With its ongoing cash burn, Meyer Burger needs a comprehensive refinancing solution to address its upcoming debt maturities.


The recovery in the solar industry is translating into strong order growth. The photovoltaic industry has significant long−term potential, under-pinned by increasing global energy demand and grid parity within reach in many countries. High technological content speaks in favor of asset value.

Despite its recovery, the solar industry remains very competitive, with a number of companies facing financial difficulties. Other renewable energies (other than photovoltaic) could emerge as the important future energy sources. Competition from the low/medium−end as well as second-hand machines and the upgrade of old machinery with new components.

Meyer Burger Technology (MBT) supplies systems, production equip-ment and services to the photovoltaic (PV) sector, covering the process-es of wafering, solar cells, solar modules and solar systems. It also supplies other high−tech industries, in particular those that focus on semiconductor materials. Its two main production facilities are located inSwitzerland (Thun) and Germany (Hohenstein-Ernstthal), where 66% of production value in 2015 was generated. The group booked 26% of its 2015 revenues in CHF (EUR: 49%, USD: 18%, others: 7%). It remains exposed to currency risk, and management uses forward currency contracts where necessary. The main market for solar equipment is Asia, where most module manufacturers are based, and the Group generated 63% of FY 2015 sales, ahead of Europe (22%) and the USA. In 2015, the Group reported a small increase in sales (+2.4% or +8.3% at con-stant exchange rates or CER), but a greater increase in incoming orders (+28.5% and +40.4% at CER). As a result, the order backlog at year−end stood at CHF 258 m, compared to 190 m a year earlier. For

2016, management did not provide any sales guidance, but said the Group would reach EBITDA break−even, which requires sales to reach around CHF 400 m, after various initiatives were implemented to reduce costs in recent years. The Group has reported an EBITDA loss every year since 2012 and management had already guided for an EBITDA break−even in 2015. During the first half of 2015, the Group reached a settlement with client GTAT, which had been operating under chapter 11, and received USD 13.9 m of cash for its unsecured claim. Nevertheless, the Group's free cash flow generation remained heavily negative in 2015, and even with zero EBITDA in 2016, we do not expect that there will be sufficient cash at the end of the year (starting from CHF 101 m) to address the 2017 debt maturities: a CHF 30 m bank loan maturing in April and a CHF 130 m bond maturing in May. By 2020/21, the group aims to further improve its operating performance and achieve sales of CHF 1.3 bn with an EBITDA margin of 13%−15% and high operating cash flows.

We downgraded Meyer Burger's credit rating by one notch to Low B in March 2015, following the disappointing 2014 results. We retained this rating despite the 2015 results' miss. The Group's sales are not yet showing sufficient uplift from the recovery in the PV market, and the fact that most of its operations are in high-cost countries is a further drag on results. From a credit standpoint, our main concern is the liquidity situa-tion. Management's stated 'Plan A' is to refinance the bond with a new bond issuance and extend its loan (already extended in 2015) by 2−3years. Banks will probably not agree to extend their loan before the bond has been refinanced. Furthermore, bond investors will want to know how the Group will refinance the CHF 100 m convertible bond, which be-

comes puttable in September 2018, before reinvesting. This means that the Group needs to find a solution to refinance a total of 260 m in the next 12 months. Given this, and the fact that the Group has generated negative cash flows in each of the last four years, the feasibility of Plan A is certainly questionable. We note, however, that the Group has been able to successfully access capital markets several times since its performance started deteriorating, issuing a straight bond in 2012, then raising equity in 2013 and 2014, and finally issuing a convertible bond in 2014. Failing Plan A, management has indicated that it also has other options, but without providing much detail. We see a real risk of default, and there-fore, our rating outlook remains Negative.

86




P&L

Sales 645 203 316 324 420

Gross margin 38.1% 42.3% 34.2% 41.7% 44.5%

Adjusted EBITDA −25 −109 −88 −50 7

Adjusted EBITDA margin −3.8% −53.9% −27.8% −15.3% 1.7%

Adjusted EBIT −126 −195 −160 −127 −70

Adjusted EBIT margin −19.5% −96.2% −50.6% −39.3% −16.8%


Net profit −106 −159 −133 −168 −106

Cash flow

Adjusted FFO −42 −180 −127 −64 −15

Working capital changes −121 55 −20 17 10

Adjusted CFO −162 −124 −147 −47 −5

Adjusted CAPEX −76 −19 −27 −20 −15

Adjusted FCF −238 −143 −174 −67 −20

Dividends 0 0 0 0 0

Net M&A 2 5 2 2 0

Net share buybacks −13 147 72 −2 0

Adjusted pre-financing cash flow −249 9 −100 −68 −20

Balance sheet


Adjusted total asset base 880 832 803 611 525





Key ratios


Adjusted EBITDA/net interest coverage −4.1x −10.4x 25.0x −3.2x 0.5x

Adjusted FFO/debt −17.2% −76.0% −41.6% −21.3% −5.1%

Adjusted FFO/net debt −28.3% −238.5% −82.2% −29.3% −6.3%

Adjusted FCF/net debt −161.1% −190.2% −112.5% −30.9% −8.1%

Adjusted net debt/EBITDA −6.0x −0.7x −1.8x −4.4x 34.4x

Capital structure








Capital structure

Debt coverage




Chairman: Peter Wagner 2006

CEO: Peter Pauli 2002

CFO: Michel Hirschi 2006


Capital Group Companies > 10%

Credit Suisse Group > 5%

Generation > 3%

Henderson > 3%

Rating trend

2013 2014 2015 2016

Mid B Mid B Low B Low B


-70%

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10%

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2012 2013 2014 2015 2016E

CHF m

Machines (PV) Spare parts & services (PV)

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2015 2016 2017 2018 2019+/n.a.

CHF m


ABB

SchindlerSandvik Metso

Georg Fischer

SulzerBobst

Bucher Ind.

Meyer Burger

Oerlikon

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87



Migros – High A, Stable Heike Halsinger

Sector: Retail Bond ticker: MIGROS

Company description www.migros.ch


SWOT analysis


Dominating market positions in Swiss retail, particularly in food retail. Excellent brand recognition and identification. Own production enables control over origin, quality and price, as well as independence from large food manufacturers. Good diversification across various retail formats and retail segments. Conservative financial policy, rooted in the mutual nature of a cooper-ative, paired with a strong sense of social responsibility. Complementary acquisitions add to diversification and expand range.

Price pressure has become a structural rather than a cyclical issue. Swiss retail conditions remain tough with price pressure from dis-count and online retail and cross-border shopping. Sizeable investments in infrastructure and efficiency weigh on P&L. Limited international diversification, although Migros continues to add mainly small-scale international operations in non-food. Publication of only annual results limits transparency somewhat.


Unabated trend toward sustainability and lifestyle brands boosts growth; e.g. bio products revenue grew by 56% since 2011. The focus on local produce is environmentally friendly, meets demand ("from the region for the region") and lowers distribution costs. High cross-selling potential of various units in "health and lifestyle." Online retail (strengthened with full integration of Digitec-Galaxus) and cross channel offering ("PickMup") promise higher growth rates.

Growth in online retail impacts margins due to competition and the need to extend own presence. International revenue could fall as the strong Swiss franc adversely affects exports of Migros' food manufacturers. Intense price competition and revenues lost to cross-border shopping put pressure on retailers and might inhibit adequate investments. Non-food retail spending is discretionary and thus, more vulnerable to lackluster consumer sentiment (travel, consumer goods).

The Swiss retail market remains characterized by the two dominating, similar-sized incumbent retailing cooperatives, Coop and Migros, which remain industry leaders by a wide margin, particularly in food retail. Our assessment concentrates on Migros Retail & Industry. With CHF 27 bn in group revenues, Migros holds over 21% retail market share (source: BAK Basel), up from 20.4% YoY, and employs 100,000+ people. Revenues are split between cooperative retail (61%), trade (27%), food manufacturing/wholesale (7%) and travel/other (5%). Migros is well diversified across retail formats (supermarkets, department-, conven-ience- and online stores, restaurants), products (food, sports, clothing, electronics, travel, services) and brands (e.g. Migros, Globus, Interio, Office World, Schild, Hotelplan). Vertical integration is sound with 20 food companies (e.g. Micarna, Frey, Jowa) manufacturing products for Migros' own-label products, and third parties. The share of international revenues grew to 10.5%. Migros caters to diverse consumer needs, with its own-label products (90% in food), different product categories

(Budget, Classic, Sélection) and lifestyle brands for health, convenience and sustainability (Actilife, Terra Suisse, BioKnospe, MSC). Products with added social and ecological value continued to grow to about CHF 2.7 bn (+8.4%) or 16.5% of cooperative retail revenues in 2015. Food products from sustainable origins (e.g. MSC), local sourcing (90% of bakery, milk, meat, and 85% of fresh products) and sensible energy usage are part of the strategy. This strong engagement has been recognized by Oekom, which has rated Migros "the most sustainable global retailer." Attractive merchandise at different price points, investments in its retail sites, highly efficient logistics, keen pricing, and add-on acquisitions are helping Mi-gros to grow (traffic +0.6%) in an environment of subdued growth, price pressure and significant cross-border shopping (CHF 11 bn revenues, source: GfK). Through its Denner discount stores, Migros caters to price-sensitive customers and offers products complementary to Migros super-markets. The cooperative nature of the group is reflected in its stable strategy and conservative financial policy.

Migros' dominating positions in Swiss retail, its solid diversification across retail formats and segments support the business profile. Theprofile is underpinned by its vertical integration, cooperative business model (sustainability, highly efficient operations) and successful discount retail format (Denner), enabling it to compete effectively. The focus on quality, freshness and value is vital in its core food retail operations, supported by excellent brand recognition, e.g. M-Budget. The rating is constrained by intense price pressure in the mature Swiss market, cross-border shopping and high procurement costs. The financial profile is supported by still-healthy profitability margins, which remain at the lower end of Migros' target range of 2%-4% despite price pressure as well as

efficient operations and a conservative financial policy. Sizeable invest-ments (CHF 6.8 bn in 2011–15) to protect future revenues are largely funded through consistent, strong cash flows that limit indebtedness and support sound debt service coverage ratios. The balance sheet, cash generation and liquidity are healthy, with sound cash positions, high employee deposits and good access to bank and capital market funds. Credit metrics have remained sound for years and are fully commensurate with those required for the High A rating, such as adjusted FFO/net debt of at least 35% over the cycle (>80% in FY 2015). The rating outlook is thus Stable. Switching back from IFRS to Swiss GAAP does not impair transparency, and is both comprehensible and adequate.

88




P&L

Sales 23,800 25,539 26,184 26,205 26,467

Gross margin 39.6% 39.2% 39.6% 40.2% 40.0%

Adjusted EBITDA 2,217 2,351 2,498 2,453 2,446


Adjusted EBIT 810 874 933 792 866



Net profit 576 610 631 592 610

Cash flow

Adjusted FFO 2,014 2,113 2,295 2,327 2,190

Working capital changes -228 -86 -258 79 1

Adjusted CFO 1,786 2,027 2,037 2,406 2,191

Adjusted CAPEX -1,393 -1,603 -1,913 -1,651 -1,704

Adjusted FCF 394 424 124 755 487

Dividends n.a. n.a. n.a. n.a. n.a.

Net M&A -145 -137 -128 -131 0

Net share buybacks n.a. n.a. n.a. n.a. n.a.

Adjusted pre-financing cash flow 249 287 -4 624 487

Balance sheet





Adjusted equity 13,100 13,663 13,548 14,181 14,181


Key ratios







Capital structure








Capital structure

Debt coverage




Chairman: Andrea Broggini 2012

CEO: Herbert Bolliger 2005

CFO: Jörg Zulauf 2000


2.2 million cooperative members

(via 10 regional cooperatives) 100%

Rating trend

2013 2014 2015 2016



0%

4%

8%

12%

16%

0

7'000

14'000

21'000

28'000

2012 2013 2014 2015 2016E

CHF m

Retail TradeIndustry & wholesale OtherTravel Adj. EBITDA margin (r.h.s.)

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10%

20%

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2012 2013 2014 2015 2016E

CHF m

Adjusted cash & near cash Adjusted net debtAdjusted equity Adjusted net leverage

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2012 2013 2014 2015 2016E

Adj. FFO / Net debtAdj. FFO / Net debt (3-yrs average)Threshold

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CHF m

Cash Employee accounts Bonds & loans

Metro

Carrefour

Coop Migros

Tesco

Casino

Valora

Auchan*

Rewe

0%

4%

8%

12%

16%

0% 10% 20% 30% 40% 50% 60%

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>

*FY 2014

89



Mobimo – Mid BBB, Stable Jannick Dousse

Sector: Real Estate Bond ticker: MOBNSW

Company description www.mobimo.com


SWOT analysis


The main share of revenue is rental income that is very stable and predictable. The real estate portfolio consists of high-quality properties in key locations, with good diversification in terms of usage and individual tenants, as well as long average residual contract duration. Solid balance sheet, good operating cash flow and adequate credit metrics.

Dividend policy continues to be fairly aggressive, especially since revaluation gains and gains on investment property sales account for a large share of net income. Negative FCF generation due to the sizable investment pipeline.


Expansion into Geneva's residential market, characterized by strong demand overhang, is likely to be a stable source of income. Development properties allow Mobimo to grow its investment portfo-lio, and generate additional value. Investments in existing properties maintain their attractiveness in an increasingly competitive market for office and retail space. A higher number of third-party development projects are a good way of enhancing revenue potential, while minimizing sales risk.

The high investment needs and payout ratio could push up the net adjusted loan-to-value ratio, and weaken Mobimo's credit metrics. Bonds are subordinated to the large share of secured bank debt.

Mobimo is the fourth-largest independent Swiss real estate company,with a focus on developing own and third party real estate projects, as well as managing its investment portfolio. The portfolio consists of 139 properties in prime locations, valued at CHF 2.7 bn. It has strong prop-erty developer characteristics, which is why it exhibits a higher share of development properties (20% of market value) compared to peers. Projects currently under construction for Mobimo's own portfolio amount to CHF 340 m. Further investments equal to roughly CHF 400 m areplanned. Moreover, the company invests into condominium projects, anddevelops properties for third parties. Geographically, its portfolio is skewed toward the Zurich area (40% of market value) and Western Switzerland (40%), with smaller investments in other parts of the coun-try. The portfolio is well diversified in terms of usage, and breaks down into residential space (31% of target rent), office (30%), retail (13%), hotels/catering (10%), industry (5%), and other uses (11%). With the acquisition of Geneva's Dual Real Estate in late 2015, Mobimo has not

only improved its geographical diversification, as it was previously only present in Lausanne in this region, but also repositioned its property portfolio more towards residential spaces. As a result, Mobimo has achieved its target of balancing spaces for residences, offices, and other commercial uses at roughly 30% each of the property portfolio. We high-light that this high share of residential spaces adds favorably to the stability of its property portfolio, especially since the apartment market in Geneva is structurally undersupplied. The tenant structure consists of well-known companies and private persons, providing good diversification. The largest tenant is SV Hotel (6.1% of rental income), followed by Swisscom (5.1%), and Coop (3.1%). The current vacancy rate of 4.7% (–70 bp YoY) is considerably lower than those of its competitors. However, Mobi-mo excludes properties where it expects vacancy rates to exceed 10% without redevelopment, making comparisons difficult. In 2016, manage-ment is focusing on increasing rental income and the successful integra-tion of Dual Real Estate.

Mobimo's business profile is supported by its high-quality portfolio with properties in prime locations, long residual contract duration, and a good diversification of tenants and types of use. We particularly acknowledge the comparatively high share of residential space, and the expansion to the residential market in Geneva, which are likely sources of stabilitygoing forward. A large component of Mobimo's revenue is rental in-come, which is stable and predictable. Development sites provide Mobi-mo with growth opportunities and the necessary know-how to develop third-party projects. The financial profile is based on a solid balance sheet and adequate adjusted loan-to-value compared to peers. Mobimo exhibits good cash-flow generation; however, this only covers part of the

company's investments. It has a strong shareholder focus, as evidenced by the high pay-out ratio of over 90% of net income (excl. revaluations). A large part of the earnings were generated from disposals of investment properties (CHF 63.7 m), eroding the company's core rental business. Based on its recurring business, we expect Mobimo's loan-to-value metric to increase, leaving less headroom under the current rating. We also highlight the high share of secured debt financing, which is senior to Mobimo's bonds. However, we acknowledge the decreasing trend and its high share of unencumbered assets. The Stable outlook reflects our opinion that Mobimo will maintain sufficient financial flexibility, and limit the weakening of its credit metrics.

90




P&L Revenues 102 111 113 100 117







Net profit 76 82 62 104 50

Cash flow

Adjusted FFO 26 83 160 30 48

Adjusted CFO 21 77 175 28 31

Adjusted CAPEX –119 –128 –209 –142 –158

Adjusted FCF –98 –51 –34 –114 –127

Dividends –56 –56 –59 –59 –62

Net M&A 0 37 68 237 30

Net share buybacks –3 0 –2 0 0

Adjusted pre–financing cash flow –157 –69 –27 63 –159

Balance sheet




Total adjusted net debt 971 1,041 1,072 1,151 1,311

Adjusted equity 1,199 1,241 1,223 1,265 1,253






Vacancy rate 3.8% 3.9% 5.4% 4.7% 5.1%

Capital structure

Adjusted net loan–to–value 41.2% 43.9% 43.4% 43.4% 47.8%










Capital structure

Debt coverage




Chairman: Georges Theiler 2013

CEO: Christoph Caviezel 2008

CFO: Manuel Itten 2009

Major shareholders (end–2015)

BlackRock 5.0%

Zuger Pensionskasse 3.4%

Rating trend

2013 2014 2015 2016

n.r. Mid BBB Mid BBB Mid BBB


70%

75%

80%

85%

90%

0

35

70

105

140

2012 2013 2014 2015 2016E

CHF m

Profit on sale of trading propertiesNet rental incomeAdj. EBITDA margin (r.h.s.)

40%

45%

50%

55%

60%

0

350

700

1,050

1,400

2012 2013 2014 2015 2016E

CHF m



30%

38%

45%

53%

60%2012 2013 2014 2015 2016E

Adj. Net loan / valueAdj. Net loan / value (3Y avg.)Threshold

0

250

500

750

1,000

Year end 2016 2017 2018 2019 2020 thereafter

CHF m

Cash Bonds & loans

Unibail

Gecina

PSP

SPS

Mobimo

Allreal

Klepierre

HIAG

0%

20%

40%

60%

80%

100%

25%30%35%40%45%50%

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91



Nestlé – Restricted Roman Ochsner

Sector: Food Bond ticker: NESNVX

Company description www.nestle.com


SWOT analysis


Globally leading market positions in the fastest-growing food and beverage categories, with strong geographic, product and customer diversification. Comprehensive branded product portfolio, with a mix of established as well as new and innovative products that allow for premiumization. Expertise in research, development and innovation continues to enable the generation of new products. Operating efficiency throughout the organization supports profitability, sound cash flows and sizeable investments in growth areas. Conservative financial policy and balance sheet.

Nestlé's ambition to grow by 5%–6% organically p.a. in the long-term very ambitious in current economic environment, in our view. Intense price pressure in mature, saturated markets with high dis-counter and private label penetration (retail). Volatile food, energy and transportation costs, partially mitigated by Nestlé's strong pricing power and high operational efficiency. Translational impact from reporting in CHF, despite a good natural hedge. Certain businesses currently exhibit low profitability.


Nestlé aims to make Nestlé Health Science a CHF 10 bn business. This will take time, but could support margins in the longer term. Emerging markets currently account for 43% of sales, but could offer better growth prospects in the longer-term. E-commerce strategy to become an important pillar of sales growth. "Nestlé Continuous Excellence Programme" to drive structural cost savings. Turnaround or re-evaluation of some businesses currently facing growth challenges.

Potential cannibalization effect of healthier products on less-healthy ones (although the margin mix should nevertheless benefit). Sizeable investments in new businesses may need time to generate adequate returns. Access to raw materials of adequate quality and stricter labor regula-tion are challenging. Possibility of increasing competition in coffee & confectionery. Food safety concerns can negatively affect consumer perception even if accusations are unjustified and the company is taking quality control very seriously.

Nestlé is the world’s largest manufacturer of a wide range of brandedfood, beverage and wellness products, generating over CHF 88 bn of sales in 189 countries, and operating 436 factories with 335,000 employ-ees. Celebrating 150 years of existence in 2016, it has a product range of over 2,000 brands, including powdered and liquid beverages (22% of sales), nutrition and health science (17%), milk products and ice cream(16%), prepared dishes and cooking aids (14%), pet care (13%), confec-tionary (10%) and water (8%), helping the firm to establish strong brand recognition and leading market positions across the globe. Nestlé aims to be a global leader in Nutrition, Health and Wellness, an ambition under-pinned by its choice of new CEO, coming from German healthcare compa-ny Fresenius. Nutrition and health science – which includes the firm'sleading presence in skincare – is already Nestlé's second largest segment.With it, the firm is attempting to innovatively address demographic, dietary and consumer taste trends, by developing and applying scientific and nutritional know-how in order to enhance the quality of life of its consum-

ers. Management has identified other growth opportunities in out-of-home consumption, premiumization, and popularly positioned products, and is striving to bolster its e-commerce business. Geographically broadly-diversified, Americas is the largest zone with 44% of group sales, followed by Europe, Middle East and North Africa (31%) and Asia, Oceania and sub-Saharan Africa (25%). Nestlé has an ambition to grow organically by 5%–6% per year in the long-term, and improve its capital efficiency as well as its trading operating profit margin and underlying EPS in constant currency. It has fallen short of the ambition in the past three years, but the unique and well-diversified product mix still adds resilience in times of trust challenges (e.g. last year's Maggi noodle and Beneful cases). Nestlé is also keen to further improve operational and capital efficiency, either by reducing working capital or capex in percentage of sales, or by regularly reviewing its product portfolio and underperforming businesses. In 2015, it divested the Davigel frozen food business and announced the set-up of a joint venture with a European ice cream company.

Restricted

92




P&L

Sales 89,721 92,158 91,612 88,785 90,174

Gross margin 47.1% 47.8% 48.1% 49.6% 49.7%

Adjusted EBITDA 17,529 17,848 18,157 17,848 17,791


Adjusted EBIT 13,922 13,971 14,404 13,870 13,946



Net profit 10,228 10,015 14,456 9,066 9,697

Cash flow

Adjusted FFO 14,236 14,390 15,750 14,188 13,843

Working capital changes 1,916 1,171 –514 640 172

Adjusted CFO 16,152 15,561 15,236 14,828 14,015

Adjusted CAPEX –6,082 –5,899 –4,959 –4,820 –4,723

Adjusted FCF 10,070 9,662 10,277 10,008 9,292

Dividends -6,417 -6,880 -7,219 -7,374 -7,197

Net M&A –10,786 –235 –1,986 –530 –400

Net share buybacks 667 –421 –1,617 –6,377 0

Adjusted pre-financing cash flow –6,466 2,126 –545 –4,273 1,695

Balance sheet





Adjusted equity 63,584 65,376 73,011 64,867 67,367


Key ratios







Capital structure








Capital structure

Debt coverage




Chairman: Peter Brabeck (until 6 April 2017), Paul Bulcke to be proposed as Chairman at the AGM in 2017

2005

CEO: Paul Bulcke (until 31 December 2016), succeeded by Ulf Mark Schneider

2008

CFO: François-Xavier Roger 2015


No shareholder owning more than 5% of the share capital

Rating trend

2013 2014 2015 2016

Mid AA Mid AA Mid AA Restricted Source (table and charts): Company data, S&P, Bloomberg, Credit Suisse Bubble size corresponds to CHF sales

10%

15%

20%

25%

0

25'000

50'000

75'000

100'000

2012 2013 2014 2015 2016E

CHF m

Nutrition & Healthcare PetcareConfectionery Prep. Dishes & Cooking AidsMilk Products & Ice Cream Beverages & WaterAdj. EBITDA margin (r.h.s.)

0%

10%

20%

30%

40%

0

20'000

40'000

60'000

80'000

2011 2012 2013 2014 2015

CHF m


0%

25%

50%

75%

100%

2012 2013 2014 2015 2016E


0

5'000

10'000

15'000

20'000

Year end2015

2016 2017 2018-2020 thereafter

CHF m

Bonds, commercial paper & other financial debt Unused credit lines CashNestlé

Lindt & Sprüngli

George Weston

Barry Callebaut

Unilever

MondelezDanone

Kellogg

Aryzta

Bell

Emmi

5%

10%

15%

20%

25%

0% 25% 50% 75% 100%

Adj

uste

d EB

ITD

A m

argi

n


> or net cash

93



Novartis – Mid AA, Stable Heike Halsinger

Sector: Healthcare Bond ticker: NOVNVX

Company description www.novartis.com

Rating rationale Business profile: Strong Financial profile: Strong

SWOT analysis


Strong underlying industry growth drivers support all business units. Leading global market positions in pharma, eye care and generics. Sound diversification across units, products and therapeutic areas. Innovation focus with high R&D and a well-stocked pipeline. Consistently strong cash generation and conservative financial policy.

Persistent margin pressure from generics competition, patent expira-tions and demand for price reductions. Acquisitions can adversely impact credit metrics and absorb man-agement's attention. Novartis's good track record of successful in-tegration and its conservative financial policy counter this.


Steady ramp-up of approved heart drug Entresto (Novartis estimates USD 5 bn revenue potential) with intensified marketing. GSK's oncology assets strengthen Novartis' oncology portfolio and pipeline with the right of first negotiation over the pipeline. Industry growth drivers – aging world population, lifestyle changes, and rising demand in emerging markets – sustain future progress. Cost savings from the creation of NBS estimated at USD 1.5 bn in the mid-term; procurement benefits are already materializing.

Introduction and speedy ramp-up of new drugs to the market can be delayed by a number of issues as seen with Entresto. Further M&A activity as seen with the sizeable cash outflow for the GSK transaction that adversely impacts credit metrics temporarily. Lack of respect for intellectual property in the industry (e.g. India), disregarding the costs associated with developing medications.

Novartis is one of the global leaders in the pharmaceutical industry with market-leading positions in pharmaceuticals, eye care and genericswhich offer innovation power and global scale. Pharma (now "Innovative Medicines") accounted for 62% of revenues in 2015, Alcon for 20%and Sandoz for 18%. While Novartis has shrunk in size following the GSK transaction, it generated USD 49 bn revenues and USD 15 bn EBITDA in FY 2015. Pharma is well diversified across seven therapeutic areas (oncology, neuroscience, cardio-metabolic, respiratory, immunolo-gy-dermatology, ophthalmology, and cell and gene therapies). Oncology – particularly immuno-oncology (IO) – is a high growth area with still-high unmet medical needs. The unit benefited from the acquisition of GSK's oncology assets. Splitting the Pharma unit into "Oncology" and "Pharma-ceuticals" and assigning senior managers with relevant experience illustrates the strategic importance Novartis attributes to oncology and IO, which could well be the key to curing (rather than treating) cancer. While other players (e.g. Bristol-Myers Squibb, Merck) have IO products

on the market already, Novartis is well positioned to close the gap. The pipeline remains productive with several major approvals in 2015. Five blockbusters (exclusivity up to 2019+), several runner-up drugs and the strong dynamics of recent products point to attractive growth prospects. Alcon is the global leader in eye care, developing and manufacturing surgical and vision care products for a wide range of eye issues including cataracts, glaucoma, age-related macular degeneration, retinal diseases, dry eye, eye infection/inflammation, etc. Novartis addresses the lull in innovative growth at Alcon by stepping up own and external R&D. Alcon focuses on Surgical and Vision Care, while Ophthalmology Pharma was transferred to Pharma (USD 4 bn). Sandoz is a world leader in generic pharmaceuticals, developing innovative, affordable high quality medicines including biosimilars, complex injectables, respiratory, and specialty gener-ics. Novartis uses bolt-on acquisitions (USD 1−5 bn) to grow and focuses on cost efficiency (aided by Novartis Business Services (NBS) with 9,500 of the 123,000 Novartis employees).

The strong business profile is supported by global industry-leading positions of Novartis (pharma), Alcon (eye-care) and Sandoz (generics) as well as the high-quality, innovative product range and expertise inboth patented and generic drugs. It further benefits from the portfolio transformation completed in Q1 2015, reinstating Novartis' focus on its largest and most profitable divisions with innovation power and global scale. Diversification remains sound as the disposed units had no longer contributed a meaningful share of sales or profitability. Future growth prospects are supported by the industry's strong growth drivers, despite the challenges posed by regulation, austerity, approval procedures, patent expiries and generics competition. The diversified and relatively

young pharma portfolio with several blockbusters and a productive pipeline protects revenues. Together with strong growth of mature products, it compensates for revenue losses due to patent expirations. The strong financial profile benefits from healthy profitability and solid cash generation from all units. Although generics usually generate lower margins than patented drugs, complex generics such as biosimilars are pricier and more profitable. Credit metrics have fallen short of required thresholds, e.g. adjusted FFO/net debt of 75%, following the partly debt-funded acquisi-tions as well as sizeable shareholder payments. We expect metrics to recover close to required thresholds in 2016, backed by strong cash generation. The rating outlook remains Stable.

94




P&L

Sales 56,673 57,920 52,180 49,414 48,860

Gross margin 75.6% 74.6% 75.9% 76.1% 76.0%

Adjusted EBITDA 16,396 16,044 16,093 14,762 14,077


Adjusted EBIT 11,143 10,827 11,081 8,932 8,987



Net profit 9,270 9,175 10,180 17,783 7,280

Cash flow

Adjusted FFO 14,823 13,700 14,811 13,024 12,390

Working capital changes -140 -221 -625 -863 105

Adjusted CFO 14,683 13,479 14,186 12,161 12,494

Adjusted CAPEX -3,367 -3,670 -3,665 -3,760 -3,440

Adjusted FCF 11,316 9,810 10,520 8,401 9,054

Dividends -6,116 -6,203 -6,950 -6,647 -6,480

Net M&A -1,492 50 1,345 -6,767 -1,500

Net share buybacks -91 -1,237 -4,515 -4,490 -500

Adjusted pre-financing cash flow 3,617 2,420 400 -9,503 574

Balance sheet





Adjusted equity 69,340 74,510 70,893 79,089 79,389


Key ratios







Capital structure








Capital structure

Debt coverage




Chairman: Joerg Reinhardt 2013

CEO: Joseph Jimenez 2010

CFO: Harry Kirsch 2013


Novartis Foundation 3.2%

Emasan 3.3%

Capital Group companies 3-5%

BlackRock 3-5%

Rating trend

2013 2014 2015 2016

Mid AA Mid AA Mid AA Mid AA


0%

10%

20%

30%

40%

0

15'000

30'000

45'000

60'000

2012 2013 2014 2015 2016E

USD m

Pharmaceuticals AlconSandoz Consumer HealthVaccines & Diagnostics Adj. EBITDA margin (r.h.s.)

0%

10%

20%

30%

40%

0

21'000

42'000

63'000

84'000

2012 2013 2014 2015 2016E

USD m


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200%

2012 2013 2014 2015 2016E


0

3'500

7'000

10'500

14'000

Year-end2015

2016 2017 2018 2019 2020 thereafter

USD m

Cash Bonds & loans

GSK

Merck & Co

Galenica

Pfizer

Sanofi

Roche

NovartisAstraZeneca

Bayer

10%

20%

30%

40%

50%

0% 30% 60% 90% 120% 150%

Adj

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95



Oerlikon – Low BBB, Stable Jannick Dousse

Sector: Capital Goods Bond ticker: OERLSW

Company description www.oerlikon.com


SWOT analysis


Leading market positions across business segments, with a global customer base consisting of world-leading brand names. Improved business model after recent acquisitions, which are strengthening the positions of the remaining core segments. Good business diversification in terms of products and geographic reach, with a strong footprint in Asia/Pacific. Good natural hedge of sales and costs.

Many business segments are positioned in a demanding and highly competitive market environment. Oerlikon's market position in many segments is not directly posi-tioned to the end-customer, reducing its pricing power. There is still a translation risk emanating from currency effects, despite the natural hedge.


Strengthening the service business to achieve more predictable income patterns. Generally good growth opportunities in the man-made fibers industry, particularly in Asia. Oerlikon can leverage the megatrends of "energy efficiency" and "environmentally friendly processes" to increase its growth potential.

General risks associated with organic (emerging markets) and ac-quisitive growth ambitions. General cyclicality of the capital goods sector. Increasing pace of technological change could make products obso-lete faster. Business continuity and event risk, after the sudden appointment of new CEO Roland Fischer.

Oerlikon is a leading, mid-sized technology group, and manufacturer of surface solutions (coatings), advanced materials and materials pro-cessing. The business comprises three segments; Surface Solutions (46% of FY 2015 sales), Manmade Fibers (30%), and Drive Systems (24%). Surface Solutions is the global leader in surface treatment. It offers special coatings and related services, with its main customers in the automotive, tooling and aerospace industries. Manmade Fibers is the leading manufacturer in filament spinning systems and texturing ma-chines, used mainly in the apparel and home textiles industries. Its products are also used for technical applications such as car interiors. Drive Systems produces transmission systems and components for sports cars, and drive solutions for various vehicles (agricultural, con-struction, transport), as well as industrial applications used in the energy,and oil and gas industries. Since 2011, Oerlikon has been undergoing fundamental restructuring, including several acquisitions and divest-ments, in order to focus on its core activities. The company has primarily

invested in Surface Solutions (acquisition of Rox, Metco, and Laser Cladding Services), and Manmade Fibers (a JV with Huitong, and the acquisition of Trützschler's staple fiber business). Conversely, it has divested smaller and less attractive businesses, selling Vacuum, a manu-facturer of fore and high-vacuum pumps and solutions (closing expected end-August). Previously, Oerlikon had also divested its Advanced Tech-nologies, Solar, as well as natural fibers and textile components busi-nesses. Oerlikon has a strong geographical diversification, with 38% of FY 2015 sales generated in Asia/Pacific, 38% Europe, 19% North America, and 5% in the rest of the world. The cyclicality of Oerlikon's business is generally strong, with exposure to mid and late-cycle end-markets. However, 34% of FY 2015 sales came from more stable service contracts, mitigating the sensitivity to a degree. For FY 2016, the company expects a lower order intake, sales of CHF 2.3–CHF 2.5 bn, and an EBITDA margin around the mid-teens. Also, Roland Fischer replaced CEO Brice Koch in a sudden appointment in early 2016.

Oerlikon's business profile benefits from leading positions in all seg-ments augmented by recent acquisitions (Metco, Trützschler's staple fiber business). Moreover, Oerlikon is strengthened by its technological edge, and its good diversification in terms of products and geographic presence. Production sites and customer markets are broadly aligned, providing a solid natural hedge against foreign exchange transaction risk. Over the past few years, Oerlikon has reshuffled its business portfolio and divested less profitable and more cyclical operations, successfully reducing its overall cyclicality. Also, the increasing share of stable service business provides further stability. However, we still believe that the group is significantly dependent on business cycles, which is a constraint

for its business profile. It is also affected by Oerlikon's limited size in terms of sales and cash-flow generation. Lastly, we see some business continuity risk, especially in view of the sudden replacement of the CEO, Brice Koch. The group's financial profile is still solid, but has weakened after the comparatively large Metco acquisition, and due to the challeng-ing market environment. Debt levels, net interest coverage and liquidity are adequate. We expect the adjusted FFO/net debt metric remain comfortably above our threshold for the Low BBB rating (>30%). We expect that Oerlikon will adopt a more conservative financial policy going forward, to offset further market weakness, allowing for small- and mid-sized bolt-on acquisitions. Our outlook is Stable.

96




P&L

Sales 2,906 2,770 2,825 2,671 2,371

Gross margin 60.0% 60.1% 61.6% 64.4% 64.1%



Adjusted EBIT 463 384 341 -289 175

Adjusted EBIT margin 15.9% 13.9% 12.1% –10.8% 7.4%


Net profit 377 198 198 –421 98

Cash flow

Adjusted FFO 369 423 429 375 246

Working capital changes 92 –68 –171 –104 –25

Adjusted CFO 461 355 258 271 222

Adjusted CAPEX –206 –205 –185 –179 –136

Adjusted FCF 255 150 73 92 86

Dividends –67 –86 –94 –105 –105

Net M&A 277 536 –912 43 311

Net share buybacks 10 41 16 –2 0


Balance sheet

Adjusted cash and near-cash 480 1,125 715 687 696



Total adjusted net debt 583 –64 909 855 532

Adjusted equity 1,874 2,108 2,224 1,463 1,358


Key ratios




Adjusted FFO/net debt 63.3% Net cash 47.2% 43.8% 46.3%

Adjusted FCF/net debt 43.7% Net cash 8.0% 10.8% 16.1%

Adjusted net debt/EBITDA 0.9x Net cash 1.8x 2.3x 1.7x

Capital structure



Adjusted net leverage 23.7% Net cash 29.0% 36.9% 28.1%


Adjusted net gearing 31.1% Net cash 40.9% 58.5% 39.1%



Capital structure

Debt coverage




Chairman: Dr. Michael Süss 2015

CEO: Dr. Roland Fischer 2016

CFO: Jürg Fedier 2009


Viktor Vekselberg (via Renova) 43.04%

Chase Nominees 3.23%

Rating trend

2013 2014 2015 2016

n.r. Low BBB Low BBB Low BBB


0%

6%

12%

18%

24%

0

650

1,300

1,950

2,600

3,250

2012 2013 2014 2015 2016E

CHF m

Surface Solutions Manmade Fibers

Drive Systems Vacuum

Advanced Technologies Adj. EBITDA margin (r.h.s.)

-15%

0%

15%

30%

45%

0

600

1,200

1,800

2,400

2012 2013 2014 2015 2016E

CHF m



0%

30%

60%

90%

120%

2012 2013 2014 2015 2016E

Net cash or

>


0

500

1,000

1,500

2,000

Year end2015

2016 2017 2018 2019 thereafter n.a.

CHF m

Cash Unused credit lines Debt

Schindler

ABB

Bobst

Metso

Oerlikon

Sulzer

RieterBucher Ind.Georg Fischer

Sandvik

5%

9%

13%

17%

21%

0% 25% 50% 75% 100% 125% 150%

Adj

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ITD

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97



PSP Swiss Property – Low A, Stable Jannick Dousse

Sector: Real Estate Bond ticker: PSPNSW

Company description www.psp.info


SWOT analysis


Strong market position as No. 2 listed real estate company in Swit-zerland, with a high-quality property portfolio valued at CHF 6.7 bn. Good regional diversification and across tenants. A solid balance sheet and strong equity backing with continued low adjusted net-loan-to-value ratio. Healthy cash flow generation, although somewhat lower at the free-cash-flow level due to prudent development activities.

FY 2015 vacancy rate of 8.5% (higher if reclassified properties taken into account), set to rise to 11% with market pressure. Oversupply in the office and retail markets weakens PSP's negotiat-ing power, forcing it to invest to maintain rent and vacancy levels. Strong shareholder focus as seen with the high payout ratio.


The development of larger sites, such as the Salmenpark in Rhein-felden, offers predictable and long-term investment opportunities. PSP has financial headroom for opportunistic, small-to-medium-sized property acquisitions to support growth. Investing and maintaining an attractive real estate portfolio can help to mitigate the weakness in the market for office and retail space.

Shorter average lease periods reflect market pressure, which adds a degree of uncertainty and may continue to impact rental income. Larger property acquisitions could weaken credit metrics and profita-bility due to high market prices. Potential revaluation losses could weaken credit metrics, unless the company adjusts its payout policy accordingly.

PSP Swiss Property (PSP) is the second-largest listed Swiss real estate company. It manages a large portfolio of high-quality properties and offers real estate services. Its real estate portfolio consists of 163 in-vestment and eight development properties, with a carrying value of CHF 6.7 bn at end-2015. PSP focuses on office space (64% of target rent), retail properties (15%), parking (6%), gastronomy (4%), and premises for other uses (11%). The buildings are in attractive locations in the areas of Zurich (58% of market value), Geneva (14%), Basel (8%), andother locations (20%). Development projects and properties under construction account for 8% of the total portfolio value, a lower share compared to peers. The vacancy rate fell to 8.5% at end-2015 (from10% a year earlier). PSP guides to a vacancy rate of 11% in 2016 following the cancellation of a larger contract. The vacancy rate is rela-tively high compared to other Swiss real estate companies, reflecting ongoing renovation work and competitive pressure over office and retail space due to persistent structural oversupply. However, truly prime

locations such as Zurich's central business district have relatively stable vacancy rates. To address the market pressure, PSP is raising invest-ments in renovations and offering incentives to new tenants to fill vacant properties, with tenants increasingly demanding building modifications, rent-free periods, shorter leases, and early-break options. This is reflected in a slight decline in rental income and a lower remaining length for all leases (4.0 years, compared with 4.4 years at end-2014). Nevertheless, PSP's contract renewal rate is good (58% of contracts maturing in 2016 were renewed at end-2015.) Tenants are fairly diversified, with several large, viable companies, i.e. Swisscom (10% of target rent), Google (5%), JT International (3%), Swiss Post (3%), and Roche (2%). PSP's strategy aims to optimize the existing portfolio in order to maintain its attractiveness. Growth stems from its own development and selected acquisitions. For 2016, PSP expects challenging conditions to persist, with stable rental income, slightly higher EBITDA of approx. CHF 240 m and a vacancy rate of 11%.

PSP's rating is based on its above-average business and financial profiles. The business profile is supported by PSP's large and high-quality property portfolio, as well as a good tenant diversification bysector and individual companies. PSP has a low share of development properties in its total portfolio, underpinning stable profitability and cash flows. Conversely, the property portfolio exhibits regional concentration and focuses on office and retail space which is subject to substantial competitive pressure. Vacancy rates are thus expected to rise, particular-ly for lower-quality buildings or properties on the outskirts of larger cities and peripheral locations. The vacancy rate stood at 8.5%, but PSP expects it to rise to 11% in 2016 given the market pressure. While 58%

of maturing 2016 contracts had been renewed at end-2015, tenants are increasingly asking for better terms. We expect PSP to be able to sustain this pressure by making concessions – including property makeovers, shorter lease periods and early-break clauses. Its profitability and cash generation remain solid, underpinning the above-average financial profile, which also benefits from a low adjusted net loan-to-value ratio. PSP's balance sheet and cash-flow generation remains very healthy and well above peer average. Its payout ratio (excl. revaluation gains) has dipped below 100% for the first time since 2010. We expect PSP to be able to mitigate the softening of the office and retail property market, and realize its development projects successfully. The outlook is Stable.

98




P&L Revenues 281 285 284 280 282



Adjusted EBIT 224 229 231 226 230




Net profit 368 271 175 188 172

Cash flow

Adjusted FFO 159 163 178 180 163

Adjusted CFO 140 194 226 183 162

Adjusted CAPEX –93 –75 –113 –121 –128

Adjusted FCF 47 120 113 63 34

Dividends –131 –147 –149 –149 –151

Net M&A 16 0 –61 42 10


Adjusted pre-financing cash flow 132 –27 –97 –45 –107

Balance sheet


Adjusted total asset base 6,356 6'542 6'685 6'792 6'898

Total adjusted debt 1,822 1'851 1'946 1'987 2'097

Total adjusted net debt 1,794 1'820 1'920 1'963 2'070

Adjusted equity 3,684 3'839 3'841 3'870 3'891

Market capitalization 3,970 3'463 3'936 3'936 n.a.


Total value of property portfolio 6,283 6'466 6'608 6'724 7'159

Value of investment properties 5,968 6'034 6'161 6'223 6'759


Vacancy rate 8.0% 8.9% 10.0% 8.5% 11.0%

Capital structure











Capital structure

Debt coverage




Chairman: Günther Gose 2001

CEO: Luciano Gabriel 2007

CFO: Giacomo Balzarini 2007


Alony Hetz Properties 12.2%

Three Nominees 10.7%

BlackRock 5.1%


Rating trend

2013 2014 2015 2016



78%

79%

80%

81%

82%

0

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2012 2013 2014 2015 2016E

CHF m

Real Estate Management Services

Property Revenues

Adj. EBITDA margin (r.h.s.)

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20%

28%

35%

43%

50%2012 2013 2014 2015 2016E

Adj. net loan/valueAdj. net loan/value (3Y avg.)Threshold

0

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CHF m


UnibailGecina

PSP

SPS

Mobimo

Allreal

Klepierre

HIAG

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99



Raiffeisen – Low AA, Stable Michael Kruse

Sector: Banks Bond ticker: RAIFFS

Company description www.raiffeisen.ch

Rating rationale Business profile: Above-average Financial profile: Strong

SWOT analysis


Leading positions in the Swiss retail banking market, with high mar-ket share in mortgage lending and savings. The cross-guarantee mechanism of Raiffeisen's cooperative structure provides multilayer support, promotes mutual control among the co-operative banks and helps to build up capital from retained earnings. Its private banking arm provides diversification away from interest income toward fee income. Low-risk business profile due to its geographic focus on Switzerland, prosperous and stable economic environment, as proven by absence of major litigation risk vs. international active peers.

Exposed to a sharp increase in interest rates given its heightened term transformation risk from long-term mortgage lending and short-to-medium-term financing. Large exposure to the Swiss real estate market, though mostly in cold spots. Lack of efficiency given the large amount of smaller banks in the Raiffeisen Group (292 banks, 21 regional unions).


Growth potential in wealth management through Notenstein La Roche Private Bank AG. Cross-selling opportunities in serving retail banking needs of existing private banking clients and vice versa. Smaller presence in urban areas offers above-market growth poten-tial.

Significant loan book growth in recent years (organically and through acquisitions) could pressure asset quality and capitalization, particu-larly in case of a large drop in Swiss real estate prices and/or a strong increase in interest rates. Systemically important, exposed to (potential) additional capital requirements (basis requirement increases, Swiss countercyclical buffer, systemically important bank buffer).

The Raiffeisen Group is the third-largest banking group in Switzerland,comprising 292 legally independent and locally active cooperative banksas of year-end 2015, with a network of around 1,000 branches across all cantons. Within the group, Raiffeisen Schweiz provides certain central services to the group banks. It also guarantees the liabilities of all Raif-feisen banks, which in turn have a legal obligation to provide additional funding to Raiffeisen Schweiz. The group has a strong focus on retail banking (55% of FY 2015 client volumes), which is complemented by the Corporate Clients (15%) and Investment Advisory (30%) businesses. Accordingly, revenues are concentrated in interest-based income (72%), while fee (15%) and trading (7%) income add significantly less to the top line. Raiffeisen therefore intends to further strengthen the contribu-tion of fee & commission generating wealth management operations toits business mix. For private banking, the acquisition of Notenstein Private Bank in 2012 and Bank La Roche & Co AG in 2015 were major steps. Its strategic partnerships with the structured products provider Leonteq and software developer Avaloq remain key initiatives. The bank

will continue to work with the Vontobel Group in certain areas, but with the original corporation contract ending in June 2017. Furthermore, Raiffeisen agreed to sell its asset management for institutional clients (Vescore AG) to Vontobel in June 2016. Raiffeisen holds a leading market position in residential mortgage lending. The group's mortgage portfolio has grown above market average and doubled since 2003. Going forward, Raiffeisen targets a growth rate in line with the mortgage market average. It aims to strengthen its existing client relationships and expand into larger cities, too, as it already has strong market shares in rural areas. Furthermore, the bank is increasing its efforts regarding lending to SMEs, e.g. Raif-feisen Business Owner Centre (RUZ), and aims to become a leading provider of financing to the SME sector in Switzerland. In the US tax dispute, Raiffeisen is taking part as a Category 3 bank, i.e. it has never broken any US tax law, and has communicated accordingly to the US Department of Justice. However, a final settlement has not been reached at the time of writing.

We have a Low AA rating with a Stable outlook on Raiffeisen, reflecting its above-average business profile and strong financial profile. The business profile is supported by the bank's leading position in the Swiss retail banking market. The strategic initiative to grow the wealth man-agement business should increase the share of non-interest income, which is a step in the right direction, in our view. However, the Swiss private banking sector is currently experiencing many structural changes, e.g. regulatory developments or IT costs, which also pose challenges to Raiffeisen's private banking arm. The strong financial profile also bene-fits from the generally low-risk residential mortgage lending business, which was underpinned by the resilience of the sector throughout the

financial crisis, and its leading position in the retail mortgage market. However, we highlight potential risks arising from the bank's major mort-gage book and from its more recent growth ambitions in the SME seg-ment, as above-average growth could lead to higher credit risk. Raiffeisen is also among the banks most exposed to any increase of the countercy-clical buffer due to its large mortgage book. Nevertheless, its capitalization improved further last year and its funding and liquidity position is solid, in our view, with a high deposit-to-loans ratio. Raiffeisen is classified as a systemically important bank in Switzerland. As a result, the bank is facing stricter regulatory capital demands; however, it already comfortably meets the new going concern capital requirements.

100




P&L

Net interest income (NII) 2,093 2,131 2,134 2,188



Total revenues 2,712 2,791 2,827 3,027

Operating expenses 1,984 1,901 1,929 2,069



Pre-tax profit 784 889 937 1,010

Net income 635 717 759 808

Balance sheet

Total assets 168,124 176,575 188,404 205,748






Senior debt 14,651 16,734 20,440 21,792


Hybrid Tier 1 capital 0 550 550 1,150



Key ratios

Profitability






Capital adequacy

Tier 1 ratio 12.6% 14.3% 14.7% 15.9%


Equity/net loans 7.3% 7.4% 7.6% 8.0%



LLP/NII 1.5% 1.2% 0.9% 1.3%

Coverage ratio 72.5% 70.0% 51.1% 47.1%



n.a. = not available; accounting standard: Swiss GAAP (RVB)

Profitability

Asset quality

Capital adequacy




Chairman: Johannes Rüegg-Stürm 2011

CEO: Patrik Gisel 2015

CFO: Marcel Zoller 2008


~1.9 m cooperative members 100%

Rating trend

2013 2014 2015 2016

Low AA Low AA Low AA Low AA


50%

58%

65%

73%

80%

0.0%

0.3%

0.5%

0.8%

1.0%

2011 2012 2013 2014 2015

Return on average assets (ROAA) Cost/income ratio (r.h.s.)

0.0%

0.1%

0.3%

0.4%

0.5%

0%

1%

2%

3%

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2011 2012 2013 2014 2015

LLP/NII Non-performing loan ratio (r.h.s.)

0%

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2011 2012 2013 2014 2015

Tier 1 ratio Total capital ratio

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CHF m

Net interest income Net Fee & Commission Income

Net trading income Other operating income

Credit Suisse

LUKB

BEKB

Raffeisen

ZKB

Valiant

UBS

AKB

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100%

120%8% 10% 12% 14% 16% 18% 20%

Cos

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com

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101



Regionalspital Emmental – Mid A, Stable Heike Halsinger

Sector: Healthcare Bond ticker: REGEMM

Company description www.rs-e.ch

Rating rationale Business profile: Strong Financial profile: Average

SWOT analysis


Quasi-monopoly primary care hospital provider in Emmental. Strong industry growth drivers (demographics, technological advanc-es and lifestyle) bode well for the future. Infrastructure needs and tight regulation are high barriers to entry. Good earnings quality given public ownership (Canton of Bern - Low AA, Positive) and RSE's status as an accredited hospital. An experienced, dedicated and committed management team.

Constant pressure to reduce healthcare expenses affects RSE too (lower base rate, fewer hospital patients). Current hospital infrastructure is relatively old and inefficient. Narrow operational diversification and limited alternative use for hospital buildings. Rising indebtedness during the project phase will be reduced only gradually as additional cash generation is likely limited.


Very high occupancy rates, growing patient requirements and limited capacities to be met with the new hospital project (by end-2018). The construction project enables more efficient processes and can accommodate growing patient numbers. Innovation culture attracts patients and skilled personnel, (e.g. first Swiss workshop for 3D keyhole surgery for intestinal cancer, 2015).

Various roles of the canton (owner, regulator, healthcare provider). Low planning security as base rates are negotiated annually. Exposed to regulatory and oversight changes. Competition is likely to intensify with free hospital choice. A potential project cost overrun could affect liquidity.

Regionalspital Emmental (RSE) is a public hospital service provider in the Bernese region of the Emmental valley. It was founded in 1897 and became a PLC in 2002. It is fully owned by the Canton of Bern. RSE operates two hospitals in Burgdorf and Langnau in Emmental, and thusprovides optimal medical care for a fairly dispersed and well-populated region. RSE operates the Emmental's only remaining hospitals after the closure of several smaller, local hospitals, giving it a quasi-monopoly position in the valley as well as a larger catchment area (about 115,000 people). The company offers a relatively comprehensive range of health services, some of which in cooperation with other hospitals, e.g. the university hospital in Bern ("Inselspital") for oncology and neurology. This benefits efficiency, quality and capacity as some of these hospitals are larger and/or more specialized. The higher frequency of certain treat-ments tends to enhance expertise and quality. RSE's healthcare services are grouped into four broad categories: (1) medicine (treating medical conditions with medication, physiotherapy and complementary medicine),

(2) surgery including visceral surgery, (3) gynecology/obstetrics and (4) psychiatry. The majority of patients are insured under the compulsory basic health insurance (90%), while over 10% of RSE's patients are privately insured. In 2015, RSE treated 9,232 hospital patients (i.e. number of cases, adjusted for readmission for the same illness). The slight 1.3% decline versus 2014 was overcompensated by a discernibly higher case-mix index (+4.6% to 0.897) despite the continued decline in the Swiss-DRG base rate. In contrast, the number of outpatients rose again, by 4.7%, to 45,688, corresponding to both lower hospital patient numbers and the shortening average hospital stay (5.0 days). With an almost stable number of beds and rooms (treatment, surgery) occupancy remains high, which is being addressed by the current hospital project that is on track to be completed in 2019 as scheduled. RSE has been accredited by the Canton of Bern to provide public healthcare services, toward which the canton pays 55% and the health insurance companies 45%.

RSE's business profile is underpinned by the industry's healthy growth dynamics (demographics, lifestyle, and technology) and its quasi-monopolist position as the Emmental's only remaining hospital. The 100% ownership of the Canton of Bern is supportive. While the canton does not guarantee RSE's liabilities, there are close political, regulatory and economic ties. RSE's hospital project (to be completed in 2019)addresses capacity and infrastructure needs aiding process and cost efficiency as well as patient comfort. A strong innovation focus and highly skilled staff (a key requirement) support RSE's prospects. Thecompany's limited size and narrow diversification weigh slightly on the business profile, though the established cooperation with other hospitals

allows RSE to offer a wider range of health services. Public austerity measures continue to weigh on profitability, but RSE is among the most cost-effective cantonal hospitals and continues to receive (declining) subsidies for the provision of emergency services. Current credit metrics are healthy at this stage (adj. net debt/EBITDA of 2.5x, adj. FFO/net debt of 28% and adj. EBITDA/net interest of 6.4x) but will weaken as remain-ing bond proceeds gradually flow into the project. While cash flows are expected to improve slightly with project completion, debt reduction capac-ity is limited given the large project size (CHF 110 m). Liquidity is ade-quate with the CHF 75 m bond and the credit line (maturing one year after the bond). The rating outlook is Stable.

102



Financial overview (CHF '000) 2012 2013 2014 2015 2016E

P&L

Sales 136,874 139,570 140,245 145,625 148,456

Gross margin 67.5% 67.5% 69.0% 68.9% 68.8%

Adjusted EBITDA 8,446 7,785 7,576 10,121 10,048


Adjusted EBIT 4,305 3,687 2,602 4,903 4,826


Adjusted interest expense 15 27 1,171 1,693 1,770

Net profit 4,316 3,700 1,578 3,326 3,171

Cash flow

Adjusted FFO 4,588 7,748 11,152 6,958 8,398

Working capital changes 2,050 -393 -1,842 1,249 -163

Adjusted CFO 6,638 7,355 9,311 8,207 8,235

Adjusted CAPEX -5,849 -13,060 -16,794 -13,396 -27,233

Adjusted FCF 789 -5,705 -7,483 -5,189 -18,998

Dividends 0 0 0 0 0

Net M&A 0 0 38 2 0


Adjusted pre-financing cash flow 789 -5,705 -7,446 -5,187 -18,998

Balance sheet



Adjusted gross debt 72 1,531 77,176 79,203 79,196

Adjusted net debt -11,110 -5,589 37,446 24,850 43,855

Adjusted equity 49,409 52,527 54,125 57,487 60,695


Key ratios


Adjusted EBITDA/net interest coverage -725.4x 484.3x 7.3x 6.4x 6.1x

Adjusted FFO/gross debt 6,353.1% 506.1% 14.5% 8.8% 10.6%

Adjusted FFO/net debt -41.3% -138.6% 29.8% 28.0% 19.2%

Adjusted FCF/net debt -7.1% 102.1% -20.0% -20.9% -43.3%

Adjusted net debt/EBITDA -1.3x -0.7x 4.9x 2.5x 4.4x

Capital structure


Adjusted cash & near cash/gross debt 15,485.9%

465.1% 51.5% 68.6% 44.6%

Adjusted net leverage -29.0% -11.9% 40.9% 30.2% 41.9%


Adjusted net gearing -22.5% -10.6% 69.2% 43.2% 72.3%



Capital structure

Debt coverage




Chairman: Eva Jaisli 2008

CEO: Anton Schmid 2015

CFO: Marco Bernasconi 2013*

*CFO since 2014


Canton of Bern 100.0%

Rating trend

2013 2014 2015 2016

– Mid A Mid A Mid A


-5%

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2012 2013 2014 2015 2016E

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Patient revenues Other revenues

Cantonal payments Adj. EBITDA margin (r.h.s.)

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or netcash


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CHF m


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Spitalzentrum Biel

Kispi

Spital Region Oberaargau

Spital STS

Limmattal

RSE

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pro

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Hospital patients

103



Repower – High BB, Stable Daniel Rupli

Sector: Utilities Bond ticker: REPISW

Company description www.repower.com


SWOT analysis


The regulated distribution in the Canton of Graubünden adds earn-ings and cash flow predictability. Repower has new anchor shareholders following the capital injection from EKZ and UBS-CEIS. The company enjoys solid market positions in its key Swiss and Italian markets, which will be important under the new strategy. Adequate liquidity and relatively moderate financial leverage.

Record-low wholesale prices have caused a difficult market envi-ronment, which will continue to weigh on profitability and cash flow generation in the near future. The exposure to wholesale trading and business activities in Europe exposes the company to FX sensitivity (EUR/CHF). Repower is relatively small in terms of sales and earnings when compared to direct and European peers. The earnings contribution from the services business is still very small.


The new 2025 strategy should position Repower solidly as a small local player, and make it less dependent on wholesale electricity prices. Expansion into the services business could stabilize earnings and cash flow generation capacity. There are potential growth opportunities with regard to future power generation capacity, with a clear focus on renewable energies. Global demand for electricity will most likely increase in line with global population, which should result in medium- to long-term oppor-tunities in Europe.

Regulatory risks are mounting in Switzerland and Europe (i.e. envi-ronmentally related regulations, nuclear power, etc.), although a few positive signs with regard to hydropower generation are visible in Switzerland. Financial flexibility for external growth in the energy services busi-ness is currently limited. There is limited visibility with regard to an increase in wholesale power prices in the near future, which could weigh on future earn-ings.

Based in the Canton of Graubünden, Repower is a vertically integrated electrical utility company offering power production, transmission and distribution, trading services and energy services. The company's main markets are Switzerland and Italy. In Switzerland, Repower operates along the value chain – production, trading, sales and distribution. It serves roughly half of the Canton of Graubünden (Netz Engadin, Prät-tigau and Surselva), with customers ranging from private households tothe industrial, commercial and public sectors. In Italy, Repower offers production and distribution complemented by gas distribution. In Roma-nia, it mainly concentrates on distribution to corporations. Repower is an active trader of electricity, gas, carbon certificates and guarantees of origin. It is currently evaluating whether or not to exit this market with the aim of fully focusing on its core areas of Switzerland and Italy. As a relatively small company, Repower maintains an electric power genera-tion park with a capacity of roughly 750 MW, including drawing rights for nuclear power, stakes in hydro and gas-fired cycle plants, as well as

renewables in Switzerland, Italy and Germany. In FY 2015, energy procurement amounted to 17,683 GWh, of which 84% came from trading and only 16% from own production. The company also reported 2,465 bn m³ of gas distribution, of which 10% was distributed to end-customers and 90% held for sales and trading. Repower remains very cautious about expanding its power production park in view of the chal-lenging market conditions. Under its new 2025 strategy, the company aims to become less dependent on wholesale electricity prices and to focus its business on the two main regions of Switzerland and Italy, which are closely linked together. With regard to production capacities, Repower targets 100% renewable production. It aims to further increase its services offerings, such as intelligent system integration, infrastruc-ture for mobility services and home smart metering. Following the recent capital injection, Repower's key shareholders are Elektrizitätswerke Kanton Zürich (28%), the Canton of Graubünden (22%), UBS Clean Energy Infrastructure Switzerland (19%), and Axpo (13%).

Repower's rating is based on its average business and below-average financial profiles. The business profile benefits from the regulated distri-bution business, which adds earnings and cash flow stability. The new strategy helps to focus on local key markets and should reduce earnings volatility. However, the business profile is pressured by the challenging environment with record-low wholesale electricity prices and, being an exporter, the exposure to a very strong domestic currency. We also highlight the relatively small size of the company. With an increased focus on the local domestic business and cross-border activities to Italy,we see a higher potential for support from the Canton of Graubünden asits main shareholder. The financial profile is supported by adequate

liquidity and a relatively solid balance sheet. The recent capital injection has helped to reduce indebtedness and provides financial flexibility. We appreciate the cautious capex policy and expect the delay in major expansion projects to stabilize cash outflows. However, earnings and cash flow generation are expected to remain weak if not further decline in the current market. Further impairments that could affect the balance sheet cannot be ruled out in such a difficult environment. We have a Stable outlook following the capital increase. To return to an investment grade rating, we would need to see a sustainable recovery in operating profitability and a successful execution of its new strategy that would stabilize the currently restored financials after equity injection.

104




P&L

Sales 2,330 2,325 2,231 1,838 1,654

Adjusted gross margin 13.8% 11.7% 9.3% 7.9% 7.9%



Adjusted EBIT 100 73 27 -65 -8

Adjusted EBIT margin 4.3% 3.1% 1.2% -3.5% -0.5%


Net profit 31 -152 -33 -136 -47

Cash flow

Adjusted FFO 71 126 79 24 44

Working capital changes 7 -32 36 6 9

Adjusted CFO 79 94 114 30 53

Adjusted CAPEX -139 -78 -50 -40 -38

Adjusted FCF -61 16 64 -10 15

Dividends -17 -9 -8 -1 0


Net M&A 3 2 2 63 0

Adjusted pre-financing cash flow -74 9 60 52 165

Balance sheet







Key ratios





Adjusted FCF/net debt -10.8% 3.2% 13.6% -2.2% 5.5%


Capital structure








Capital structure

Debt coverage




Chairman: Dr. Pierin Vincenz 2016

CEO: Kurt Bobst 2008

CFO: Stefan Kessler 2011


EKZ 28.4%

Canton of Graubünden 22.0%

UBS 18.9%

Axpo 12.7%

Rating trend

2013 2014 2015 2016

High BBB Mid BBB Low BBB High BB


0%

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8%

12%

16%

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1,400

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CHF m

Switzerland Italy Others Adj. EBITDA margin

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2016 2017 2018 2019 2020 thereafter

CHF m

Cash Unused general credit lines Bonds & loans

Alpiq

Axpo

BKW

EnBW

Repower

EVN AG

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105



Rieter – Mid BB, Stable Jannick Dousse

Sector: Capital Goods Bond ticker: RIENSW

Company description www.rieter.com


SWOT analysis


Leading global manufacturer of spinning machines. Strong product diversification within the textile business, covering all four established spinning processes, and including system solutions and components. Increased production facilities in China, India and the Czech Republic in recent years provide a partial natural hedge against the strong Swiss franc. Solid balance sheet with an adjusted net cash position since 2011, ample liquidity and adequate cash-flow-to-debt-coverage ratios.

Limited scale in terms of sales, earnings and cash-flow generation. Business concentration on a single, highly cyclical and competitive industry. Geographic concentration in emerging markets, particularly Asia (mostly Turkey, China, and India). Vulnerable to Swiss franc appreciation due to its continued large cost base in Switzerland, as evidenced by the weaker guidance for FY 2016.


The spinning machinery market has moved in Rieter's favor in recent years, as the high technology segment has gained market share ver-sus the standard technology segment. High growth potential in the textile industry, in particular in Asia and emerging markets. Technological advantages compared to low-price competitors. Global production, with a sales and services network providing the basis to increase its after-sales business as planned.

Volatile operating margins for its customers (spinning mills) depend-ing on cotton prices, which in turn influence their investment propen-sity. Highly competitive industry, particularly from low-cost producers in Asia. Build-up of overcapacities is limiting new demand for Rieter's spin-ning equipment in the mid-term Geopolitical risks, particularly in Turkey.

Winterthur-based Rieter is a leading global manufacturer of short-staple spinning machinery and components that convert natural and man-made fibers and their blends into yarns. The group's product offering is unique in covering spinning preparation and all four established final spinning processes. Since 2015, Rieter comprises three segments: Machines &Systems (68% of FY 2015 sales), After-Sales (13%), and Components (19%). Machines & Systems (formerly Spun Yarn Systems) develops and manufactures spinning machinery and systems; After-Sales offersspare parts and value-adding services, while the Components division (formerly Premium Textile Components) manufactures and marketstechnology components and services to spinning mills and textile ma-chinery manufacturers. Geographically, Asia is by far the group's largest region (72% of 2015 sales), with Turkey (14%), China (14%), and India (14%) being the largest single markets. The Americas (19%), Europe (6%) and Africa (3%) follow thereafter. Due to the disconnect between its manufacturing and sales footprint, Rieter is particularly vulnerable to

FX movements. In recent years, however, the group has expanded its manufacturing capacity abroad, particularly in China, India and the Czech Republic. This reduced its Swiss franc cost base to 30% of sales in 2015, from 43% in 2011. Unlike other industries, the market for spin-ning technology has only recently moved toward high-tech machines, and hence to Rieter's benefit. Accordingly, innovation, achieved via increased R&D spending, is one of the group's strategic priorities. The second is to expand the parts and components business, which is more stable than the equipment business, and provides solid growth potential. The third priority is to increase profitability through high capacity utiliza-tion, higher product margins and cost reductions. In the mid-term, the company is aiming for an EBIT margin of 10% (on CHF 1.3 bn of sales). However, overcapacities, particularly in China and Turkey, restricted customers' investment propensity during FY 2015. For FY 2016, Rieter expects lower sales and profit, although the improved order intake in H1 should slowly translate into better results going forward.

The below-average business profile reflects the company's limited scale, its focus on a single product group, limited geographic diversification with a strong reliance on emerging markets, and the high cyclicality and competitiveness of its industry. The group depends on the investment propensity of its customers, which in turn depends on the operating margins of spinning mills. Geopolitical risks (e.g. in Turkey) are a further constraining factor. The business profile benefits from the company's leading market position in the global textile supplier industry, its broad product offering in the spinning machinery segment, its technological strength in a market that is moving towards the high-end segment, andits adequate profitability compared to capital goods peers. The large

investments the company made in China and India in 2012/13 have provided strong growth in Asia, and are still offering a better natural hedge against FX developments. However, overcapacities in key mar-kets are limiting sales and profitability in the short- and mid-term. The average financial profile benefits from Rieter's very solid capital structure, with low leverage, a net cash position and ample liquidity, but is some-what constrained by the low free-cash-flow generation capacity in abso-lute terms. We expect volume and pricing pressure to weigh on Rieter's results, which is reflected in the group's weaker FY 2016 sales and net profit guidance. The "STEP UP" initiative, launched in October 2014, should partially offset margin pressure. Our rating outlook is Stable.

106




P&L

Sales 889 1,035 1,153 1,037 941

Gross margin 54.2% 51.3% 51.9% 53.4% 52.5%






Net profit 29 39 53 50 28

Cash flow

Adjusted FFO 25 59 100 91 69

Working capital changes –6 52 –7 1 –4

Adjusted CFO 20 110 92 91 65

Adjusted CAPEX –84 –57 –45 –34 –33

Adjusted FCF –64 53 47 57 32

Dividends –28 –12 –16 –21 –20

Net M&A 6 6 1 24 0

Net share buybacks 0 –4 –2 –11 0

Adjusted pre-financing cash flow –86 42 31 50 11

Balance sheet




Total adjusted net debt –27 –64 –85 –136 –154



Key ratios




Adjusted FFO/net debt Net cash Net cash Net cash Net cash Net cash

Adjusted FCF/net debt Net cash Net cash Net cash Net cash Net cash

Adjusted net debt/EBITDA Net cash Net cash Net cash Net cash Net cash

Capital structure



Adjusted net leverage Net cash Net cash Net cash Net cash Net cash


Adjusted net gearing Net cash Net cash Net cash Net cash Net cash



Capital structure

Debt coverage




Chairman: Erwin Stoller 2008

CEO: Norbert Klapper 2014

CFO: Joris Gröflin 2011


PCS Holding 19.1%

Artemis 11.5%

BlackRock >5.0%

VERAISON SICAV <3.0%

Rating trend

2013 2014 2015 2016

Mid BB Mid BB Mid BB Mid BB Source (table and charts): Company data, S&P, Bloomberg, Credit Suisse Bubble size corresponds to CHF sales

0%

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Spun Yarn Systems Premium Textile

Machines & Systems After Sales

Components Adj. EBITDA margin (r.h.s.)

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Schindler

ABB

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RieterBucher Ind.

Georg Fischer

Sandvik

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107



Roche – Low AA, Positive Heike Halsinger

Sector: Healthcare Bond ticker: ROSW

Company description www.roche.com

Rating rationale Business profile: Strong Financial profile: Strong

SWOT analysis


Global industry growth (low-to-mid-single digits) is fueled by de-mographics, changing lifestyles and innovation progress. Strong portfolio with seven blockbusters and an emphasis on innova-tion (No. 1 with 12 drug breakthrough designations since 2013). The combination of Pharma and Diagnostics enhances expertise and supports personalized healthcare, which is a major focus area. Light patent expiry schedule and a rich pipeline with eight late-stage new molecular entities expected to launch within two years.

Marked concentration in the product portfolio, as the top five drugs account for 63% of pharma revenues, balanced by line extensions. Price pressure due to government healthcare austerity measures globally, generics competition and tighter regulation. Efficacious drugs will continue to command a premium, in our view.


Future growth is supported by the focus on personalized healthcare and immune-oncology, featuring strongly in the late-stage pipeline. Sound growth potential for Diagnostics; 23% of Pharma revenues are generated by products with a matching companion test. Therapeutic antibodies (linking chemotherapeutics to cancer cells), improve efficacy and have a high growth potential. Targeted acquisitions anchor Roche's strong industry positions and complement its product portfolio and pipeline.

Roche's largest single market with 47% of Pharma revenues (USA) may experience some headwind (but nevertheless grew 6% in 2015). Tighter regulation could cause approval delays or pipeline setbacks which are particularly costly at a later stage. Large acquisitions could rapidly cut headroom under the rating, although Roche follows a conservative financial policy.

Roche continues to be one of the top five global pharmaceutical compa-nies, generating over CHF 48 bn in revenues in 2015. It is the global leader in oncology, featuring established blockbusters (e.g. Herceptin, Avastin, Rituxan), and more recent, fast-growing products (e.g. Perjeta,Kadcycla). Roche's Pharma and Diagnostics business units differ signifi-cantly in size and profitability; Pharma generates 77% of revenues and 91% of EBIT. The units' combined research capacities aid personalized healthcare, one of Roche's key focus areas. Diagnostics tests are used for clinical studies, to identify suitable treatments and to assess drug efficacy; 23% of Pharma sales stem from drugs with a companion test. Oncology remains Roche's key therapeutic area, generating 63% of Pharma revenues (up from 62%). Immunology is the second-largest department, growing fast and generating 16% of revenues as of today (13% in 2014). The remaining 21% are split between treatments for infectious diseases, ophthalmology, neuroscience, and others. Diagnos-tics comprises Professional, Molecular and Tissue Diagnostics, as well

as Diabetes Care. Professional Diagnostics accounts for 57% of unit revenues, with Immunodiagnostics growing strongly. Roche is geograph-ically well diversified with Pharma split as follows: 47% USA, 23% West-ern Europe, 9% Japan, 21% RoW; and Diagnostics: 42% EMEA, 26% North America, 21% APAC, and 11% RoW. Roche remains a "pure pharma" company, focusing on developing and distributing innovative medications. Concentration is easing but the top five drugs account for 58% of Pharma and 90% of Oncology revenues. This is balanced by strong growth in Oncology (+8% in 2015) as demand for personalized healthcare rises. Roche's R&D exceeds the industry average, feeding a productive pipeline and a young portfolio with seven blockbusters. We expect Roche to protect its leadership in Oncology, despite earlier moves of peers in immuno-oncology, given its expertise and sizeable early-stage pipeline in this field. Despite generics competition and austerity, industry growth-drivers remain intact. Roche actively uses bolt-on acquisitions and cooperation to complement its pipeline and portfolio.

Roche's strong business profile is underpinned by its leading position in research-focused healthcare. The combined research capacities of Pharma and Diagnostics actively support personalized healthcare by combining new drugs with matching tests. As not all patients respond the same way, biomarkers help identify patient subgroups for the most appropriate and efficacious treatment. We view the portfolio as well-diversified − despite the emphasis on the fast-growing oncology thera-peutic area − as there are numerous drugs and applications in Oncology, as well as five other therapeutic areas, with a strong immunology portfo-lio. Future performance is guarded by a sound portfolio with seven blockbusters (> USD 1 bn sales), a relatively light patent expiry sched-

ule, and a healthy pipeline to replace patent expiries and sustain growth. The rating is restrained by competition from generics, tight regulation, and austerity. Nevertheless, we still favor Roche's successful "pure pharma" approach focused on oncology and increasingly on immune-oncology. Roche's strong financial profile is based on consistently sound cash flows and a conservative financial policy. While credit metrics fell with the 2014 InterMune merger from levels clearly above required thresholds for the Low AA rating (adj. FFO/net debt >50%), they remained fully in line with them. Roche pursues both acquisitions and its own R&D projects to maintain and add to its portfolio. The rating outlook remains Positive, as we expect credit metrics to strengthen again.

108




P&L

Sales 45,499 46,780 47,462 48,145 50,552

Gross margin 81.1% 79.9% 81.5% 76.0% 76.2%

Adjusted EBITDA 18,279 19,247 19,253 18,291 19,215


Adjusted EBIT 14,361 16,364 14,370 14,088 15,540


Adjusted interest expense 1,477 1,144 1,001 942 946

Net profit 9,427 11,164 9,332 8,863 10,239

Cash flow

Adjusted FFO 14,376 15,059 15,548 15,046 14,813


Adjusted CFO 13,853 14,850 15,290 14,615 14,547

Adjusted CAPEX −2,729 −3,180 −3,635 −4,413 −4,020

Adjusted FCF 11,124 11,670 11,655 10,202 10,527

Dividends −5,888 −6,362 −6,718 −6,954 −7,179

Net M&A 107 –168 –9,569 –2,095 –1,000


Adjusted pre-financing cash flow 5,343 5,140 –4,632 1,153 2,348

Balance sheet





Adjusted equity 16,750 21,718 21,956 23,698 26,758


Key ratios







Capital structure








Capital structure

Debt coverage




Chairman: Christoph Franz 2014

CEO: Severin Schwan 2008

CFO: Alan Hippe 2011

Major shareholders (end-2015)¹

Hoffmann-Oeri- Duschmalé pool

45.010%

Novartis AG 33.333%

Maja Oeri (formerly part of pool) 5.057%

¹ voting rights

Rating trend

2013 2014 2015 2016

Low AA Low AA Low AA Low AA Source (table and charts): Company data, S&P, Bloomberg, Credit Suisse Bubble size corresponds to CHF sales

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GSK

Merck & Co

Galenica

Pfizer

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Sanofi

Roche

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109



Schindler – High A, Stable Jannick Dousse

Sector: Mechanical Engineering Bond ticker: SCHPSW

Company description www.schindler.com


SWOT analysis


Leading global market positions in a consolidated industry. Strong brand recognition and high-quality, innovative products, with a high degree of flexibility to meet client demand. A service-oriented global network, paired with a large and diverse customer base. A non-cyclical, stable, and high-margin service business. Low capex due to its superior production process. High market barriers to entry (dense coverage central to profitability). Very healthy liquidity position and cash-flow generation capacity.

Price and margin pressure due to intense competition. Exposure of the E&E business due to lack of diversification. Demand fluctuations as a result of the general cyclical nature of the construction industry. Competition in the new installations business remains fierce (some-what alleviated by product quality, safety, comfort and efficiency). Limited ability to pass on higher raw material and energy costs.


Strong, growing presence in high-growth markets, particularly China, India and Southeast Asia. Products matched to local demand, making them more affordable for larger customers. A natural hedge due to a match of production and sales regions. Schindler continues to win prestigious, large-scale projects – thus opening up new opportunities and supporting brand recognition. As safety is paramount, incidents can be disruptive. Schindler's strong reputation for quality and safety should be beneficial.

Increasing competition from global, regional and local players in high-growth markets potentially puts pressure on margins. Volatility in Chinese markets, and a potential shock in the real estate market. Low activity in selected core markets could pressure profitability. Translation risk due to strong Swiss franc.

Schindler is a global leader in high-quality mobility solutions and services. The company manufactures elevators, escalators, and moving walkways,and is active in production, installation, maintenance and customized modernization. As its product portfolio is highly specialized, the brand name is associated with top-notch quality and innovation. Schindler is a truly global player, and targets a balanced footprint over three geogra-phies: Europe (39% of FY 2015 revenues), the Americas (28%), and APAC (33%). The latter is an important growth market, accounting for more than 77% of the newly-installed units (NI) in the global elevator and escalator (E&E) market. China (60% of NI) is by far the most im-portant single market, due to strong urbanization trends (~80 m people expected to move to cities by 2020,) and its sheer market and popula-tion size. However, there are some short-term pressures, as the new installation market has declined for the first time in more than 20 years due to some weakness in the residential property segment. While Schindler is generally well positioned in all of its key markets, the group

announced its departure from Japan in spring 2016 (sale to Otis ex-pected to close by the end of the year). This step follows an accident in 2006, which led to massive reputational damage. This also highlights the elevated event risk in the industry. The E&E industry remains subject to increasing price sensitivity, which is alleviated by Schindler's strong brand, cost leadership and comparably low capex. A source of stability is the high share of low-cyclical service and renovation revenues. Its con-servative financial policy, combined with strong cash-flow dynamics, aims to keep the company financially independent, and offset market volatili-ties. For FY 2016, Schindler expects the global E&E markets to slightly decline. However, the company is expected to take market share from competitors, thus growing its top line by 3%–7% in local currencies. We believe that profitability will be supported by the execution of its Fast Forward program. As of April 2016, Thomas Oetterli has taken over as CEO from Silvio Napoli, who will be nominated as new chairman in April 2017, succeeding Alfred N. Schindler.

Schindler's business profile is supported by its high-quality, innovative and specialized products, resulting in favorable brand association. The high flexibility to meet customer demand adds to its competitive ad-vantage. Schindler's strength is underpinned by its global production and service network, as well as good geographical diversification, combining growth prospects in high-growth markets with stability in more mature ones. Schindler is highly innovative, spending more than CHF 130 m p.a. on R&D. It is therefore set to take advantage of industry trends such as digitalization and building automation. Its business profile is con-strained by the intense competition typical for the industry, and the resulting price pressure. Potential volatility and growth concerns over the

Chinese economy also create further weakness. Exposure to the cyclical construction industry is mitigated by Schindler's low-cyclical mainte-nance, service and renovation business. The financial profile is charac-terized by sound operating profitability, solid cash-flows and very healthy liquidity. Schindler's fairly conservative financial policy shows in its steady net cash position, strong balance sheet and ample liquidity. This is also exemplified by the decision not to renew its share buyback program, which ended in 2015. Credit metrics are in line with the required thresh-olds for the High A rating, e.g. adj. FFO/net debt of 70%, with substan-tial headroom. Our rating outlook is Stable, based on our expectation that the downturn in the Chinese construction industry will not worsen.

110




P&L

Sales 8,258 8,813 9,246 9,391 9,713

Gross margin 70.4% 69.0% 68.6% 69.1% 69.3%

Adjusted EBITDA 1,263 1,187 1,467 1,307 1,463


Adjusted EBIT 1,035 956 1,197 1,055 1,190



Net profit 702 432 862 689 820

Cash flow

Adjusted FFO 907 858 995 1,079 1,151

Working capital changes –16 69 20 105 –47

Adjusted CFO 891 927 1,015 1,184 1,104

Adjusted CAPEX –241 –363 –296 –291 –317

Adjusted FCF 650 564 719 893 787

Dividends –255 –268 –259 –408 –236

Net M&A –33 20 54 –10 63

Net share buybacks –124 –531 –76 –762 0

Adjusted pre-financing cash flow 238 –215 438 –287 614

Balance sheet




Total adjusted net debt –334 –352 –511 –32 –610

Adjusted equity 2,828 2,541 3,014 2,375 2,959


Key ratios




Adjusted FFO/net debt net cash net cash net cash net cash net cash

Adjusted FCF/net debt net cash net cash net cash net cash net cash

Adjusted net debt/EBITDA net cash net cash net cash net cash net cash

Capital structure



Adjusted net leverage net cash net cash net cash net cash net cash


Adjusted net gearing net cash net cash net cash net cash net cash



Capital structure

Debt coverage




Chairman: Alfred N. Schindler 1995

Vice Chairman: Luc Bonnard 1996

CEO: Thomas Oetterli 2016

CFO: Erich Amman 2001


Schindler and Bonnard families

and related parties (voting rights) 70%

Rating trend

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111



SGS – Mid A, Stable Colin Ferguson

Sector: Industrial Services Bond ticker: SGSVX

Company description www.sgs.com


SWOT analysis


Global leader in inspection, verification, testing and certification. Relatively high barriers to entry (solid reputation, scale, technological know-how). Diversified business profile with a broad customer base spanning various industries and a broad geographic presence. Long-term customer relationships (high customer-retention rate). Resilient operating performance generating fairly stable cash flows throughout the business cycle. Solid balance sheet, liquidity and interest-/debt-coverage ratios.

A certain business sensitivity to commodity prices, particularly oil, as can be seen in the negative impact of lower oil prices. Dependence on accreditation by local authorities. Dependence of some businesses on weather conditions and envi-ronmental influences (especially in agriculture business line). High shareholder remuneration with a heightened dividend payout ratio and an active share buyback program. Foreign exchange translation exposure.


Growing industry, driven by increasing regulation and emerging markets. Outsourcing trend of in-house testing and controlling services. Growing need of big data analytics by customers provides further sale opportunities.

Pricing pressure from new and existing companies. Increasing FX volatility. Shortage of trained engineers across all sectors. Acquisition-related risks given the large amount of bolt-on acquisi-tions SGS is conducting.

SGS, based in Geneva, is the world's largest inspection, verification, testing and certification company. The company operates in nine majordivisions organized by client industry, with over 85,000 employees and a network of over 1,800 laboratories and offices. The company inspects, samples and analyzes raw materials, food, crop productivity and safety procedures for international institutions, governments and customers engaged in the agriculture, automotive, chemicals, construction, con-sumer goods, energy, environmental, financial, industrial manufacturing, life sciences, logistics, minerals, mining, and oil and gas sectors. It also certifies products and machinery for compliance with local or internation-al standards. The testing, inspection and certification (TIC) activities consist of three segments: testing services (testing products in the manufacturing industries for quality, efficiency, environmental impact as well as regulatory health and safety compliance), verification & inspectionservices (inspecting and verifying the quantity, weight and quality of traded goods) and certification services (certifying that services or prod-

ucts comply with regulatory standards set by governments, standardiza-tion bodies or customers' expectations). In addition, SGS advises its customers on productivity and efficiency improvements in order to help them streamline their processes and value chain. Oil, Gas and Chemi-cals, as well as Consumer and Retail (both 20% of FY 2015 revenues) represent its largest divisions. Europe, Africa and Middle East is its largest region (45% of FY 2015 revenues), complemented by Asia-Pacific (30%) and the Americas (25%). The group continuously con-ducts smaller acquisitions, totaling around CHF 100–200 m annually over the last five years. For FY 2016, SGS expects organic growth rates in the range of 2.5%–3.5%, whereas the potential persistence of the low commodity environment could provide a risk to the downside. For the next five years, the company expects mid-single digit organic growth rates. SGS further expects margins to be slightly below last year’s level and cash flow to remain solid.

SGS's Mid A rating is based on its above-average business and financial profiles. The business profile is underpinned by the group's broad cus-tomer diversification across various industries and geographic regions, its leading scale as global No. 1, the growth trend in the testing industry, its solid reputation and track record, long-term customer relationships and the company's focus on innovation and technological leadership. Further, the industry has relatively high entry barriers. In turn, the business profileis constrained by a certain dependency on global economic growth and trade, as well as on commodity prices (particularly oil), relatively high fixed costs, and a general shortage of trained engineers in the labor market, together with increasing competition in the low-margin testing

business and slightly above-average litigation risks. We regard the financial profile as above-average due to the group's strong interest- and debt-coverage ratios based on its solid balance sheet, liquidity position and relatively stable cash flow generation. The financial profile is con-strained by the group's shareholder focus due to a generally high divi-dend payout ratio and the active share buyback program. In addition, SGS has an acquisitive strategy and exposure to currency movements due to its translation exposure. The rating outlook is Stable in view of the company's sound financial leeway under its current rating and the below-average vulnerability of its business model to economic downturns.

112




P&L

Sales 5,578 5,830 5,883 5,712 5,895

Adjusted EBITDA 1,215 1,370 1,403 1,297 1,309


Adjusted EBIT 858 955 982 882 912



Net profit 556 600 629 569 594

Cash flow

Adjusted FFO 944 1,074 1,125 984 1,054

Working capital changes -73 -29 -109 160 61

Adjusted CFO 871 1,045 1,016 1,144 1,115

Adjusted CAPEX -463 -474 -422 -414 -395

Adjusted FCF 408 571 594 730 720

Dividends -521 -471 -523 -556 -541

Net M&A -172 -84 -101 -89 -160

Net share buybacks 76 4 32 -149 -170

Adjusted pre-financing cash flow -210 20 2 -65 -150

Balance sheet

Adjusted cash and near cash 822 798 1,174 1,563 1,407




Adjusted equity 2,118 2,154 2,271 1,911 1,794


Key ratios







Capital structure








Capital structure

Debt coverage




Chairman: Sergio Marchionne 2006

CEO: Frankie Ng 2015

CFO: Carla De Geyseleer 2014


Groupe Bruxelles Lambert 15.0%

Family August von Finck 15.0%

Bank of NY Mellon 3.4%

BlackRock 3.0%

MFS Investment Management 3.0%

Rating trend

2013 2014 2015 2016

Mid A Mid A Mid A Mid A


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Oil, Gas & Chemicals ConsumerIndustrial MineralsAgricultural & Environmental AutomotiveGovernments & Institutions Life ScienceCertification Adj. EBITDA margin (r.h.s.)

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Median B Bucket

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SGS

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113



SIG – High BBB, Stable Daniel Rupli

Sector: Public sector Bond ticker: SRVIND

Company description www.sig-ge.ch


SWOT analysis


The 60% share of revenues from regulated businesses, much of it priced under a cost-plus scheme, guarantees an acceptable return on capital. Publicly owned, which sets SIG's long-term strategic focus. Stable and reliable revenues from non-discretionary goods. Stable and predictable earnings and cash flow of the regulated core business. Much of the value is kept within the company; distributions to share-holders are not forced.

Substantial impairments on expansion projects and investments weakened capitalization. Underfunded pension fund that weighs on indebtedness, but which SIG is about to recapitalize. To date weak track record on expanding business outside the regulated activities. Large number of political members on the Board of Directors could pose a governance issue.


Change in strategy to focus back on core business could lead to more stability, as well as better and more predictable credit metrics in the future. Potential recovery of energy prices could support SIG via its equity investments. New Cheneviers IV incineration plant could increase profitability of SIG's waste management activities.

Canton dictates some of the investments, which ultimately need to be financed through SIG (i.e. thermal projects). Significant investment needs: SIG plans to invest around CHF 1.2 bn in its distribution networks, electricity projects and the new incin-eration plant over the next five years.

Services Industriels de Genève (SIG) is an unlisted company with a public service mission in the Canton of Geneva, owned and controlled by the canton (55% of votes and capital), the City of Geneva (30%) and the municipalities in the canton (15%). The company distributes and commercializes electricity, gas, thermal energy and water within the Canton of Geneva. It also manages the waste disposal and incineration process, as well as the treatment and purification of waste water. To-gether with the national telecommunication company, it has established an optical fiber network in the canton. In its electricity business, SIG fulfills three different functions: sourcing/production, commercialization,and distribution to end customers. The company's client base includes over 275,000 customers in the Canton of Geneva, with a 4,560 km-long mixed-voltage network. SIG commercializes energy products, sourced from its own production, through long-term contracts and the free market, with 95% sourced from renewable energies. The company is also an active producer, with its own facilities supplying close to 30%

of its energy needs. As in its electricity business, SIG has a legal mo-nopoly in its distribution business, so that, in addition to other energy sources, the commercialization of gas would be put under pressure by free market competition. SIG supplies the region of Geneva with thermal energy, both heating and cooling. Another core task of SIG includes the distribution of drinking water to its customers, as well as the disposal and treatment of waste water. Most of the drinking water is sourced from Lake Geneva (80%) and ground water reservoirs around the city (20%). SIG is active in selected fields within the waste and recycling industry, and has announced its expansion into the fiber-to-the-home (FTTH) business in cooperation with Swisscom. Its telecoms activities are strictly limited to the construction of infrastructure. In this business model, SIG sells band-width to telecom companies and larger businesses (B2B). In 2015, the company generated revenues of over CHF 1 bn, of which roughly 60% of revenues came from regulated businesses. SIG employs nearly 1,650 people in more than 100 functions.

SIG's rating benefits from the above-average business profile, which ischaracterized by a monopoly position in several of the company's busi-nesses. About three quarters of SIG's revenues comes from regulated business activities. The company is controlled by the Canton of Geneva (55% of votes and capital), the City of Geneva (30%) and the municipal-ities in the canton (15%), which is also supportive of SIG's business profile. We do not see any financial support in place by the Canton of Geneva at this stage as it provides neither subsidies nor guarantees; for instance for the underfunded pension fund SIG took over from the canton for its employees. Nevertheless, the rating receives a one-notch uplift for its shareholder structure. The business profile is somewhat

constrained by the company's exposure to unregulated businesses and to the power generation business, which is currently under heavy pressure due to the difficult wholesale electricity markets. The financial profile is average, thanks to solid capitalization as well as a relatively solid asset base. The consistency and predictability of cash flows in the regulated business is positive, in our view. The financial profile is impacted by the relatively high adjusted indebtedness that results from its underfunded pension fund. We also highlight substantial impairments that had to be booked due to its investments in electrical utilities, in fiber networks as well as in wind generation plants. This led to net losses and weakened SIG's capitalization. The outlook is Stable.

114




P&L

Sales 1,088 1,048 1,084 1,104 1,122

Gross margin 64.8% 62.9% 66.1% 71.0% 71.0%






Net profit -88 41 -161 -41 36

Cash flow

Adjusted FFO 219 319 218 305 271

Working capital changes 9 -63 -2 3 -2

Adjusted CFO 228 256 216 307 269

Adjusted CAPEX -241 -183 -185 -173 -164

Adjusted FCF -13 74 31 135 105

Dividends 0 0 0 0 0


Net M&A 0 0 0 0 0

Adjusted pre-financing cash flow -13 74 31 134 105

Balance sheet





Adjusted equity 1,869 2,115 1,768 1,606 1,642


Key ratios





Adjusted FCF/net debt -0.9% 6.1% 2.2% 9.9% 7.9%


Capital structure








Capital structure

Debt coverage




Chairman: Michel Balestra 2014

CEO: Christian Brunier 2014

CFO: Céline Gauderlot 2015


Canton of Geneva 55.0%

City of Geneva 30.0%

Municipalities 15.0%

Rating trend

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n.r. n.r. High BBB High BBB Source (table and charts): Company data, S&P, Bloomberg, Credit Suisse Bubble size corresponds to CHF sales

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115



Sika – Low A, Negative Misha Weber

Sector: Chemicals Bond ticker: SIKA

Company description www.sika.com


SWOT analysis


Sika's sales are broadly diversified across products and regions, with an increasing contribution from emerging markets. The company enjoys top market positions in its business activities and regions, though industry fragmentation remains (top five con-struction chemicals firms control just 25% of the global market). Products are characterized by a relatively high innovation rate, which have an element of pricing power. Sound cash flow generation capacity and solid profitability margins support Sika's credit metrics.

The exposure to cyclical end-markets, such as automotive and construction, could lead to an element of earnings volatility, though the high renovation component to Sika's sales dampens any swings. While FX exposure is mostly translational with Sika having a good overall natural hedge, FX volatility can lead to lower reported earn-ings and cash flows.


Sika is expanding its exposure to emerging markets with good growth opportunities. Sika has traditionally focused on the professional market in the US. Sika products are now represented in Home Depot (2,000 stores) and Lowe's (1,800) in an effort to extend the addressable market in-to the do-it-yourself or retail segment. We think growth should come from a combination of organic growth supported by new product innovations and acquisitions.

Corporate governance – the disposal of the founding family's con-trolling stake to Saint Gobain is being very publically and acrimoni-ously contested by Sika's management, independent board mem-bers and public shareholders. If the founding family is unable to complete the transfer of its owner-ship stake to Saint Gobain, Sika may acquire the stake directly, which would raise indebtedness. The acquisition strategy adds integration risks, although Sika has focused on bolt-on acquisitions and has thus far demonstrated a good track record.

Sika is a leading specialty chemicals company serving the building and construction, and manufacturing industries. The company enjoys a strong market position in each of its operating fields and aims to become a market leader in each of its end markets. Sika holds the No. 1 position globally in waterproofing and flooring, the No. 2 position in concrete (after BASF), the No. 2 position in the industry (after Henkel), and the No. 3 position in roofing, where Soprema is the market leader. It aims to further strengthen its market position through a combination of organic growth and targeted bolt-on acquisitions. Sika generated net sales of CHF 5,489 m in FY 2015 with its well-spread global footprint. EMEA contributed 47% of FY 2015 sales, followed by Asia/Pacific (19%), North America (15%), Latin America (11%), and 8% is not segmented. The share of emerging markets is growing gradually, with Sika investing in the buildup of the EM (100 subsidiaries by 2018, 6 - 8 new plants per year). Segment-wise, Construction generated 79% of group revenues in 2015. The segment includes the production and sale of concrete admix-

tures, roofing, sealing & bonding, waterproofing, flooring and refurbish-ment solutions. Industry (21% of FY 2015 sales) is active in automotive as well as the bus, truck and rail industries. Through its various activities in these two business fields, Sika processes materials used in sealing, bonding, damping, reinforcing and protecting load-bearing structures. The market is fragmented with the top five companies accounting for only 25% of the global market. Under its January 2016 upwardly revised 2018 strategy, Sika aims to achieve 6%–8% annual revenue growth at constant FX rates, an operating profit margin of 12%–14% (previously above 10%), operating free cash flow above 8% (previously >6%) and a return on capital employed of >25% (previously >20%). The company has established a good track record in acquiring smaller businesses, and has made around 65 acquisitions over the past 15 years. Uncertainty about the ownership structure (founding family is seeking to sell its controlling interest to Saint Gobain) is potentially disruptive at the operational level and a negative factor for the credit profile, in our view.

Sika's rating is based on its above-average business and financial pro-files. The business profile is supported by its broad diversification in terms of end-markets, products and geographical reach. Sika enjoys strong market positions in the segments in which it operates. The com-pany produces high-quality products, with a relatively high innovation rate. Sika is well positioned to grow its share of emerging market reve-nues, which would further help geographical diversification. The financial profile benefits from its sustainable operating profit margins as well as solid cash flow generation capacity. The company has been able to fully absorb various bolt-on acquisitions in recent years. The financial leverage is moderate and financial policy has traditionally been conservative. Sika

is generally able to pass on raw material price inflation, albeit customarily with a time lag. In contrast, lower input prices can also boost margins in the near term before benefits are usually passed on to end-customers. In terms of FX exposure, Sika has a relatively good natural hedge. Sika has just its head office and three large export-oriented factories in Switzerland (out of 160 plants worldwide). Our Negative outlook reflects the event risk/corporate governance issues raised by the contested possible change in control (the founding family interest held via the Schenker-Winkler Holding is being sold to Saint Gobain – 16% stake in capital, but 52% of voting rights).

116




P&L

Sales 4,829 5,142 5,571 5,489 5,785

Gross margin 52.2% 52.4% 53.0% 54.1% 54.1%



Adjusted EBIT 449 520 644 687 758



Net profit 277 342 439 460 527

Cash flow

Adjusted FFO 459 551 634 662 748

Working capital change 2 60 −39 −28 −55

Adjusted CFO 460 611 594 633 693

Adjusted CAPEX −164 −191 −193 −190 −202

Adjusted FCF 296 420 402 443 491

Dividends −113 −129 −145 −183 −196

Net share buybacks 22 12 −2 3 0

Net M&A −2 −398 −59 −61 −100

Adjusted pre-financing cash flow 202 −96 196 202 196

Balance sheet

Adjusted cash and near-cash 849 874 732 910 1,096




Adjusted equity 1,950 2,182 2,433 2,394 2,726


Key ratios







Capital structure








Capital structure

Debt coverage




Chairman: Paul Hälg 2012

CEO: Jan Jenisch 2012

CFO: Adrian Widmer 2014

Major shareholders (by voting rights end-2015)

Burkard-Schenker family / Schenker-Winkler Holding

52.92%

Investor group (including Thread-needle AM, FIL Limited, Bill & Melinda Gates foundation

5.23%


Rating trend

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117



Sulzer – Mid BBB, Negative Jannick Dousse

Sector: Capital Goods Bond ticker: SUNSW

Company description www.sulzer.com


SWOT analysis


Leading market positions in key end-markets Oil and Gas, Water, and Power. Large share of service and aftermarket business, which somewhat limits its cyclicality. Worldwide production and service network acts as a natural hedge against transaction risk from exchange-rate movements. Sound geographical and business diversification. Balanced presence in mature and emerging markets.

Exposure to economic cyclicality results in demand volatility. Generally high capital intensity of the capital goods industry, partially limited due to strong positioning in after-market and service busi-nesses. Strong shareholder focus after the (special) dividend distribution and debt-financed M&A.


Once transformation processes are finished, the group could benefit from more business, lower costs and more stable operations. Potential to participate in growth of developing markets. Ready to capitalize on global trends such as energy-efficiency and water treatment. Strong technological edge and high innovation rate bolsters growth. SMS/Geka's ambition to break into healthcare markets could result in higher growth and improved margins.

Overall risks related to emerging-market exposure. Exposed to volatility in commodities, especially oil. General risks related to adverse exchange-rate fluctuations (e.g. CHF translation impact). Further acquisitions could add pressure on credit metrics. Sulzer's shareholder-friendly financial policy is supported by majority shareholder Renova and thus expected to be continued or even in-tensify.

Sulzer is a mid-sized, global capital goods company specializing in pump-ing solutions, rotating equipment maintenance and services, as well as separation, reaction, and mixing technologies. Based on its product portfolio, Sulzer mainly targets four key end-markets: Oil and Gas (47%of FY 2015 revenues), Water (22%), General Industry (16%), andPower (15%). Geographically, it holds strong presences in EMEA (46%of FY 2015 revenues), and in the Americas (32%), and a comparably smaller footprint in Asia Pacific (22%). The group comprises three distinct segments. Pumps Equipment (54% of FY 2015 revenues) is a leading global manufacturer of pump systems, including a wide range of products and services. Rotating Equipment Services (23%) is a custom-er-focused division that provides various services for turbines, pumps, compressors, generators and motors. Chemtech (23%) holds a strong market position in separation, reaction and mixing processes. In 2016, its sub-division Sulzer Mixpac Systems (SMS), a provider of proprietary mixing and applicator solutions, was in focus, acquiring PC Cox, a small

manufacturer of handheld sealant and adhesive dispensers, then the larger Geka company, which produces applicators, mixers and packaging for the cosmetics market (e.g. mascara applicators). As a result, the sub-division more than doubled in size, and will be reported as a standalone segment starting in 2017. Generally, Sulzer's oil & gas and power busi-nesses are highly cyclical, as they target mid and late-cycle markets. However, with the expansion of SMS, and the high share of less-cyclical aftermarket and services revenue, the dependence on the economic cycle is reduced somewhat. The group is realizing first cost savings with its "Full Potential" program, which are however offset by the increasing price pressure. Until 2018, Sulzer is targeting annual cost reductions of CHF 200 m, attempting to close the profitability gap to its top-tier competitors. For FY 2016, market weakness is expected to persist, as the company guides that currency-adjusted orders and sales will decline by 5%–10% (orders at higher end after solid H1 2016 results). Operational EBITA margin is forecast to decline to 8%.

Sulzer's average business profile is strengthened by its good diversifica-tion across the three divisions, its strong market positions in its key markets, and the large share of revenues generated from less-cyclical services and aftermarket businesses. Additionally, the global presence together with a balanced footprint in mature and emerging markets provides stability and growth opportunities. The business profile is con-strained by customers' exposure to commodity prices and the high operating leverage of most of the company’s businesses. Moreover, Sulzer is highly exposed to the economic cycle, particularly to mid and late-cycle end markets, which is only partially offset by the expansion of the defensive SMS activities and its stable aftermarket and service

business. Costs and revenues are well matched geographically, which provides a natural hedge against FX transaction risk, although the group's financial results are still exposed to a negative translation impact. We have downgraded Sulzer's financial profile from above-average to average, due to the heightened shareholder focus (regular/special dividend) and M&A activities, which stretched its credit metrics. As a result, we downgraded Sulzer's rating from High BBB to Mid BBB. In this rating category, Sulzer's adjusted FFO/net debt ratio is in line with our threshold (at least 35%). However, due to the continuing downturn in its key markets, as well as the expectation of further (large-scale) acquisitions, we are maintaining our Negative outlook.

118




P&L

Sales 4,022 3,264 3,212 2,971 2,779

Gross margin 64.3% 66.9% 67.8% 69.3% 69.2%



Adjusted EBIT 421 272 270 170 142



Net profit 307 234 275 74 63

Cash flow

Adjusted FFO 389 371 338 295 245

Working capital changes 125 –12 –120 –50 8

Adjusted CFO 514 359 219 245 254

Adjusted CAPEX –156 –137 –128 –96 –105

Adjusted FCF 358 222 91 149 149

Dividends –102 –109 –109 –119 –620

Net M&A –39 –27 –75 –70 –302

Net share buybacks 11 –4 –4 –1 0

Adjusted pre-financing cash flow 228 83 –97 –42 –773

Balance sheet

Adjusted cash and near-cash 272 333 1,109 1,039 728


Total adjusted debt 1,036 872 980 983 1,422

Total adjusted net debt 764 539 –129 –56 694

Adjusted equity 2,194 2,379 2,444 2,234 1,678


Key ratios




Adjusted FFO/net debt 50.9% 68.9% Net cash Net cash 35.3%

Adjusted FCF/net debt 46.8% 41.2% Net cash Net cash 21.4%

Adjusted net debt/EBITDA 1.3x 1.2x Net cash Net cash 2.5x

Capital structure



Adjusted net leverage 25.8% 18.5% Net cash Net cash 29.3%


Adjusted net gearing 34.8% 22.6% Net cash Net cash 41.4%



Capital structure

Debt coverage




Chairman: Peter Löscher 2014

CEO: Gregoire Poux-Guillaume 2015

CFO: Thomas Dittrich 2014


Viktor Vekselberg (via Renova) 63.4%

T. Rowe Price Associates, Inc. 3.1%

Rating trend

2013 2014 2015 2016

High BBB High BBB High BBB Mid BBB


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Sandvik

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119



Swisscom – Mid A, Stable Roman Ochsner

Sector: Telecommunications Bond ticker: SCMNVX

Company description www.swisscom.ch


SWOT analysis


Very strong leading market positions in Swiss fixed-line and mobile telephony, as well as digital TV and broadband. Margin erosion addressed by bundled products (Vivo portfolio), flat-rate mobile price plans (Infinity) and efficiency measures. Majority owned by the Swiss Confederation, and licensed to provide telecommunication services in Switzerland until 2017. Proactive and defensive introduction of Wingo to prevent aggressive pricing in fixed-line by (new) competitors. Attractive operating margins compared to European peers, sound operating and free-cash-flow generation capacity.

High capex to maintain, grow and upgrade the high-quality network, (although this supports its market position and future growth). Limited growth opportunities in the core Swiss market, as market penetration and Swisscom's market share are already high. High goodwill versus equity provides potential for impairments. Pension deficit under IFRS (but pension surplus of CHF 0.7 bn under Swiss accounting standards). Investments in new businesses such as vertical solutions and alter-native forms of payments require large up-front investments and have limited visibility.


Leading market positions and excellent network in Switzerland allow for efficient introduction of attractively priced new products. Improving operating trend at Fastweb and market share gains. High network quality and capacity are expensive to replicate, under-pinning dominant positions despite competition. Increasing diversification from strategic directories business. Growing presence in vertical solutions (H-net and stake in Finnova). Ongoing evolution in mobile applications enhances earnings potential.

Ongoing technological changes will continue to require high capex. Data monetization requires large investments and is taking time to come through. Arrival of Iliad in the Italian telecom market as a competitive force. Salt has started to launch more aggressive mobile promotions and could enter the fixed-line business in 2017. Revision of the Telecom Act could bring regulatory uncertainty. While unlikely at this stage, in our view, if upc cablecom combined with Salt or Sunrise (backed by upc's parent Liberty Global), it would be a stronger competitor in the long term.

Swisscom AG is the leading Swiss integrated telecommunications pro-vider, offering a wide range of services and products for fixed, mobile and IP-based voice and data communication, including Swisscom TV. Swisscom has three operating segments: (1) Swisscom Switzerland; (2)Fastweb; (3) Other Operating Segments. Swisscom Switzerland remains the largest segment, with 81% of revenues and 85% of EBITDA. Do-mestically, it is by far the largest provider in mobile telephony (60%market share with more than 6.6 m post and prepaid access lines), but also the largest provider in broadband access lines (54%), and in fixed-line, although the number of lines is gradually declining. Swisscom is also a leading provider of IT services (9%). A key growth driver in recent years has been digital TV, where its market share has steadily increasedto a current level of 30%. Further, Swisscom's offering of bundles and converged products has also supported revenue growth in the domestic market, despite pressure on subscriber growth. Given that the telecom-munications market remains capital-intensive, Swisscom continues to

invest heavily in its fixed and wireless network as well as its IT systems, reflected in a domestic capex/sales ratio of nearly 19%. Its Italian subsid-iary Fastweb has grown its broadband market share to 16% of access lines, making it the second-largest in a country where the penetration rate remains low by international comparison. Fastweb aims to cover 7.5 m households and businesses by the end of 2016. It also acts as a mobile virtual network operator and was interested in establishing itself as the fourth fully-infrastructured mobile operator, by acquiring assets as part of the merger review between Hutchison and Wind. With French operator Iliad signing an agreement to buy the assets, it has asked for Iliad's proposal to be consulted by the market to ensure the same level of in-vestment and to safeguard competition. In 2016, Swisscom announced a cost efficiency program aiming to generate recurring gross cash savings in excess of CHF 300 m p.a. by 2020. Management guides for net revenues in excess of CHF 11.6 bn, EBITDA of ~CHF 4.2 bn, and capex above CHF 2.3 bn for 2016.

We continue to view Swisscom's business profile as above-average, thanks to its leading incumbent position in the rather price-rational Swiss telecommunications market, where its strong offering and pre-emptive moves provide relative resilience towards efforts from competitors to attack its market share. However, the rating is constrained by possiblygrowing competition and subscriber price sensitivity as well as the limited growth opportunities in the mature Swiss market, where further penetra-tion e.g. with Infinity or bundled products, will become increasingly difficult. Also, Swisscom remains exposed to regulatory risks, as seen with the pressure on roaming charges or imposed fines in recent years. While we view its subsidiary Fastweb as well-positioned to further grow

market share in ultra-broadband, competition in the Italian market could possibly increase, given Iliad's track record of aggressively chasing market share. Attractive profitability margins compared to European peers, sound cash-flow generation and a rather conservative financial policy (maximum net debt/EBITDA ratio of 2.1x targeted) support the financial profile, even though the Fastweb acquisition is still visible in high goodwill. Material capital needs of over CHF 2 bn for the Italian and Swiss networks are fully covered by internally generated cash and have enabled a stable dividend policy in recent years. Our rating is supported with one notch by the Swiss government's majority shareholding, as anchored in the Federal Telecommunications Enterprises Act.

120




P&L

Sales 11,384 11,434 11,703 11,678 11,713

Gross margin 78.9% 79.6% 79.8% 79.9% 79.9%

Adjusted EBITDA 4,473 4,450 4,594 4,276 4,404


Adjusted EBIT 2,426 2,320 2,377 2,066 2,166



Net profit 1,808 1,685 1,694 1,361 1,541

Cash flow

Adjusted FFO 4,075 4,020 3,797 3,936 3,800

Working capital changes 88 14 –88 –110 –88

Adjusted CFO 4,163 4,034 3,709 3,826 3,713

Adjusted CAPEX –2,658 –2,531 –2,586 –2,551 –2,481

Adjusted FCF 1,504 1,504 1,123 1,275 1,231

Dividends –1,154 –1,154 –1,156 –1,147 –1,140

Net M&A –52 –38 –273 –46 –20

Net share buybacks –6 –6 –5 –2 –2


Balance sheet





Adjusted equity 4,717 6,002 5,486 5,242 5,641


Key ratios







Capital structure








Capital structure

Debt coverage





CEO: Urs Schaeppi 2013

CFO: Mario Rossi 2013


Swiss Confederation 51.0%

Rating trend

2013 2014 2015 2016

Mid A Mid A Mid A Mid A


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121



Swissgrid – Low AA, Stable Daniel Rupli

Sector: Utilities Bond ticker: SWISSG

Company description www.swissgrid.ch

Rating rationale Business profile: Strong Financial profile: Above-average

SWOT analysis


The business activities result in a quasi-monopoly market position. Swissgrid's activities and regulated assets are systemically relevant. The regulatory environment is highly supportive und fully regulated. Thanks to the fully regulated cost recovery regime, there is little pressure on margins from suppliers and/or customers. The high voltage grid is fully owned by Swissgrid. Supportive shareholder structure requiring at least 50% state owner-ship.

Although the shareholder structure is rather supportive, there is no direct ownership by the Swiss government, which limits notching up for implicit government support. Swissgrid's financial profile is highly leveraged compared to other industries. The business has high capital needs and the investment recovery will come with a delay.


Swissgrid has a proven strong track record in efficiency gains. Reduced third-party credit risks, as counterparties are generally creditors and debtors at the same time. Credit metrics are expected to remain adequate when compared to European peers.

Shareholder structure and contractual agreements somewhat limit changes in shareholder structure, which could lead to delays. Grid expansion and renewal is expected to result in higher indebted-ness and a corresponding deterioration of credit metrics. Although the environment and regulations are currently supportive, there is a general regulatory risk. Some shareholders have limited financial flexibility due to the current difficult environment for the utility sector overall.

As the national grid company, Swissgrid is responsible for ensuring asecure and reliable operation of the high-voltage grid in Switzerland,which it also owns. Based on the Swiss Electricity Supply Act, the company is responsible for a reliable and effective electricity transfer in Switzerland. Swissgrid is obliged to maintain, renew and expand the high-voltage grid system to ensure safety and functioning at all times. Duties include ensuring a secure, productive and efficient transmissiongrid, the organization and regulation of network access taking into consideration the interaction with other networks, the provision of neces-sary reserve supply capacities and the specification of minimum technical and operational requirements for the grid. As a member of the European Network of Transmission System Operators for Electricity (ENTSO-E), it is also responsible for grid coordination and usage in terms of the Euro-pean exchange of electricity. Swissgrid may not perform any commercial activities in the areas of electricity production, distribution and trading, orhold any interests in companies that are active in these fields. Back in

2013, the previous owners brought their high-voltage grid into Swissgrid and received shares in the respective equal value of their assets. In the recent past, various shareholders aimed to sell their stakes with various transactions still pending. As of end-June 2016, the largest sharehold-ers were Axpo Group (36%) and Alpiq Grid Beteiligungen (30%). By law, Swissgrid is required to maintain public ownership of at least 50%. Since at this stage the large utilities have only sold 49.9% of their holdings, this is still secured. For Repower, an inter-cantonal consortium stepped in and secured the public ownership directly. Swissgrid enjoys a very stable business profile thanks to a fully regulated regime (represent-ing a natural monopoly) and thus an exceptionally strong market position. Owing to the nature of the business, revenues from these activities are very stable and provide predictable cash flows. Swissgrid expects roughly CHF 2.5 bn of maintenance and expansion capex under its "Strategic Grid 2025" project, of which CHF 1.0 bn will be maintenance and CHF 1.5 bn expansion capex.

Swissgrid's Low AA rating is based on its strong business profile and above-average financial profile. The business profile is supported by itsquasi-monopoly market position, thanks to the high degree of regulation. We view the regulatory cost-covering theme as supportive overall, as it allows the company to recover its investments and services costs in a timely manner. The systemic relevance of the transmission grid for Switzerland and the fact that the transmission grid is owned by Swissgrid directly adds further stability. In contrast, the high – albeit reduced –investment needs in the future add some investment and execution risks. The financial profile is supported by the strongly regulated and supportive cost-coverage scheme resulting in overall stable and adequate cash

inflows. Compared to European peers, we view the credit metrics as overall adequate. At this stage, the balance sheet is highly geared in relation to the fairly low but sustainable cash flow generation. We also note the delay in cash flows, which distorts the current metrics to some extent, in our view. While the systemic relevance of Swissgrid is acknowledged in the rating, there is no upward notching for sovereign support. We will closely monitor the development of the company's indebtedness after expansion and maintenance capex. The rating out-look is Stable as we do not anticipate capex leading to a strong deterio-ration in Swissgrid's metrics over the credit cycle. We would expect an adjusted FFO/net debt ratio of 10% over the cycle.

122




P&L

Sales 755 864 804 750 763

Gross margin 13.5% 41.2% 40.6% 48.2% 48.2%



Adjusted EBIT 14 138 142 154 154



Net profit 10 51 80 88 89

Cash flow

Adjusted FFO 38 -381 120 334 214

Working capital changes 60 97 -40 -2 -1

Adjusted CFO 98 -284 81 332 213

Adjusted CAPEX -20 -84 -58 -127 -127

Adjusted FCF 78 -368 22 205 85

Dividends -1 -1 0 -13 -13


Net M&A 0 0 0 0 0

Adjusted pre-financing cash flow 78 -368 22 192 72

Balance sheet


Adjusted total asset base 718 2,997 2,987 3,326 3,406

Total adjusted debt 25 1,689 1,679 1,746 1,747

Total adjusted net debt 0 1,687 1,679 1,741 1,669

Adjusted equity 44 671 764 942 1,018


Key ratios



Adjusted FFO/debt 153.2% -22.6% 7.2% 19.1% 12.3%

Adjusted FFO/net debt n.m. -22.6% 7.2% 19.2% 12.8%

Adjusted FCF/net debt n.m. -21.8% 1.3% 11.8% 5.1%


Capital structure



Adjusted net leverage -0.8% 71.5% 68.7% 64.9% 62.1%


Adjusted net gearing -0.8% 251.3% 219.7% 184.9% 164.0%



Capital structure

Debt coverage




Chairman: Adrian Bult 2012

CEO: Yves Zumwald 2015

CFO: Luca Baroni 2006


Axpo 36%

Alpiq 30%

BKW 11%

EWZ 9%

Rating trend

2013 2014 2015 2016

Low AA Low AA Lows AA Low AA Source (table and charts): Company data, S&P, Bloomberg, Credit Suisse Bubble size corresponds to CHF sales

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CHF m



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CHF m


Swissgrid

National Grid

Fingrid OyjEnerginet.dk

Terna

Elia System Operator

Red Electrica Copor.

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123



Swiss Life – Low A, Stable Michael Kruse

Sector: Insurance Bond ticker: SLHNVX

Company description www.swisslife.ch


SWOT analysis


A strong No. 1 position in life insurance in its key market Switzer-land, complemented by solid niche positions in France and Germany. Strongly increasing assets under management at its Asset Man-agement unit underpin investment expertise, as well as improving profitability and business diversification. Its medium-term strategy has paid off and resulted in improved capitalization and profitability. Strong capitalization with solid SST solvency measures.

A geographic concentration on mature markets that are highly competitive and have limited growth potential. Pure provider of life insurance and pension solutions with only limited diversification into other insurance product lines.


High demand for pension and tailor-made solutions in Switzerland, combined with Swiss Life's good market position could open further growth opportunities. Focusing on modern and risk products instead of traditional life products should impact profitability positively, in our view. A wide distribution network via various IFAs (Independent Financial Advisors) franchises.

Swiss Life has a high exposure to the Swiss real estate market as one of the largest private real estate owners in the country. Record-low interest rates could pressure investment results, particularly for the guaranteed business. With the renewed strong capitalization, the risk of debt-financed acquisitions has increased.

Swiss Life is a leading insurer in Switzerland, providing life, risk and pension insurance, and asset management for corporate and individual clients. Its life insurance operations (56% of FY 2015 operating income) hold the No. 1 position in Switzerland, with a 32% market share (in terms of premiums written). It offers the full range of life and pension products, as well as financial solutions (property and asset protection, healthcare insurance, residential property management) via Swiss Life Select (formerly AWD). Switzerland is the group's largest and most profitable market. Swiss Life France (18%) provides health (where it is a leading provider), pension and asset management products. Swiss Life Germany (10%) offers a broad range of insurance and pension solu-tions, with occupational disability and pensions as its core competencies. The International business (3%) has competency centers in Luxembourg and Singapore, from where it provides customized life and pension

insurance for high net worth clients. The unit provides financial solutions to clients in Austria and the Czech Republic via the Swiss Life Select brand and in the UK via the Chase de Vere brand. The Swiss Life Asset Managers unit (formerly Investment Management; 17% of FY 2015 operating income) manages the group's internal insurance assets and external assets. The unit has been experiencing commercial success since 2013. Swiss Life's investment portfolio is 66% invested in bonds (end-2015), with 77% of these rated single A or higher. The energy and metals & mining exposure amounted to around 5% of the bond portfolio. The second largest block in Swiss Life's investment portfolio is real estate (16%), 83% of which is in Switzerland. The company’s new three-year targets focus on earnings quality, client focus and advice, operational efficiency and capital, cash & dividends (dividend payout ratio of 30%–50%).

Our Low A rating for Swiss Life reflects its above-average business and financial profiles. Swiss Life delivered a solid performance in FY 2015, and we see the company on track to evolve from a pure life insurer to a comprehensive life, pension, and financial solutions provider. The busi-ness profile is underpinned by the company's strong market position in life insurance, especially in the Swiss home market, its broad (life insur-ance-related) product offering and its wide distribution network. We expect profitability to improve further with the shift away from traditional life products toward modern and risk life insurance products, as well as asset management services, with the latter increasing bottom line contri-butions via fee and commission income. However, we highlight that the

back book of Swiss Life is still dominated by classic life insurance prod-ucts, which often incur guarantees. Risks to profitability include the high level of competition in the traditional life market, Swiss Life's exposure to mainly mature markets with a high insurance penetration and low growth potential, as well as the record-low interest rate environment. Capitaliza-tion has constantly improved to very satisfying levels. We have a Stable rating outlook based on Swiss Life’s new medium-term target, which was presented in November 2015. Our rating for Swiss Life Holding is High BBB with a Stable outlook, reflecting the subordination versus the operating company, i.e. no operational function and dependence on the income streams of its operating subsidiaries.

124




P&L



Investment income 4,297 4,280 4,448 4,290

Net realized investment gains/losses 1,746 1,090 2,631 248

Net income (from continuing operations) 99 784 818 878

Discontinued operations 0 0 0 0


Comprehensive income 1,313 -1,072 3,996 -343

Balance sheet


Deferred acquisition costs 1,554 1,567 1,450 1,431

Goodwill & other intangibles 1,288 1,319 1,475 1,376

Total assets 164,461 170,530 192,854 189,252



Technical liabilities: Non-life business 954 979 953 872


Financial debt 2,768 3,677 3,798 4,078



Key figures – Life

Embedded value 9,628 11,378 12,901 12,509

New business sales (APE) 1,100 1,184 1,304 1,408

New business sales (PVNBP) 11,276 12,929 14,414 15,643

New business margins (PVNBPr) 158 289 255 268

New business margin (PVNBPr/APE) 14.4% 24.4% 19.5% 19.0%

Margin (PVNBPr/PVNBP) 1.4% 2.2% 1.8% 1.7%

Other key ratios


Total investment return 8.6% -1.8% 11.9% 1.3%



Comprehensive return on average equity 13.6% -11.2% 36.8% -2.8%



Solvency margin (SST from 2015 onwards) 239.0% 210.0% 269.0% 146.0%


Operating income by segment


Shareholders’ equity and leverage




Chairman: Rolf Dörig 2008

CEO: Patrick Frost 2014

CFO: Thomas Buess 2009


BlackRock Inc. 5.6%

Deutsche Bank AG 5.4%


Ethenea Independent Investors 3.0%

Rating trend

2013 2014 2015 2016



-600

-300

0

300

600

900

1'200

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2011 2012 2013 2014 2015

CHF m

Switzerland France Germany InternationalAsset Managers AWD Other

0%

7%

14%

21%

28%

0

3'500

7'000

10'500

14'000

2011 2012 2013 2014 2015

CHF m


0%

8%

15%

23%

30%

0

3'750

7'500

11'250

15'000

2011 2012 2013 2014 2015

CHF m

Shareholders' equity Leverage (r.h.s.)

0%

25%

50%

75%

100%

2011 2012 2013 2014 2015

Government bonds Corporate bonds Mortgages / LoansCash & cash equiv. Real Estate EquitiesAlternative Investments

Allianz

AXABaloise

Helvetia

Zurich Ins.

Generali

Aviva

Swiss Life

0%

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125



Swiss Prime Site – High BBB, Stable Jannick Dousse

Sector: Real Estate Bond ticker: SPSNSW

Company description www.swiss-prime-site.ch


SWOT analysis


Switzerland's largest listed real estate company, with a sizable prop-erty portfolio and diversified activities in adjacent business segments. Strong real estate portfolio in key locations, with a low average age of properties. Diversified group of high-quality tenants with long-term leasing contracts. Tertianum has become a significant consolidator in the area of senior residences and geriatric care services unlocking synergy effects.

SPS' property portfolio largely consists of retail and office space, both of which suffer from oversupply in the market. As with most peers, dividend policy is fairly aggressive despite its likely coverage by operating cash flow going forward. Secured debt ranks ahead of current senior bonds.


Own development projects enable SPS to expand its property portfo-lio without overspending on existing buildings. Tertianum offers significant growth potential in an attractive and stable market via own and third-party projects. The lower leverage resulting from the additional equity capital inflow offers leeway for new acquisitions and expansion, particularly in the assisted living segment.

Further excess supply in the market for office and retail space could also start to affect prime locations. Owing to the large share of interest expenses relative to the top line, rising interest rates could exert pressure on profitability. Declining consumer sentiment in Switzerland could further weaken retail turnover at Jelmoli.

Swiss Prime Site (SPS) is the leading listed Swiss real estate investment company, offering diverse services across its activities in real estate development, asset/property management, assisted living, and retail. Itsproperty portfolio comprises 182 objects with a market value of CHF 9.7bn at end-2015 (–1% YoY). The properties are predominantly located in Zurich (42% of fair value), followed by Geneva (22%), Northwestern Switzerland (14%), and Bern (9%). SPS mainly rents out office (39%)and retail space (34%). Both segments are affected by current market overcapacities and the resulting weakness. However, the focus on newly created or renovated properties with high locational quality mitigates thisas illustrated by the only moderate rise of the vacancy rate (+10 bp to 6.7% at year-end) which remains low compared to peers. For 2016, the group again expects a vacancy rate of between 6% and 7%. SPS' tenant structure and the maturities of its lease contracts are relatively diversified. The largest external tenants are Coop (6.6% of annual target rent), Migros (5.0%), Swiss Post (3.5%), Swisscom (2.9%), and Inditex

(2.9%). SPS has continuously broadened its business activities to seg-ments adjacent to real estate, but has recently focused on assisted living. This segment was established with the acquisition of Tertianum in 2013, and is a leading operator of senior residences and provider of geriatric care services. Since then, Tertianum has been active as a consolidator, acquiring two of the largest operators in Switzerland, SENIOcare and BOAS Senior Care, in 2015. As a result, it has broadened its geograph-ical reach to Western Switzerland, and increased its offering in geriatric care. SPS is considering to spin off Tertianum (excluding real estate), as soon as the business reaches critical size and profitability. Other activities include Retail (Jelmoli's "House of Brands"), Real Estate Services (Win-casa), and the newly established Swiss Prime Investment Foundation, which focuses on managing a diversified portfolio of Swiss residential and selected commercial properties for external investors. For 2016, SPS guides for group net rental income and operating income above the previous year's levels.

SPS' above-average business profile reflects the group's high-quality real estate portfolio with properties in prime locations, its large size, andgood business diversification. We believe that the good locational quality and superior condition of the properties will mitigate the general softness in the market for office and retail space in Switzerland. The large portfo-lio size minimizes cluster risk, as no tenant accounts for more than 7% of annual rental income. In addition, contract duration is relatively long,and expiration dates are well spread over the next ten years. Moreover, SPS is increasingly diversified, with significant operations in the real estate investment and services, retail, and assisted living segments. The latter is increasingly becoming a significant and profitable growth driver.

SPS' financial profile is strengthened by the stable Swiss real estate market, low interest rate environment, and the stable cash flows from its property rentals. Dividends remain high, albeit likely covered by operating cash flow going forward. SPS has been able to maintain strong and stable profitability in the past, supported by revaluation of completed and existing properties. Leverage has declined recently despite two relatively large acquisitions given the inflow of new equity capital, and lower invest-ments into development properties. We expect SPS to re-leverage with possible acquisitions to fulfil its growth ambitions, but credit metrics to remain stronger than in 2014 and in line with the required rating thresholds. The rating outlook is thus Stable.

126




P&L Revenues 582 761 848 876 1,022



Adjusted EBIT 309 341 355 402 391




Net profit 311 344 286 356 276

Cash flow

Adjusted FFO 174 233 257 320 304

Adjusted CFO 102 246 235 320 288

Adjusted CAPEX –275 –269 –368 –227 –201

Adjusted FCF –173 –23 –133 93 87

Dividends –196 –218 –218 –236 –236

Net M&A 136 –87 66 304 –65

Net share buybacks 338 –2 –1 422 143

Adjusted pre-financing cash flow 105 –330 –285 584 –71

Balance sheet





Adjusted equity 3,914 4,107 4,202 4,956 5,147






Vacancy rate 5.0% 6.4% 6.6% 6.7% 6.6%

Capital structure











Capital structure

Debt coverage




Chairman: Hans Peter Wehrli 2002

CEO: René Zahnd 2016

CFO: Markus Meier 2015


BlackRock 4.4%

State Street Corp 4.0%

Credit Suisse Funds AG 3.5%

Rating trend

2013 2014 2015 2016

Mid BBB Mid BBB High BBB High BBB


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2012 2013 2014 2015 2016E

CHF m

Assisted living Real Estate Services

Retail Rental Income


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CHF m

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54%2012 2013 2014 2015 2016E


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Unibail

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HIAG

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127



Swiss Re – Low AA, Stable Michael Kruse

Sector: Insurance Bond ticker: SRENVX

Company description www.swissre.com


SWOT analysis


Strong market positions and scale as the No. 2 reinsurance com-pany in the world, leading to a broad global geographic footprint. Long track record of strong underwriting performance, with solid combined ratios. Broad business diversification covering traditional and non-traditional reinsurance solutions in the non-life and life segments, supplemented by commercial insurance (Corporate Solutions) and management of closed and open L&H books (Life Capital). Strong capitalization with significant excess capita. (SST: 223%).

Exposure to natural catastrophes could heavily burden profitability in a single year, reflecting the nature of the reinsurance business. Swiss Re has a riskier asset allocation in its investment portfolio compared to Swiss insurance peers. Low interest rates constrain the performance of the life segment. The group has a high single country focus on the USA (34% of net premiums earned and fee income from policyholders) and the UK (12%). A limited but growing presence in emerging markets.


Strong capitalization provides financial flexibility for growth. Swiss Re is capitalizing on emerging market growth potential (nar-rowing protection gap), with the group targeting selected high growth countries. Regulatory changes, e.g. higher capital requirements, could spur the transfer of risk from weaker primary insurers to reinsurers.

High supply of alternative capital weighs on pricing in the P&C reinsurance markets. Swiss Re is more sensitive to an increase in corporate default rates and hence a global economic depression, given the higher share of weaker credits and securitized legacy instruments in its investment portfolio versus Swiss peers. Its general dependency on its risk models could result in failure to adequately incorporate unexpected events.

Swiss Re Group is a leading wholesale provider of reinsurance, insur-ance and other insurance-based forms of risk transfer. Measured in written premiums, its reinsurance business is the world's second largest. Its global client base consists of insurance companies, mid-to-large-sized corporations and public sector clients. Swiss Re has a globally diversified geographic presence, with offices spanning the Americas (44% of FY 2015 net premiums earned), Europe, the Middle East and Africa (34%), and Asia-Pacific (22%). However, Swiss Re has a single country focus in the USA (34%) and the UK (12%). Swiss Re plans to increase its share in high-growth markets to 30% by 2020, focusing on China, India, Indonesia, Brazil and Mexico. The Reinsurance business unit is split into two segments, Property & Casualty (50% of FY 2015 net premiums earned and fee income from policyholders) and Life & Health (36%). The group's combined ratio was a strong 87.4% in FY 2015. Insured catastrophe losses in the overall industry dropped signifi-

cantly from the record-high 2011−12 levels. 2015 insured losses were USD 37 bn, below the USD 50 bn average of the last ten years. Swiss Re's solid combined ratio demonstrates disciplined underwriting and prudent cycle management. In Life & Health, the group provides traditional (mortality) and non-traditional (block transaction, longevity risk transfer, capital relief) reinsurance solutions. Corporate Solutions (11%) offers customized insurance solutions to mid-sized and large corporate clients. Admin Re (3%) manages the run-off life and health insurance (L&H) businesses. These will be folded into the newly created Life Capital busi-ness unit from 1 January 2016, which will also manage selected open L&H books. In its investment portfolio, the shift from cash and short-term investments into corporate bonds continued in 2015, further accelerated by last year’s Guardian Financial Services acquisition. However, the portfolio remains of good quality, with the share of investment grade bonds amounting to 94% as of year-end 2015.

We have assigned a Low AA rating to Swiss Re, based on its strong business and above-average financial profiles. The business profile benefits from the company's leading global market positions, diversified geographic footprint and broad scale in reinsurance. The Property & Casualty reinsurance business has a long track record of prudent under-writing, though it is exposed to natural catastrophes that the group itself expects to increase due to climate change. However, this also increases demand for property insurance and reinsurance, where Swiss Re has been innovative in outsourcing these risks, as seen with the issuance of a contingent bond with an Atlantic hurricane trigger. The Life & Health

business has been successfully turned around despite a difficult environ-ment with low interest rates and legacy loss-making contracts. Moreover, increasingly resilient profit contributions from Admin Re further strengthen its earnings profile. The higher share of lower-rated corporate bonds versus Swiss insurers in its investment portfolio provides it with some yield pick-up, while the additional credit risk is well managed, in our view. The financial profile is supported by low leverage and very strong capitalization, providing significant excess capital for the current rating. The group in-tends to put that capital to work and is distributing a large share of earn-ings to shareholders, which it can afford, in our view.

128




P&L

Net premiums written 25,344 30,478 31,640 30,442


Fee income from policyholders 785 542 506 463


Net realized investment gains/losses 947 766 567 1,206

Net attributable profit 4,257 4,511 3,569 4,665

Comprehensive income 4,497 1,812 6,230 716

Balance sheet

Total investments 152,812 150,075 143,987 137,810 Deferred acquisition costs 4,039 4,756 4,840 5,471 Goodwill 4,092 4,109 4,025 3,862 Total assets 205,676 205,193 197,511 189,557 Technical liabilities: Life business 76,126 78,302 74,168 72,236 Technical liabilities: Non-life business 53,010 50,392 46,633 44,835 Less: Reinsurer share of technical provisions -10,109 -8,327 -6,950 -6,578 Financial debt 10,047 9,501 9,653 8,860 Shareholders' equity 34,002 32,952 35,930 33,517 Market capitalization 25,019 31,637 31,010 32,551

Key figures - Life & Health Re


Operating profit (excl. non-participating net li d i t t i )

1,008 434 -462 939

Key figures - Property & Casualty Re


Operating profit 4,076 3,561 3,564 2,977

Loss ratio 51.2% 54.2% 54.5% 52.3%

Expense ratio 29.5% 29.1% 29.2% 33.7%

Combined ratio 80.7% 83.3% 83.7% 86.0%

Other key ratios


Total investment return 5.4% -0.1% 8.2% 0.0%

Dividend payout ratio (incl. special dividend) 26.6% 61.2% 87.7% 55.9%


Comprehensive return on average equity 14.1% 5.4% 18.1% 2.1%


Shareholders' equity/net premiums written 134.2% 108.1% 113.6% 110.1%

Subordinated debt/(debt + equity) 17.9% 20.9% 16.7% 17.0%


Pre-tax income by segment and combined ratio

Capital structure

Shareholders’ equity and leverage




Chairman: Walter B. Kielholz 2009

CEO: Michel L. Liès 2012

CFO: David Cole 2014


BlackRock Inc 5.0%

Rating trend

2013 2014 2015 2016

Low AA Low AA Low AA Low AA Source (table and charts): Company data, S&P, Bloomberg, Credit Suisse Bubble size corresponds to CHF total assets

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-2'000

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2'000

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2011 2012 2013 2014 2015

USD m

Property & Casualty Re Life & Health Re

Corporate Solutions Admin Re

Other Combined ratio (r.h.s.)

0%

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12%

18%

24%

0

12

24

36

48

2011 2012 2013 2014 2015

USD bn

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Senior debt Hybrid cap./total cap. (r.h.s.)

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9

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27

36

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USD bn

Shareholders' equity Leverage (r.h.s.)

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2011 2012 2013 2014 2015

Government bonds Corporate bonds Mortgages / Loans

Securitized products Short-term investments Cash & cash equiv.

Other (incl. real estate) Equities

Swiss Re

Munich Re

Hannover Re

SCOR

General Re

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129



Syngenta – Restricted Misha Weber

Sector: Chemicals Bond ticker: SYNNVX

Company description www.syngenta.com


SWOT analysis


Leading global position in crop protection agrochemicals and a grow-ing market position in seeds. Profitability margins are reasonably high and look well supported with the company targeting a USD 1 bn margin improvement program by 2018. Syngenta has substantial operating cash flow generation capacity and ample financial flexibility. Strong brands and established distribution channels for products put Syngenta in a solid position.

Despite its efforts in R&D and significant acquisitions, its position in the seeds business remains relatively weak compared to peers such as Monsanto and DuPont (Pioneer). Revenue growth in recent years was accompanied by a dispro-portionate increase in expenses, giving rise to some speculation about management ability to execute operationally. With more than half of sales in emerging markets, FX volatility can impact sales when translated back to USD. With 13% of costs in Swiss francs and just 1% of sales, Syngenta is exposed to CHF strength (prior to hedging).


Growing global population combined with limited acreage will force farmers around the world to improve productivity in food production. Hence, farm factor inputs likely benefit from the long-term growth characteristics.

Agrochemical sector consolidation is advancing at a rapid pace and may disrupt the competitive position of Syngenta. Shareholder distribution has typically been high and could conflict with bondholder interests if pushed more aggressively. Agrochemicals is a seasonable business, and unpredictable factors such as weather and/or disease could adversely impact sales and profitability.

Syngenta is a global specialty chemicals producer offering crop protec-tion and seed products to the agricultural industry. The company enjoys a strong geographical diversification, with USD 13,391 m of FY 2015group sales split across Europe/Africa/Middle East (29%), Latin Ameri-ca (27%), North America (25%) and Asia Pacific (14%). The Lawn and Garden business accounted for another 5% of sales. The company has a significant presence in emerging markets, which represent more than 50% of sales. In 2015 these markets, especially Brazil and the CIS, faced significant currency weakness causing a USD 1.8 bn reduction in sales (USD 100 m EBITDA impact after price increases in the CIS).With regard to market share, Syngenta is a global market leader in crop protection, with around 18%. In Seeds, a more fragmented market, ithas a 7.6% market share, according to Phillips McDougall. The Crop Protection division, which generated USD 10 bn of sales in FY 2015,offers product lines such as Fungicides (34% of division sales), Selective Herbicides (29%), Insecticides (17%), Non-selective Herbicides (9%),

Seed Care (10%), and Others (1%). The Seeds division, which reported USD 2.8 bn in revenues in FY 2015, offers product lines such as Corn & Soybean (55% of division sales), Diverse Field Crops (23%), and Vegeta-bles (22%). The remaining sales of CHF 648 m in FY 2015 are derived from the Lawn and Garden business, which offers plant health solutions for consumers and professional growers. Syngenta is pursuing an inte-grated strategy, seeking to combine its established strengths in crop protection chemical compounds with the science in seed DNA. The com-pany has ambitious longer-term targets as communicated with its "Accel-erate Operational Leverage program", aiming to grow EBITDA by USD 1 bn and expand the EBITDA margin to 24%–26% by 2018 and release USD 600 m in working capital by then. February 3, 2016 Syngenta announced an agreed bid for the company by China National Chemical Corporation (ChemChina). The acquisition requires regulatory approval from various jurisdictions around the world, with Syngenta expecting regulatory clearance by end 2016.

Restricted

130




P&L

Sales 14,202 14,688 15,134 13,411 13,154

Gross margin 49.1% 45.8% 45.9% 47.5% 47.7%

Adjusted EBITDA 3,180 2,924 2,794 2,895 2,765


Adjusted EBIT 2,501 2,251 2,136 2,258 2,219



Net profit 1,847 1,644 1,619 1,334 1,443

Cash flow

Adjusted FFO 2,229 2,115 1,742 1,852 1,994

Working capital changes -859 -884 44 -611 373

Adjusted CFO 1,370 1,231 1,786 1,241 2,367

Adjusted CAPEX -656 -746 -707 -576 -549

Adjusted FCF 714 485 1,079 665 1,819

Dividends -791 -921 -1,032 -1,078 -1,022

Net share buybacks 24 -93 -104 -34 0

Net M&A -598 -72 -47 81 0

Adjusted pre-financing cash flow -626 -572 66 -384 796

Balance sheet

Adjusted cash and near-cash 1,315 608 1,335 873 1,174




Adjusted equity 8,833 9,724 8,919 8,483 8,904


Key ratios







Capital structure








Capital structure

Debt coverage




Chairman: Michel Demaré 2012

CEO: J. Erik Fyrwald (from June 1st)

2016

CFO: John Ramsay 2007



Capital Group Companies Inc. 3.16%

Rating trend

2013 2014 2015 2016

Mid A Mid A Mid A Restricted


5%

10%

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25%

0

4'000

8'000

12'000

16'000

2012 2013 2014 2015 2016E

USD m

Crop Protection Seeds

Lawn and Garden Adj. EBITDA margin (r.h.s.)

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10%

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2012 2013 2014 2015 2016E

USD m


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2012 2013 2014 2015 2016E

Adj. FFO / Net debtAdj. FFO / Net debt (3Y avg.)Threshold (45%)

0

800

1'600

2'400

3'200

Year end2015

2016 2017 2018 2019 2020 thereafter

USD m

Cash Unused credit lines Bonds, loans, private placement

Syngenta

BASF

Monsanto

Bayer

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131



TPG – Low AA, Stable Daniel Rupli

Sector: Public sector Bond ticker: TRANS

Company description www.tpg.ch


SWOT analysis


Very strong market position in the City and Canton of Geneva, as almost the sole provider of public transport. Monopoly in tram service offering in the entire Canton of Geneva. Long standing history, with in-depth knowledge of providing public transport services. Strong budgeting process and very well established control mecha-nism. Very strong cantonal support reflected in a good share of subsidies every year, as well as the guarantees on bank debt.

Highly leveraged balance sheet and indebtedness. High pressure to negotiate subsidies that are sufficient to cover the required service offering by the Canton of Geneva.


New service offerings could improve cost efficiency. The new tram and bus terminal will form the base for further growth, and should result in higher efficiency. Growth prospects, as well as the growing population and need for public transport, should support TPG's future earnings patterns.

Cost savings pressure for the Swiss public sector is increasing, which could limit financial support from the Canton of Geneva. Unbudgeted cost increases could pressure profitability. Political decisions (i.e. voting against increases in ticket prices) may have a direct impact on TPG's financials. Very large investments for the new tram and bus terminal create project and execution risks. A change in cantonal support could substantially impact TPG's credit quality.

Transports Publics Genevois (TPG) is the public transport service for theCity of Geneva and the neighborhood communities in the Canton of Geneva, which it serves with tram and bus lines. TPG offers four tram, six trolley bus and 49 bus lines, of which 28 are urban and 20 are regional lines. The tram network stretches over 33.1 kilometers, and isslightly longer than the trolley bus network, which measures 30.4 kilo-meters. By far the longest network is that of the bus lines, totaling 359.5 kilometers across the Canton of Geneva and its suburbs. At end-2015, the fleet had grown to 104 trams, 96 trolley buses, seven mini-buses and 232 buses. The company aims to invest a sizeable amount every year in its fleet to meet technology standards and environmentalresponsibilities, as well as ensuring high travel comfort for its customers. The company is currently also investing in its new "En Chardon" busterminal, which should increase efficiency and meet the needs from the growing fleet. TPG is 100%-owned by the Canton of Geneva, and is an autonomous agency of the canton with a separate legal existence estab-

lished under public law. The dotation capital amounts to CHF 44 m. The relationship between the canton and TPG is governed by a separate administrative contract ("contrat de prestations",) which in particular specifies the cantonal contributions to be paid to TPG. The contract is approved by the legislative arm (Grand Conseil) of the Canton of Gene-va. While ticket sales and other operating revenues are important con-tributors to a public transportation company, subsidies form a major part of any state-owned public transportation system. Contributions from the canton and the Swiss confederation represented 60% of TPG's total revenues in 2015. With regard to debt, the Canton of Geneva may well provide simple guarantees, further underpinning the close relationship between the canton and TPG. Furthermore, each financial request over CHF 2 m and the guarantee request must be approved by the “Conseil d’Etat.” As a public sector entity and with the full ownership of the Canton of Geneva, TPG is fully consolidated in the cantonal finances and the budgets.

TPG's rating is based on its strong business and above-average financial profile. The business profile benefits from the company's monopoly market position in tramways, and its very strong network in Geneva. The average age of the current fleet is low after recent investments, andpositions the company solidly in a growing market. The sector benefits strongly from population growth and increased mobility in general. The service offering has increased step by step over the years, and efficiency gains are in place. Ownership by the canton and the strong subsidies due to the service public offering play a major role in our rating assess-ment. We appreciate the company's strong budgetary performance, andbelieve that TPG's extensive control mechanisms for all tram and bus

lines on a line-by-line basis further underpin its performance. The above-average financial profile benefits in particular from the steady perfor-mance and the high cantonal subsidies that form a major part of TPG's top line. Liquidity is adequate, and the company has access to credit lines through the cash pooling it holds with the canton. The major part of the debt is covered by a simple guarantee provided by the Canton of Geneva. We expect indebtedness to further increase, following the construction of the new tram and bus terminal. As TPG is 100%-owned by the canton, and owing to the contractual agreement on the service offering, the subsidies and important linkage factors, we have refrained from notching TPG's rating versus the Canton of Geneva's.

132




P&L

Sales 398 390 396 401 405

Gross margin 84.2% 89.7% 89.3% 86.3% 86.5%






Net profit 1 3 15 –11 1

Cash flow


Working capital changes –12 4 8 –57 –1

Adjusted CFO 30 46 42 –25 44

Adjusted CAPEX -95 -30 -62 -56 -56

Adjusted FCF –65 16 –20 –81 –12

Dividends 0 0 0 0 0


Net M&A 0 0 0 0 0

Adjusted pre-financing cash flow –129 32 –40 –162 –24

Balance sheet


Adjusted total asset base 679 683 699 779 780





Key ratios





Adjusted FCF/net debt –13.3% 3.4% –4.1% –14.5% –2.2%


Capital structure








Capital structure

Debt coverage




Chairman: Anne Hornung-Souxup 2012

CEO: Denis Derdoz 2014

CFO: Benjamin Vincent 2011


Canton of Geneva 100.0%

Rating trend

2013 2014 2015 2016

n.r. n.r. Low AA Low AA Source (table and charts): Company data, S&P, Bloomberg, Credit Suisse Bubble size corresponds to CHF sales

0%

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2012 2013 2014 2015 2016E

CHF m

Transportation Subsidies

Others Adj. EBITDA margin (r.h.s.)

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70%

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0

150

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2012 2013 2014 2015 2016E

CHF m



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9%

12%

2012 2013 2014 2015 2016E


0

100

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300

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Year end2015

2016 2017 2018 2019 2020 thereafter

CHF m


VBL

Bernmobil VBZ

TPG

BVB

0%

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15%

20%

25%

0.0x 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x

EBIT

DA

mar

gin

Net debt / EBITDA

133



UBS – Mid A, Stable Christine Schmid

Sector: Banks Bond ticker: UBS

Company description www.ubs.com


SWOT analysis


Globally leading top-tier wealth and asset management franchise. Universal business profile, with strong positions in corporate and retail banking in Switzerland, complemented by globally refocused invest-ment banking. Able to reprice assets and selected liabilities to partially offset margin pressure on low rates. Sound above-average equity capitalization. Strong funding position underpinned by a large amount of deposits. Substantial and ongoing reduction in risk-weighted assets and total assets since 2007.

A weaker risk and compliance track record in its Investment Bank and Wealth Management business has resulted in further sizable liti-gation cases. While capitalization looks strong on a risk-weighted asset basis, the leverage ratio still needs to improve by year-end 2019. WM Americas' dependency on lending growth could place the quality of the US WM franchise at risk in the longer term, particularly taking the very high cost/income ratios into account.


A large presence in the high net worth and ultra-high net worth segment and in the Asia-Pacific region could boost growth in UBS' global wealth management business. Digitization to support growth and efficiency for the UBS franchise. Solid net new money inflow in recent quarters underpins the bank's performance. Risk reduction of its investment banking activities; a reduction in the Non-core and Legacy portfolio could improve earnings stability and shore up leverage.

General exposure to the macroeconomic environment, including sustained negative interest rates for Swiss businesses, lack of Euro-pean economic growth and the potential for further lower rates. High additional capital requirements demanded by the Swiss regula-tor could result in a competitive disadvantage to global peers. An elevated exposure to reputational risks as a wealth manager, accentuated by its global investment banking operations as both divi-sions have caused litigations in the past and current environment.

UBS is a large globally active universal bank focusing primarily on wealth and asset management, investment banking and – in its Swiss home market – personal and corporate banking. Regionally, Americas (37% of FY 2015 operating income) is its largest source of income, followed by Switzerland (23%), Europe/Middle East and Africa (22%) and Asia Pacific (16%). The bank has five business divisions and the Corporate Center: Wealth Management (CHF 2.8 bn operating profit before tax for FY 2015) comprises the business with private clients worldwide except for the USA, Canada and Latin America, which are covered by Wealth Management Americas (CHF 0.8 bn). Personal & Corporate Banking (CHF 1.7 bn) serves retail and corporate clients in Switzerland, where it holds leading positions in various activities. Asset Management (CHF 0.6 bn) is a large-scale asset manager with a broad business and geo-graphic diversification. The Investment Bank (CHF 2.3 bn) offers a broad range of investment banking, capital markets and research ser-vices. The Corporate Center provides control and finance functions for

the group and manages UBS' Non-core and Legacy portfolio. The loss in this division amounted to CHF 2.6 bn in 2015. Although losses are de-clining slightly in this division, the overall litigation and regulatory issues might rise in the coming years. The bank's focus remains on growth in addition to cost discipline and the continued exit of the Non-core and Legacy portfolio to streamline the bank overall. The organizational chang-es to bring the group's resolvability in line with regulatory requirements are well on track. UBS established a group holding company named UBS Group AG in 2014. Effective 14 June 2015, UBS AG transferred assets to the newly formed Swiss legal entity, UBS Switzerland AG. UBS AG will comprise several major operating subsidiaries, e.g. Swiss, US, IB and Asset Management businesses, in order to adapt to the new rules under the various recovery and resolution regimes. The changes to the organiza-tional structure do not impact the strategy of the bank or its client services.

We have a Mid A rating on UBS, reflecting its above-average business and financial profiles. The business profile is supported by the large scale of wealth management and the longer-term growth achieved in this division, as well as corporate and retail banking in Switzerland. Its broadgeographic diversification and scale are further positive factors. While UBS announced the repositioning and reduction of its investment bank-ing activities in 2012, the division (including the run down unit) is still relatively large and its volatile performance continues to influence the balance of the bank's overall results. The financial profile is underpinned by the bank's industry-leading capitalization. UBS achieved a 14.0%Common Equity Tier 1 ratio in Q1 2016, above the target of a fully

applied Basel III basis of 13%, but down from former quarters. The new "too-big-to-fail" rules have been in place in Switzerland since summer 2016. UBS needs to reach an overall capital level relative to risk-weighted assets of 28.6% (current Q1 2016: 28.1%) and relative to total leverage exposure of 10% (current Q1 2016: 6.7%) by 1 January 2020. Current figures include grandfathered T1 and T2 instruments. As expected, the group's short to medium-term cost-to-income target deteriorated to 65%–75% from 60%−70% previously due to higher legal costs. We see limited rating upside potential, given the ongoing pressure on global banks from multiple sources such as regulatory costs, technology investments and the low or even negative rate environment.

134




P&L

Net interest income (NII) 5,994 5,786 6,555 6,732

Net fee & commission income 15,405 16,287 17,076 17,140

Net trading income 3,480 5,130 3,842 5,742

Total revenues 25,561 27,783 28,105 30,721

Operating expenses 27,217 24,461 25,557 25,115

Operating profit -1,656 3,322 2,538 5,606


Pre-tax profit -1,774 3,272 2,460 5,489

Net income -2,511 3,173 3,466 6,203

Balance sheet

Total assets 1,259,232 1,013,355 1,062,479 942,819

Risk-weighted assets (Basel II/III) 192,505 228,557 220,877 212,302


Non-performing loans 1,516 1,582 1,602 1,630



Senior debt 183,547 137,334 147,171 141,589

Subordinated debt 9,671 11,040 16,123 12,600

Hybrid Tier 1 capital 4,316 3,113 3,210 1,954



Key ratios

Profitability



Return on average equity (ROAE) -5.3% 6.8% 7.1% 11.7%

Return on average assets (ROAA) -0.2% 0.3% 0.3% 0.6%


Capital adequacy

Common Equity Tier 1 Basel III (fully applied) 9.8% 12.8% 13.4% 14.5%

Swiss leverage ratio (fully applied) 2.4% 3.4% 4.1% 5.3%

Equity/net loans 16.4% 16.7% 16.0% 17.7%



LLP/NII 2.0% 0.9% 1.2% 1.7%

Coverage ratio 44.7% 47.3% 45.6% 44.6%




Profitability

Asset quality

Capital adequacy

Segment pre-tax profit



Chairman: Axel A. Weber 2012

CEO: Sergio P. Ermotti 2011

CFO: Kirt Gardner 2016

Major shareholders (Q1-2016)

Chase Nominees 8.84%

GIC Private Limited 6.38%

DTC (Cede & Co) 6.15%

Nortrust Nominees 3.36%

Rating trend

2013 2014 2015 2016

High A Mid A Mid A Mid A Source (table and charts): Company data, S&P, Bloomberg, Credit Suisse Bubble size corresponds to CHF total assets

70%

80%

90%

100%

110%

-0.4%

0.0%

0.4%

0.8%

2011 2012 2013 2014 2015


0.0%

0.3%

0.5%

0.8%

1.0%

0.0%

0.6%

1.2%

1.8%

2.4%

2011 2012 2013 2014 2015

LLP/NII Non-performing loan ratio (r.h.s.)

0%

7%

14%

21%

28%

2012 2013 2014 2015

CE Tier 1 Basel III (phase-in) CE Tier 1 Basel III (fully applied)

Total capital Basel III (phase-in) Total capital Basel III (fully applied)

Swiss leverage (phase-in) Swiss leverage (fully applied)

-8'000

-4'000

0

4'000

8'000

2011 2012 2013 2014 2015

CHF m

Wealth Management WM Americas Retail & Corporate

Global AM Investment Bank Corporate Center

Deutsche Bank

Credit Suisse

Barclays

Santander

BNP

Raffeisen

ZKB

UBS

Valliant

35%

55%

75%

95%

115%8% 11% 13% 16% 18%

Cos

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135



Valiant – High A, Stable Michael Kruse

Sector: Banks Bond ticker: VALIAN

Company description www.valiant.ch


SWOT analysis


A solid position in Swiss retail banking underpinned by cooperation with well-known groups like Post Finance, Swiss Life and ZKB. The mortgage portfolio is largely exposed to those regions in Switzer-land that have witnessed only modest increases in the real estate price-to-real income ratio in recent years and hence, are less likely to fall. A sustainable, low-risk loan portfolio with historically low provisioning needs and solid loan quality. Good earnings predictability and relatively stable underlying growth.

A certain lack of revenue diversification due to the high concentration on net interest income. The cost-to-income ratio is above that of Swiss regional bank peers and above the company's own target ratios. Strict asset-liability management has resulted in lost market share in the mortgage business in recent years.


The partnership with Swiss Life could increase Valiant's share in fee income and hence, improve income diversification. The below-market growth of its loan portfolio indicates Valiant's rather cautious risk approach and tight lending standards. The group's 2017 targets build on its strengths and address areas of development.

Exposure to the Swiss real estate market, which has shown indica-tions of overheating in some regions. M&A headline risk is driven by the bank's aim to grow its fee-based business (i.e. wealth management) or to gain market share in exist-ing businesses.

Valiant, based in Bern, is a regional bank focusing on residential mort-gages and general retail banking services for private individuals and loans to SMEs. It operates in 11 cantons in central and western Switzer-land. The bank has 84 branches and around 400’000 customers, most of whom are private persons and self-employed individuals/small com-panies. In addition to retail banking, the bank offers wealth management services in selected branches. Similar to other retail banks, Valiant generates most of its revenues from net interest income (78% of total FY 2015 revenues), with a relatively low share of net fee income (18%) and net trading income (4%). Although Valiant has grown its franchise in recent years, the bank is a medium-sized company in Switzerland and small by international comparison. Based on client deposits and mort-gages, it ranks among the top ten in Switzerland, behind the two big banks, Raiffeisen and some larger cantonal banks. Valiant has a low-risk loan policy as 97% of its loans are collateralized by a real asset, 77% of which is comprised of mortgages on residential properties. The low-risk

profile of the existing lending portfolio is further supported by a low non-performing to gross loans ratio, with loan-loss provisions remaining very low last year. In 2015, the bank concluded the US tax program, signing a non-prosecution agreement and paying a one-off settlement of USD 3.3 m (fully covered by a provision taken in FY 2013). Regionally, the mort-gage portfolio is concentrated in the cantons of Bern, Lucerne and Aar-gau, which had an aggregate share of nearly 80% as of end-2013. As real estate price increases in these cantons have been more modest than in Switzerland's hot spots, Valiant is less exposed to the increasing diver-gence between real estate prices and the trend in income, in our view. Valiant has a variety of cooperation agreements to optimize profitability and distribution channels, e.g. Post Finance (distribution channel for its loan book), Swiss Life (investment and pension solutions), ZKB (trading, investment solutions and research). It also offers digital payment solutions via TWINT and continues to digitalize its banking services.

We assign Valiant a High A rating based on its above-average business and financial profiles. Its business profile benefits from the bank's focus on retail banking. It has expanded its footprint through organic growth and acquisitions, leading to good regional diversification across Switzer-land. The stable business environment, combined with a solid market share in its existing operations, results in good earnings predictability. However, Valiant's exposure to Swiss real estate weighs to a certain extent on its revenue diversification. Moreover, the current competitive landscape in the Swiss retail banking industry and the ultra-loose mone-tary policy of the SNB are adding pressure on margins. Consequently, the bank will focus on defending its margin, according to management,

even if this comes at the cost of growth. The net interest margin showed a slight uptick in 2015, which points in the right direction. The above-average financial profile is further underpinned by solid capitalization, which has continuously improved over the past few years, although it is weaker compared to cantonal banks. The low non-performing loan ratio illustrates the bank's strong asset quality. Valiant adjusted its medium-term (2017) profit targets downward due to the low interest rate environ-ment, which is more consistent with its profit generating capacity, in our view. We have a Stable rating outlook for Valiant as we expect the bank to make steady, but slow progress towards its targets.

136




P&L









Net income 127 91 95 114

Balance sheet

Total assets 25,177 25,375 25,253 25,445






Senior debt 6,226 6,057 5,346 5,095





Key ratios

Profitability






Capital adequacy

Tier 1 ratio 12.8% 13.9% 14.7% 15.6%


Equity/net loans 8.9% 8.9% 9.2% 9.3%



LLP/NII 1.7% 7.1% 1.5% 3.4%

Coverage ratio 143.2% 177.5% 189.8% 151.9%



n.a. = not available; accounting standard: Swiss GAAP

Profitability

Asset quality

Capital adequacy




Chairman: Jürg Bucher 2012

CEO: Markus Gygax 2013

CFO: Ewald Burgener 2013


Highclere Int Investors 4.9%


Zürcher Kantonalbank 3.0%

Rating trend

2013 2014 2015 2016

High A High A High A High ASource (table and charts): Company data, S&P, Bloomberg, Credit Suisse Bubble size corresponds to CHF total assets

50%

60%

70%

80%

90%

0.0%

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0.5%

0.8%

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2011 2012 2013 2014 2015


0%

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2011 2012 2013 2014 2015

Non-performing loan ratio LLP/NII (r.h.s.)

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20%

2011 2012 2013 2014 2015

Tier 1 ratio Total capital ratio

0

125

250

375

500

2011 2012 2013 2014 2015

CHF m

Net interest income Net Fee & Commission Income

Net trading income Other operating income

Credit Suisse

LUKB

BEKB

RaffeisenValiant

UBS

AKB

40%

60%

80%

100%

120%8% 10% 12% 14% 16% 18% 20%

Cos

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137



Valora – Low BBB, Stable Heike Halsinger

Sector: Retail Bond ticker: VALNSW

Company description www.valora.com


SWOT analysis


Leading positions in Swiss and German small-scale retail. Attractive merchandise that combines own labels and brands. Strategic reorientation from wholesale to retail completed. The new management team is tackling major issues, including ad-justments in portfolio (Germany) and offering range. Recent acquisitions strengthen network and profitability. Underlying earnings, cash flows and credit metrics are fairly stable.

Intense competition for small-scale retail in high-frequency sites from supermarkets, bakeries, food stalls, and vending machines. Limited pricing power except for Ditsch/Brezelkönig. Relatively highly leveraged following a number of acquisitions. Portfolio adjustments (e.g. Germany) burden financials. High shareholder payments (dividend payout ratio about 80%).


Ditsch/Brezelkönig adds high margins as well as cross-selling and expansion potential. Shift to improved, higher-margin offering to support profitability. Better price mix and operational leverage through greater scale to support margins. Tighter logistics and working capital management to release cash. Expansion of financial service offering (bob Finance AG).

Potential debt-funded acquisitions could raise leverage again. Complex integration process may delay revenue and cash streams. Goodwill as a typical by-product of acquisitions has risen to 82% of equity (potential impact on profitability). Potential increase of rent for points of sale (since most are in attrac-tive locations) which could reduce their economic viability.

Valora operates small retail outlets offering products for immediate consumption at highly frequented sites located mainly in German-speaking Europe. Several portfolio adjustments, including the disposal of its Service and Trade businesses over the last two years, and the acqui-sitions of Naville and Ditsch/Brezelkönig, complete the strategic reorien-tation ("Valora for a fast-moving world"). Ditsch/Brezelkönig manufac-tures and sells lye bread and lye bread products to individuals and busi-nesses worldwide. It is an attractive strategic fit for the instant consump-tion business, offering cross-selling opportunities to increase footfall in kiosks and add a new retail format. The acquisition of Naville (March 2015) has added 175 sites in Western Switzerland to Valora's retail network of about 2,600 points of sale. The strategic transformationremoves some of the complexity of the business, enabling Valora to fully concentrate on the Retail business and steer it with a keener focus.Although business diversification has reduced following the disposals,there is a discernible diversification within the Retail segment, including

Valora's sizeable network of 2,600+ points of sale (1,100 in Switzerland, 1,500 in Germany) encompassing various brands (e.g. k kiosk, avec, P&B, Caffé Spettacolo, Ditsch/Brezelkönig, CIGO). Valora also features various operating models (own stores, agencies, franchise, partners, etc.), selling food, beverages, tobacco and convenience products as well as press and books. Part of the strategic reorientation has been the shift of its product range further toward higher-margin contributors such as food, beverages and services, thus supporting quality and earnings. There is significant cross-selling potential between Valora's retail activities catering to the time-rushed consumer "on the go" and busy schedules. Small, but innovative ideas (e.g. the "Coffee App") add growth potential aside from a continued roll-out of successful concepts like Ditsch/Brezelkönig and the growing B2B business. Ditsch/Brezelkönig's healthy growth and strong margins compensate for still-weak retail margins despite a limited share in revenues (11%). In FY 2015, Valora generated CHF 2.1 bn in revenues and CHF 258 m in EBITDA.

Leading positions in Swiss and German small-scale retailing underpinValora's business profile. Despite fewer businesses after the strategic transformation, retail activities remain diversified with various brands,formats, operating models, and a presence in four countries. The full strategic transformation effect will not be visible before end-2016. Quality, sustainability of earnings and profitability should improve over time as loss-making units were sold and higher-margin businesses andproducts added. First signs of this were visible in the FY 2015 and H1 2016 results (higher EBIT margin and FFO). We expect that the nar-rower focus allows management to attend to the successful evolution and growth of Retail. The rating is capped by intense competition in

small-scale retail as highly frequented sites and products with higher margins attract plentiful competitors (restaurants, supermarkets, bakeries, food stalls, and vending machines). Acquisitions and high shareholder payments have led to high leverage. While credit metrics have improved since 2012 (acquisition Ditsch/Brezelkönig), they currently still fall short of minimum requirements for the Low BBB rating such as adj. FFO/net debt of 25% and adj. net debt/EBITDA of max. 3.0x over the cycle (despite Naville's 10-month contribution). While the successful delivery of the new strategy (which we view favorably) needs to be proven, the slight improvement in credit metrics merits a Stable rating outlook at this stage. The hybrid bond is counted as debt (step-up, dividend pusher).

138




P&L

Sales 2,848 1,890 1,933 2,077 2,116

Gross margin 33.0% 41.0% 40.6% 40.7% 40.8%






Net profit 38 51 7 -30 53

Cash flow

Adjusted FFO 153 244 216 237 239

Working capital changes -1 1 -2 -4 4

Adjusted CFO 151 245 214 233 243

Adjusted CAPEX -147 -157 -162 -154 -173


Dividends -32 -45 -47 -47 -50

Net M&A -252 -9 47 -92 2

Net share buybacks -9 3 -8 -14 0

Adjusted pre-financing cash flow -289 40 46 -72 22

Balance sheet







Key ratios







Capital structure








Capital structure

Debt coverage




Chairman: Rolando Benedick 2008

CEO: Michael Mueller* 2014

CFO: Tobias Knechtle 2014

*joined 2012 as CFO


Valora Management/BoD 20.8%¹

Ernst Peter Ditsch 18.5%

¹ incl. share E.P. Ditsch of 18.5%

Rating trend

2013 2014 2015 2016



0%

1%

3%

4%

5%

0

750

1'500

2'250

3'000

2012 2013 2014 2015 2016E

CHF m

Valora Retail Valora ServicesValora Trade Brezelkönig (2012)Adj. EBIT margin (r.h.s.)

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50%

60%

70%

80%

0

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CHF m


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2012 2013 2014 2015 2016E


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Year end2015

2016 2017 2018 2019 2020 thereafter

CHF m

Cash Bonds & loans

Metro

Carrefour

CoopMigros

Tesco

Casino

Valora

Auchan*

Rewe

0%

4%

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16%

0% 10% 20% 30% 40% 50% 60%

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139



Zurich Insurance – High A, Stable Michael Kruse

Sector: Insurance Bond ticker: ZURNVX

Company description www.zurich.com


SWOT analysis


A broad business diversification providing a balanced income stream from the General Insurance, Global Life, and Farmers segments. Solid geographic diversification with an extended footprint in emer-ging markets due to the cooperation with Santander in Latin America. Leading market positions in various insurance segments. Steady operating income generation during economic downturns. Sound capitalization.

A somewhat weaker combined ratio in non-life compared to Swiss peers, which we attribute to its greater international presence. Limited growth opportunities in the mature western markets. Higher goodwill accumulation versus Swiss peers due to acquisi-tions.


Some financial flexibility for external growth under the current rating category. Well positioned to acquire new businesses if companies are forced to reduce risk due to potential regulatory pressure from the introduction of Solvency II. We see a growth catalyst in Latin America through the strategic alliance with Santander.

A continuously low interest rate environment pressures profitability, particularly in the guaranteed life business, and hence, encourages the group to invest in lower-quality debt in order to compensate. Potential acquisitions could lead to weaker financial metrics, depend-ing on the financing terms, and thus, result in integration risks. Potential rating downgrades (e.g. Italy, Spain, corporate bonds) could adversely impact the quality of the investment portfolio.

Zurich Insurance Group (Zurich) is a leading multi-line insurance compa-ny offering a wide range of non-life and life products and services for individuals, small businesses, mid-sized and large companies, and multi-national corporations. The group has a global network of subsidiaries and offices in Europe, North America, Latin America, Asia-Pacific and the Middle East, as well as other markets. Zurich's business is divided into three core segments: General Insurance, Global Life and Farmers. General Insurance provides a broad range of property and casualty products and services. Europe (42% of the unit's FY 2016 gross written premiums) and North America (42%) are the segment's largest markets. Zurich's combined ratio deteriorated to 103.6% from 96.8% over the course of 2015, reflecting higher natural catastrophe losses (e.g. flood-ing in the UK) and increased large individual losses (e.g. Tianjin port explosion). The expense ratio also weakened slightly, driven by catch-upexpenses and one-off items, and we did not see any reserve releases in

2015. Global Life provides life, savings, investment and pension insur-ance. The segment generates most of its gross written premiums in Europe (72% in FY 2015) and Latin America (15%). Its annual premium equivalent decreased in 2015, driven by unfavorable FX movements, but was up in local currency. The new business margin slightly improved in FY 2015 despite the low-yield environment. The Farmers segment includes Farmers Management Services and Farmers Re. Farmers Man-agement Services provides administrative and management services to the Farmers Exchanges – owned by the policyholders – generating a steady stream of fee income. The group's investment portfolio (USD 191 bn in December 2015) is largely invested in debt securities (78%), with 72% of the bond portfolio rated A or higher. The share of Italian and Spanish bonds (15% of the bond portfolio) reflects Zurich’s operational presence in these markets; the exposure to the oil & gas industry amounted to around EUR 2.9 bn.

We assign a High A rating to Zurich, reflecting the insurer's above-average business and financial profiles. The business profile is under-pinned by its large scale and strong market positions across various insurance segments, with broad business and geographic diversification. Its presence in emerging markets has noticeably improved through the cooperation with Santander in Latin America. In the non-life segment,the combined ratio has markedly worsened last year. However, the management has already initiated countermeasures to improve opera-tions, which showed the first promising results in Q1 2016. Pricing should remain relatively stable (in local currencies), thus supporting the group's profitability. The life segment generated solid revenues and new

business margins in FY 2015, although exchange rate fluctuations nega-tively impacted results. Zurich's financial profile is underpinned by its solid capitalization, which has kept up well despite both organic and inorganic growth, as well as challenging financial market conditions. The group's financial leverage has remained largely unchanged over the last two years, complementing its healthy Swiss Solvency Test readings. As with other insurers, the low-yield environment is taking its toll on investment returns, but the company has so far managed its investments quite successfully, in our view. The quality of the portfolio is generally solid despite a significant allocation to corporate bonds. We are thus maintain-ing our Stable outlook.

140




P&L




Net capital gains on investments 10,632 12,805 10,784 6,238

Net attributable profit 3,878 4,028 3,949 1,842

Comprehensive income 4,856 -115 3,842 -2,251

Balance sheet


Deferred acquisition costs 19,116 19,448 18,345 18,183

Goodwill & other intangibles 8,711 8,151 7,859 6,614

Total assets 389,514 397,075 389,979 364,198




Technical liabilities: Other 24,006 22,160 25,819 23,322

Less: Reinsurer share of technical provisions -19,753 -17,978 -16,550 -17,774

Financial debt 12,522 12,385 11,237 10,085



Key figures - Life


Business operating profit 1,338 1,272 1,273 1,300

Embedded value 18,861 19,499 19,290 17,637




Business operating profit 2,097 2,859 2,894 864

Loss ratio 70.3% 68.3% 66.4% 71.8%

Expense ratio 28.1% 27.2% 30.5% 31.7%

Combined ratio 98.4% 95.5% 96.9% 103.5%

Other key ratios





Comprehensive return on average equity 14.7% -0.4% 11.6% -6.9%










Chairman: Tom de Swan 2013

CEO: Mario Greco 2016

CFO: George Quinn 2014


BlackRock Inc >5.0%

Rating trend

2013 2014 2015 2016

High A High A High A High ASource (table and charts): Company data, S&P, Bloomberg, Credit Suisse Bubble size corresponds to CHF total assets

85%

90%

95%

100%

105%

-2.5

0.0

2.5

5.0

7.5

2011 2012 2013 2014 2015

USD bn

Non-Life LifeFarmers OtherP&C combined ratio (r.h.s.)

0%

8%

16%

24%

32%

0

5

10

15

20

2011 2012 2013 2014 2015

USD bn


0%

60%

120%

180%

240%

0

10

20

30

40

2011 2012 2013 2014 2015

USD bn

Shareholders' equity SST ratio (r.h.s.)

0%

25%

50%

75%

100%

2011 2012 2013 2014 2015

Government bonds Corporate bonds Mortgages / Loans

Other fixed income Cash & cash equiv. Real Estate

Equities Alternative Investments

Zurich Ins.AXA

Helvetia

Allianz

Baloise

Aviva

Generali

0%

10%

20%

30%

40%

90%93%96%99%102%105%

Fina

ncia

l lev

erag

e

Combined ratio

141



Partner plants and the related power purchase agreements with their shareholders are an important element in electricity generation in Switzerland. As these entities issue debt on the Swiss bond market, their creditworthiness is of interest to investors. Given that these companies do not operate on a standalone basis, the analysis of their credit profiles differs from the standard credit profile assessment in that it primarily takes into account the relationship and contractual agreements with their shareholders and their respective creditworthi-ness. SICR applies this approach to partner plants and drawing rights companies.

Key characteristics of Swiss partner plants Partner plants are non-integrated electricity producers with activities limited to the generation of electricity, whereas their owners assume responsibility for electricity distribution. The facilities of partner plants are pure production plants dedicated to produce electricity for their shareholders. These are primarily vertically integrated Swiss electrical utilities, cantons and cities. The shareholders receive the generated electricity at cost, including a dividend that allows an adequate return on equity for the partner plants. In turn, the shareholders sell the electricity at market prices. As a result, economic gains/losses are not recorded at the partner plant, but at the shareholders. Most of these jointly owned production facilities are hydroelectric power plants (e.g. Grande Dixence and KW Oberhasli), but also include nuclear power stations (e.g. KKW Leibstadt and KKW Gösgen).

In addition to partner plants, there are drawing-rights companies. In contrast to partner plants, drawing-rights companies do not own electrical generation facilities; instead, these companies hold long-term electricity drawing rights (mostly linked to specific foreign power generation facilities) for long-term investment purposes. In operating terms, therefore, these companies can be regarded as virtual electrici-ty producers. By contributing a portion of the original investment costs of one or more power plants, drawing-rights companies secure the right to purchase electricity from these facilities at a fixed proportion of production costs. The Swiss capital market is home to three such financing companies importing electricity from French nuclear power facilities, namely ENAG (Energiefinanzierungs AG), AKEB (AG für Kernenergiebeteiligungen) and KBG (Kernkraftwerk-Beteiligungs-gesellschaft AG).

Rating approach Given that a number of partner plants and drawing-rights companies issue bonds in the capital market, their credit ratings are of interest to investors. As revenues are only intended to cover total generation costs, sales, earnings and cash flows are artificially low, while incurred debt (and thus interest costs) is high, fully reflecting the capital inten-sity of this business. This results in a high leverage – particularly at the beginning of the partner plant’s existence, when amortization of outstanding liabilities has not yet started. As a result, credit metrics are negatively biased. These are thus clearly underestimating the companies' effective financial strength, particularly as the metrics do not reflect the contractual guarantee to buy the produced electricity and cover the corresponding cost in full. Accordingly, credit profiles of partner plants have to be assessed in a different way from vertically integrated utilities that face risks in context with pricing, volume and cost-coverage.

In order to determine a partner plant’s creditworthiness, two prin-cipal methods of analysis can be applied: The External Support ap-proach (creditworthiness of the shareholder consortium) and the Asset Value Debt Coverage approach (current value of a power facility relative to its outstanding debt). These methods can be applied sepa-rately or combined.

Method 1: External Support approach Shareholders of traditional partner plants are contractually committed to purchasing the energy generated and to covering their proportion-ate share of annual costs (partner guarantees). According to these contracts, shareholders assume the full cost of their proportionate power generation activity, irrespective of market prices and without any time limit. In addition to these basic generation costs, the annual costs include the debt servicing (interest and capital) for the partner plant’s debt. These obligations remain in force throughout a facility’s entire lifetime and therefore continue to apply in a deregulated mar-ket. Consequently, the credit standing of the shareholder consortium is the decisive criterion to determine a partner plant’s credit rating. Similar guarantee structures apply to drawing-rights companies. As a result, the creditworthiness of these companies can also be derived from that of their shareholders.

To determine the credit rating, the average default probability over the next five years of the partner consortium is calculated, based on the credit assessment of the respective owners. This average is derived from the default probability of the individual shareholders weighted in proportion with their shareholding (see Figure 1). This average default probability of the shareholder consortium is the basis for the credit rating of the partner plant or drawing-rights company (see Figure 1).

The rationale for using an equity stake weighted-average default probability (instead of simply using the lowest credit rating of all shareholders) is that, in case of a shareholder default, there is a realistic chance that its liabilities will be covered by the remaining shareholders. These have no interest in letting the partner plant de-fault due to the defaulting shareholder's inability to cover its contrac-tual obligations. One reason for this is the remaining shareholders' need to secure their power-generation sources since capacities can-not be easily replaced. Also, there is a good chance that either the remaining shareholders or other investors are willing to buy the de-faulting shareholder’s stake in the partner plant, especially in times of limited power-generation capacities. Therefore, the default of one shareholder would probably only lead to a change in the shareholder consortium rather than a default of the partner plant.

Method 2: Asset Value Debt Coverage approach The value of a partner plants' production facilities can be regarded as coverage for its financial liabilities. However, the value of the facilities does not generally correspond to the book value as reported in the balance sheet. This is usually based on historical construction costs minus cumulative, regular write-downs since the plant’s inception. For this reason, the effective market value (earning capacity value) of the facilities must be estimated using the discounted cash flow (DCF) method. Costs are a key parameter in this method, although only costs with an impact on cash flow are considered relevant, while accounting costs such as write-downs and provisions are disregarded. These cash costs are then deducted from the hypothetical revenues (assuming that the plant sells electricity in the open market) in order to determine the free cash flow. Finally, the market value of the facili-ties is derived from the present value of these future free cash flows to the firm. The calculated value of the facility is then attributed pro-portionately to creditors and shareholders.

The DCF method represents a fundamental standalone considera-tion and is primarily employed in the case of companies without an exclusive partner plant character. One disadvantage of this approach is that even minor fluctuations in the underlying parameters (e.g. the discount rate or electricity price assumptions) can significantly impact the result. This may give rise to a corresponding residual uncertainty regarding the validity of the overall analysis due to the forward-looking

Credit Suisse rating methodology – partner plants

142



nature of the model parameters. Furthermore, along with the difficul-ties associated with obtaining the data required for the calculation, constantly changing underlying parameters may result in undesired rating volatility when using this method. Also, this approach does not consider contractual obligations for generation costs, which will persist irrespective of the value of the production facilities.

Credit rating of the shareholder consortium as an effective indication of power plants’ creditworthiness In evaluating the creditworthiness of a partner plant, the credit rating of the shareholder consortium (Method 1) is of primary significance, in our opinion. This is due to shareholders' contractual commitment to purchase the generated electricity at full production cost, thus acting as financial partners. Also, as a result of this purchase agreement, partner plants are not directly exposed to market risks as they – in contrast to vertically integrated electrical utilities – are not required to market the generated electricity. The ratings for partner plants have therefore been derived in accordance with the first method, i.e. from the weighted average of the estimated default risk of the individual shareholders contractually obliged to bear the production costs (see Figure 1). In addition to the quantitative method, qualitative considera-tions (such as the analysis of the company’s business profile) are also implemented to assess whether the quantitatively evaluated result makes sense in view of the effective business situation of the partner plant. In this context, the ratings are capped at Mid AA due to sector-related business profile considerations.

Note: Given the mostly small size of partner plants in terms of ab-solute sales, electricity generation capacity and number of production facilities as well as the correspondingly low diversification of their business activities, the standalone ratings of the partner plants under coverage would be significantly lower without taking the contractual support from their shareholders into account.

Figure 1 Credit rating evaluation process for Swiss utility partner plants and drawing-rights companies based on external support

Source: Credit Suisse

5Y default probability

0%

2%

4%

6%

8%

10%

12%

14%

AAA AA A BBB BB

Default risk of shareholder 1




Implied credit rating of analyzed partner plant

Shareholding

Shareholding

Shareholding

Shareholdingx

x

x

x

Shareholder structure

default probability of shareholder consortium

Share-holder 2

Share-holder 1

Share-holder 3

Share- holder 4

5Y default probability

0%

2%

4%

6%

8%

10%

12%

14%

AAA AA A BBB BB





Implied credit rating of analyzed partner plant

Shareholding

Shareholding

Shareholding

Shareholdingx

x

x

x

Shareholder structure

default probability of shareholder consortium

Share-holder 2

Share-holder 1

Share-holder 3

Share- holder 4

143



AKEB – Low A, Stable Daniel Rupli Drawing rights company Bond ticker: AKEB

Company description Shareholder structure as of end-2015

AKEB Aktiengesellschaft für Kernenergie-Beteiligungen Luzern (AKEB) is a drawing rights company which plays an important role in the supply of electricity in Switzerland. It is a partner plant located in the Canton of Lucerne, and which is under the management of Axpo Trading AG. Its net power generation of 5,162 GWh in 2015 was above the five-year average. Since 1972, AKEB has had two long-term contracts with EDF that guarantee the company the right to import electricity from nuclear power plants in France. At the same time, Axpo has committed to taking over fixed cost shares of the Cattenom and Bugey French nuclear power plants. A further contract from 1984 assures AKEB 15% of the production of the Leibstadt nuclear power plant. AKEB distributes the purchased power among its partners according to their equity stakes. The shareholder structure is relatively diversified, with Axpo Trading as the main shareholder with a stake of 31%. The shareholders are contractually committed to purchasing the imported power and to covering the corresponding annual costs. Given the nature of its business, AKEB enjoys a very low net debt/GWh ratio compared to other Swiss partner plants.

Rating rationale Power generation costs

We have assigned a Low A rating to AKEB. The credit rating reflects the power purchase agreement with its shareholders, combined with the anticipated default probability of its shareholders over the next five years, which we consider to be low. The rating is supported by the plant's importance for electricity supply in Switzerland, but constrained by the general risks and challenges related to nuclear power generation, as well as political uncertainties related to cross-border electricity transfers. The outlook is Stable.

Table 1: Financial overview (CHF m)

Production 2011 2012 2013 2014 2015 Average*

Net power generation (GWh) 5,134 4,896 4,349 5,211 5,162 4,950 Generation costs (cents/kWh) 4.58 5.07 5.20 3.58 4.08 4.47 P&L Annual cost to shareholders 235.0 248.2 226.1 186.6 210.6 221.3 EBITDA 48.3 50.7 53.9 60.5 42.4 51.2 EBIT 3.7 3.6 1.8 9.0 8.1 5.2 Cash flow FFO 51.0 41.9 40.4 4.6 7.2 29.0 CAPEX −24.7 −17.6 −51.0 −19.5 −11.8 −24.9 FCF 53.0 22.4 –3.1 21.8 –19.4 15.0 Balance sheet Cash and near-cash 28.6 25.0 5.9 1.8 0.0 12.3 Net debt 395.4 372.2 403.5 357.4 318.7 369.4 Equity 95.6 95.6 95.6 95.5 95.7 95.6 Total assets 572.5 545.0 521.6 486.3 462.0 517.5 Key ratios FFO/net debt 12.9% 11.2% 10.0% 1.3% 2.3% 7.5% Net debt/EBITDA 8.2x 7.3x 7.5x 5.9x 7.5x 7.3x Net leverage 80.5% 79.6% 80.9% 78.9% 76.9% 79.4% Net debt/GWh (000s) 77 76 93 69 62 75

*Five-year average; accounting standard: Swiss GAAP FER

Cost structure (FY 2015)

Debt-maturity profile as of end-2015

Table 2: Outstanding bonds (listed only)

Ticker Rating Coupon (%) Maturity Size (CHF m)

AKEB Low A, Stable 1.625 09/06/2023 170

Source: Company data, Credit Suisse

7.0%

15.0%

31.0%

7.0%

6.0%

13.5%

20.5%

Azienda Elect. Ticinese CKW Axpo Trading Repower SN Energie SBB City of Zurich

0

1,500

3,000

4,500

6,000

0

2

3

5

6

2011 2012 2013 2014 2015

GWh

Net power generation (r.h.s.) Generation costs (cent./kWh)

5-year average (cent./kWh) 5-year average (r.h.s.)

81.4%

15.1%

3.5% 0.1%

Operational costs Depreciation, amortization Net financial expense & net profit Levies & taxes

0

25

50

75

100

2016 2017 2018 2019 2020 >2020

CHF m

Bonds & private placements

144



Blenio Kraftwerke – Mid A, Negative Daniel Rupli Partner plant Bond ticker: n.a.


Blenio Kraftwerke (Ofible) is a hydropower (storage power) plant located in Blenio, in the Canton of Ticino. Founded in 1956, Blenio Kraftwerke AG uses the water power of the Brenno river and the reservoirs in the surrounding area. The company owns three power plants (Luzzone, Olivone, and Biasca), with a total installed capacity of 410 MW, producing on average over 950 GWh per year. After limited operation in 2012 due to renovation and restoration, annual power generation in the last three years was over 1,000 GWh per year, and hence above the five-year average. Its generation costs are relatively low compared to its peers. With this net power generation, the company is among the mid-sized hydroelectric power generators in Switzerland. Its concession period ends in 2042. The company's main shareholders are the Canton of Ticino (20%), Axpo Power AG (17%), the City of Zurich (17%), and Alpiq (17%). The shareholders are contractually committed to purchasing the energy generated, and covering the related share of annual costs.


We have assigned a Mid A rating to Blenio Kraftwerke, reflecting the power purchase agreement with its shareholders, in conjunction with the anticipated default probability of its shareholders over the next five years, which we consider to be very low in view of their solid creditworthiness. While the rating is constrained by the limited size of the company, it is supported by the low average generation costs compared to peers. The outlook is Negative, given the outlook of its key stakeholders Axpo and Alpiq, which both also have a Negative rating outlook.



Net power generation (GWh) 995 675 1,019 1,032 1,074 959 Generation costs (cents/kWh) 4.15 6.11 3.29 4.02 3.70 4.11 P&L Annual cost to shareholders 41.3 41.2 33.5 41.5 39.8 39.5 EBITDA 20.5 19.5 20.4 20.7 19.6 20.1 EBIT 11.3 10.3 2.4 9.2 8.5 8.4 Cash flow FFO 11.6 11.4 11.2 12.7 11.3 11.6 CAPEX −5.4 −14.0 −1.3 −4.1 −2.5 −5.5 FCF 1.4 −3.5 8.6 9.6 10.1 5.2 Balance sheet Cash and near-cash 9.5 4.8 4.2 9.8 9.1 7.5 Net debt 156.3 165.9 158.1 150.7 141.5 154.5 Equity 71.8 71.8 71.9 72.0 72.1 71.9 Total assets 254.5 261.4 252.2 249.7 240.7 251.7 Key ratios FFO/net debt 7.4% 6.9% 7.1% 8.4% 8.0% 7.6% Net debt/EBITDA 7.6x 8.5x 7.7x 7.3x 7.2x 7.7x Net leverage 68.5% 69.8% 68.7% 67.7% 66.2% 68.2% Net debt/GWh (000s) 157 246 155 146 132 167






– – – – –


20%

17%

17%

17%

12%

12%

5%

Canton of Ticino Axpo City of ZurichAlpiq Ind. Werke Basel BKWEnergie Wasser Bern

0

300

600

900

1,200

0

2

4

6

8

2011 2012 2013 2014 2015

GWh



21%

22%

14%

43%

Operational costs Depreciation, amortization

Net financial expense & net profit Levies & taxes

0

40

80

120

160

2016-2020 >2020

CHF m

Bonds & loans

145



Electricité d'Emosson – High BBB, Negative Daniel Rupli Partner plant Bond ticker: ELEM


Electricité d'Emosson is a hydroelectric (storage power) partner plant located in Martigny, in the Canton of Valais. Electricité d'Emosson is a French-Swiss investment, and has two power stations – one in Switzerland and one in France. While the company was founded in 1954, operations only began in 1975. The total installed capacity is 360 MW. With a power generation of 811 GWh in 2015, the company belongs to the mid-sized hydroelectric power generators in Switzerland. The company's two shareholders are Alpiq and EDF, which each hold a 50% equity stake. However, Alpiq took over the entire energy drawing rights from EDF in January 2009. Furthermore, Alpiq is also responsible for the operating and marketing activities of Emosson. The concession period ends in 2055.


We have assigned a High BBB rating to Electricité d'Emosson. The credit rating reflects the power purchase agreement with its shareholders, combined with the anticipated default probability of its shareholders over the next five years, which we consider to be fairly low. The rating is supported by the below-average generation costs compared to peers, but constrained by the rating of Alpiq, one of its main shareholders. The outlook is Negative as both shareholders have a Negative credit outlook at this stage.



Net power generation (GWh) 818 697 932 642 964 811 Generation costs (cents/kWh) 4.29 5.17 4.07 5.36 3.86 4.46 P&L Annual cost to shareholders 35.1 36.1 37.9 34.4 37.2 36.1 EBITDA 21.1 20.9 21.1 21.0 20.1 20.9 EBIT 9.0 8.5 8.4 7.8 7.3 8.2 Cash flow FFO 12.5 12.7 13.0 13.6 12.1 12.8 CAPEX −9.2 −16.6 −3.2 −6.0 −5.8 −8.2 FCF 5.3 −6.5 4.3 13.2 5.1 4.3 Balance sheet Cash and near-cash 9.8 3.2 0.5 4.7 1.8 4.0 Net debt 249.2 255.8 251.5 238.3 235.0 246.0 Equity 140.0 140.0 140.0 140.0 140.0 140.0 Total assets 416.0 412.2 403.9 399.5 389.2 404.1 Key ratios FFO/net debt 5.0% 5.0% 5.2% 5.7% 5.1% 5.2% Net debt/EBITDA 11.8x 12.2x 11.9x 11.3x 11.7x 11.8x Net leverage 64.0% 64.6% 64.2% 63.0% 62.7% 63.7% Net debt/GWh (000s) 305 367 270 371 244 311






ELEM High BBB, Neg 2.250 26.10.2017 130


50%50%

Alpiq EDF

0

300

600

900

1,200

0

2

4

6

8

2011 2012 2013 2014 2015

GWh



28%

34%

19%

19%



0

40

80

120

160

2016 2017 2018 2019 2020 >2020

CHF m

Bonds & private placements

146



ENAG – High BBB, Stable Daniel Rupli Drawing rights company Bond ticker: ENAG


Energiefinanzierungs AG (ENAG) is a drawing rights company under the management of Axpo Trading AG. The company, located in Schwyz, was founded in 1990. In 2015, ENAG provided 3,504 GWh of electricity to its partners, based on two long-term contracts between Axpo Trading and Electricité de France. The company imports electricity from power plants in France, and provides the imported power to the shareholders. In contrast to other drawing rights companies, the power imported is not dependent on a certain power plant, but is provided by the entire power plant park of Electricité de France. In the last five years, the company has imported 3,506 GWh of power on average, and is therefore a key player in the electricity supply market in Switzerland. The company's ownership structure is dominated by several Swiss electrical utilities, with Axpo Trading the main shareholder with a stake of 50%. Shareholders are contractually committed to purchasing the imported power, and covering the related share of annual costs.


We have assigned a High BBB rating to ENAG. The credit rating reflects the power purchase agreement with its shareholders, combined with the anticipated default probability of its shareholders over the next five years, which we consider to be fairly low. The rating is supported by the company's importance with respect to electricity supply in Switzerland, but constrained by the general risks related to nuclear power generation, as well as political uncertainties related to cross-border electricity transfers. The rating outlook is Stable.



Net power generation (GWh) 3,504 3,514 3,504 3,504 3,504 3,506 Generation costs (cents/kWh) 3.85 8.64 5.51 5.50 7.23 6.15 P&L Annual cost to shareholders 134.8 303.7 193.1 192.7 253.4 215.5 EBITDA 60.6 58.6 63.4 137.6 139.0 91.8 EBIT 17.1 15.1 19.9 10.6 11.9 14.9 Cash flow FFO 44.9 44.8 –58.7 201.2 118.5 70.1 CAPEX 0.0 0.0 0.0 0.0 0.0 0.0 FCF 43.1 46.1 54.9 79.7 117.9 68.3 Balance sheet Cash and near-cash 29.0 3.9 17.7 6.2 0.0 11.4 Net debt 989.9 1,061.4 1,008.0 849.1 696.4 921.0 Equity 103.6 103.6 103.6 103.5 103.5 103.5 Total assets 1,181.0 1,305.9 1,176.7 989.0 821.0 1,094.7 Key ratios FFO/net debt 4.5% 4.2% –5.8% 23.7% 17.0% 8.7% Net debt/EBITDA 16.3x 18.1x 15.9x 6.2x 5.0x 12.3x Net leverage 90.5% 91.1% 90.7% 89.1% 87.1% 89.7% Net debt/GWh (000s) 282 302 288 242 199 263






ENAG High BBB, Stable 1.000 14.12.2018 100

ENAG High BBB, Stable 2.625 31.01.2023 180


50.0%

25.0%

16.0%

5.5%3.5%

Axpo Trading CKW EDF Trading (Switzerland) RE Power SN Energie

0

1,000

2,000

3,000

4,000

0

3

6

9

12

2011 2012 2013 2014 2015

GWh



47.3%

48.2%

4.4% 0.1%



0

125

250

375

500

2016-2020 >2020

CHF m

Bonds Loans

147



Engadiner Kraftwerke – Low A, Negative Daniel Rupli Partner plant Bond ticker: ENGAKR


The Engadiner Kraftwerke AG, located in Zernez (Canton of Graubünden) on the border with Italy, is a hydroelectric partner plant using storage as well as run-of-the-river plants to generate electrical power. The company uses water from the Inn river and Lake Livigno for power production, and has an installed capacity of 430 MW. The company's two concessions end in 2050 and 2074. With an average power production of 1,472 GWh over the last five years, the power plant is one of the larger hydroelectric power generators in Switzerland. Annual production in 2014 was 1,501 GWh. In line with the sustainable energy megatrend, the company acquired a power plant in February 2014 that can use overflow water to produce environmentally-friendly energy for 600 households. The company's ownership structure is dominated by several large Swiss electrical utilities and a public entity: BKW and the Axpo Group are the key shareholders, with a stake of 30% each. The shareholders are contractually committed to purchasing the energy generated, and covering the related share of annual costs.


We have assigned a Low A rating to Engadiner Kraftwerke. The credit rating reflects the power purchase agreement with its shareholders, combined with the anticipated default probability of its shareholders over the next five years, which we consider to be low in view of their overall solid creditworthiness. The rating is somewhat constrained by the above-average generation costs compared to peers in recent years. The outlook is Negative, given the risk of a potential downgrade of its key shareholders.



Net power generation (GWh) 1,346 1,431 1,428 1,656 1,501 1,472 Generation costs (cents/kWh) 5.75 5.53 5.82 4.76 4.47 5.24 P&L Annual cost to shareholders 77.4 79.2 83.1 78.9 67.0 77.1 EBITDA 48.2 45.8 45.0 44.8 39.9 44.8 EBIT 25.7 22.9 21.7 20.9 17.0 21.6 Cash flow FFO 27.2 26.3 26.7 27.2 25.1 26.5 CAPEX −5.3 −7.4 −5.8 −14.6 −18.5 −10.3 FCF 17.5 22.1 28.4 –1.5 1.3 13.5 Balance sheet Cash and near-cash 1.4 2.8 8.1 3.4 11.8 5.5 Net debt 629.7 612.2 586.9 591.6 593.2 602.7 Equity 158.8 157.6 157.7 157.9 157.0 157.8 Total assets 825.7 809.6 795.4 791.7 803.2 805.1 Key ratios FFO/net debt 4.3% 4.3% 4.5% 4.6% 4.2% 4.4% Net debt/EBITDA 13.1x 13.4x 13.0x 13.2x 14.8x 13.5X Net leverage 79.9% 79.5% 78.8% 78.9% 79.1% 79.2% Net debt/GWh (000s) 468 428 411 357 395 412






ENGAKR Low A, Negative 0.125 02.03.2022 100

ENGAKR Low A, Negative 1.625 25.04.2024 100


30%

22%15%

14%

10%

5%4%

BKW Alpiq Axpo Trading AGCanton of Graubünden CKW Axpo Power AGVerleihungsgemeinden

0

500

1,000

1,500

2,000

0

2

4

6

8

2011 2012 2013 2014 2015

GWh



18%

27%

19%

36%


Net financial expense & net profit Levies & income taxes

0

100

200

300

400

500

2016-2020 2020>

CHF m

Bonds Loans

148



Grande Dixence – High BBB, Negative Daniel Rupli Partner plant Bond ticker: GRANDX


Grande Dixence, located in the Canton of Valais, is one of the largest hydroelectric power generators in Switzerland, with an installed capacity of 1,949 MW (including Cleuson-Dixence with a capacity of 1,200 MW). The company is concentrated on Lake Dix – a reservoir with Europe's tallest gravity dam at 285 meters high – and harnesses the melting water of 35 nearby glaciers. Operating four power plants (including the largest hydroelectric facility in Switzerland), Grande Dixence has delivered 2,207 GWh p.a. of electricity on average over the last five years. Its concession period ends in 2044. The company's ownership structure is dominated by the three largest Swiss electrical utilities and one public entity: Alpiq is the key shareholder with a stake of 60%. The shareholders are contractually committed to purchasing the energy generated, and covering the related share of annual costs.


We have assigned a High BBB rating to Grande Dixence, which reflects the power purchase agreement with its shareholders, combined with the anticipated default probability of its shareholders over the next five years, which we consider to be fairly low. The rating is supported by its key position as a large provider of flexible hydroelectric power, but constrained by its main shareholder Alpiq. The outlook is Negative, given the Negative outlook of its key stakeholder Alpiq, as well as Axpo.



Net power generation (GWh) 1,792 2,335 2,179 1,989 2,738 2,207 Generation costs (cents/kWh) 10.50 7.69 7.98 8.29 6.14 8.12 P&L Annual cost to shareholders 0.0 0.0 0.0 0.0 0.0 0.0 EBITDA 188.1 179.6 173.9 164.9 168.1 174.9 EBIT 98.8 91.1 91.9 78.8 77.9 87.7 Cash flow FFO 50.1 51.8 52.2 46.9 46.9 49.6 CAPEX −27.1 −20.9 −24.2 −24.3 −17.0 −22.7 FCF −1.4 33.4 32.2 17.3 29.2 22.2 Balance sheet Cash and near-cash 13.8 12.3 29.6 31.8 32.5 24.0 Net debt 976.8 978.9 962.4 960.9 941.1 964.0 Equity 339.6 340.4 341.2 335.7 336.1 338.6 Total assets 1,422.8 1,400.3 1,406.2 1,395.2 1,376.4 1,400.2 Key ratios FFO/net debt 5.1% 5.3% 5.4% 4.9% 5.0% 5.1% Net debt/EBITDA 9.9x 10.8x 10.5x 12.2x 12.1x 11.1x Net leverage 74.2% 74.2% 73.8% 74.1% 73.7% 74.0% Net debt/GWh (000s) 545 419 442 483 344 447






GRANDX High BBB, Neg 3.375 27.09.2017 150



GRANDX High BBB, Neg 1.375 18.02.2025 100 Source: Company data, Credit Suisse

13.3%

13.3%

13.3%

60.0%

BKW Axpo IWB, Industrielle Werke Basel Alpiq

0

800

1,600

2,400

3,200

0.0

4.0

8.0

12.0

16.0

2011 2012 2013 2014 2015

GWh



31%

22%

22%

25%



0

100

200

300

400

2016 2017 2018 2019 >2020

CHF m

Bonds Loans

149



KBG – High BBB, Negative Daniel Rupli Drawing rights company Bond ticker: n.a.


The Kernkraftwerk-Beteiligungsgesellschaft AG (KBG), domiciled in Bern, is a drawing rights company. KBG has two long-term contracts with French power generator EDF, which guarantees the export of electricity to KBG from the Fessenheim and Cattenom nuclear power plants in France. In the past five years, the company has delivered over 5,400 GWh of electricity p.a. on average, playing a key role in Swiss electricity supply. The company's ownership structure is dominated by the large Swiss electrical utilities. Alpiq, Axpo and BKW hold one-third of the company's shares each, and hence the imported electricity is also distributed equally among the partners. The shareholders are contractually committed to purchasing the imported power, and to covering the related share of annual costs. Given the nature of its business, KBG enjoys a very low net debt/GWh ratio compared to other Swiss partner plants.


We have assigned a High BBB rating to KBG, which reflects the power purchase agreement with its shareholders, combined with their anticipated default probability over the next five years. The rating is supported by the company's importance in Switzerland, but constrained by the general risks related to nuclear power generation, as well as political uncertainties related to cross-border electricity transfers. The credit outlook is Negative, due to its key shareholders Alpiq and Axpo, which also face downward pressure on their ratings.



Net power generation (GWh) 5,102 5,536 5,076 5,694 5,700 5,422 Generation costs (cents/kWh) 4.78 4.90 6.10 4.86 3.74 4.85 P&L Annual cost to shareholders 244.1 271.2 309.7 276.7 213.2 263.0 EBITDA 50.2 92.7 80.9 88.6 44.0 71.3 EBIT 12.9 14.6 12.8 11.7 –16.6 7.1 Cash flow FFO 43.7 70.3 75.1 78.5 -4.2 52.7 CAPEX –88.8 –16.1 –37.5 –28.5 –26.4 –39.5

FCF –23.6 48.5 39.5 53.3 14.6 26.4 Balance sheet Cash and near-cash 14.8 25.1 2.2 4.0 0.1 9.3 Net debt 329.0 277.5 242.0 191.8 96.5 227.4 Equity 164.5 164.9 165.2 165.5 165.8 165.2 Total assets 530.0 480.3 424.4 375.2 306.9 423.3 Key ratios FFO/net debt 13.3% 25.4% 31.1% 40.9% –4.4% 21.2% Net debt/EBITDA 6.6x 3.0x 3.0x 2.2x 2.2x 3.4x Net leverage 66.7% 62.7% 59.4% 53.7% 36.8% 55.9% Net debt/GWh (000s) 64 50 48 34 17 43






– – – – –


33.3%

33.3%

33.3%

BKW Axpo Alpiq

0

2,000

4,000

6,000

8,000

0

2

4

6

8

2011 2012 2013 2014 2015

GWh



70.4%

25.2%

4.1% 0.2%



0

25

50

75

100

2016 2017 2018 2019 2020 > 2020

CHF m

Loans

150



Kernkraftwerk Gösgen-Däniken – High BBB, Negative Daniel Rupli Partner plant Bond ticker: KKGDSW


Kernkraftwerk Gösgen-Däniken is Switzerland's second-largest nuclear (pressurized water reactor) power plant, with an installed capacity of 985 MW and an annual output of 7,677 GWh (five-year average). The facility is located in Däniken, in the Canton of Solothurn between Aarau and Olten on the banks of the Aare river. The power station has been in service since 1979, and is thus Switzerland's second-most recent nuclear power station. In 2015, the production level was 7,9791 GWh, which is on a par with historical levels, after considerably lower levels in 2014 due to unplanned repair work. The renewal of the turbo-generator group has led to an additional annual production of around 200 million kilowatt-hours. The company's ownership structure is dominated by the large Swiss electrical utilities. Alpiq is the largest shareholder with 40%, followed by Axpo (including CKW), which owns 37.5%. The shareholders are contractually committed to purchasing the energy generated, and covering the related share of annual costs.


We have assigned a High BBB rating to Kernkraftwerk Gösgen-Däniken, reflecting the power purchase agreement with its shareholders and the anticipated default probability of its shareholders, which we consider to be low in view of their overall solid creditworthiness. The rating is supported by the plant's importance for Swiss electricity supply, but constrained by the general risks and challenges related to nuclear power generation. The rating outlook is Negative, given the main shareholders Alpiq and Axpo, which are both exposed to a potentially lower rating.



Net power generation (GWh) 7,910 8,074 6,410 8,022 7,971 7,677 Generation costs (cents/kWh) 3.98 4.68 4.98 4.50 5.12 4.64 P&L Annual cost to shareholders 315.1 378.0 319.0 361.2 408.2 356.3 EBITDA 170.1 222.6 217.1 210.5 251.6 214.4 EBIT 62.5 86.8 86.8 76.8 142.0 91.0 Cash flow FFO 121.4 170.8 169.6 140.8 188.8 158.3 CAPEX −159.9 −134.2 −212.8 −134.0 −96.5 −147.5 FCF –17.9 22.4 –32.0 58.5 –24.0 1.4 Balance sheet Cash and near-cash 61.0 29.1 52.8 77.0 22.3 48.4 Net debt 1,127.2 1,163.5 1,284.6 1,063.9 1,385.8 1,205.0 Equity 347.2 348.4 349.7 350.9 352.2 349.7 Total assets 3,112.4 3,221.9 3,489.0 3,442.7 3,513.3 3,355.9 Key ratios FFO/net debt 10.8% 14.7% 13.2% 13.2% 13.6% 13.1% Net debt/EBITDA 6.6x 5.2x 5.9x 5.1x 5.5x 5.7x Net leverage 76.5% 77.0% 78.6% 75.2% 79.7% 77.4% Net debt/GWh (000s) 142 144 200 133 174 159






KKGDSW High BBB, Neg 2.000 30.09.2020 130


40.0%

12.5%7.5%

25.0%

15.0%

Alpiq CKW Energie Wasser Bern Axpo City of Zurich

0

2,500

5,000

7,500

10,000

0

2

4

6

8

2011 2012 2013 2014 2015

GWh



41%

9%

26%

7%

11%

6%

Operational costs Nuclear fuel consumption Nuclear waste disposal

Plant closure Depreciation, amortization Financial income, profit

0

300

600

900

1200

1500

2016 2017 2018 2019 2020 >2021

CHF m

Bonds Plant closure net provisions

151



Kernkraftwerk Leibstadt – High BBB, Stable Daniel Rupli Partner plant Bond ticker: KKWLEB


The Kernkraftwerk Leibstadt AG is the largest Swiss nuclear (boiling-water reactor) power plant, with an installed net capacity of 1,190 MW. The plant produces energy for two million households, representing around 16% of the electricity consumed in Switzerland. It is located in the northern part of the Canton of Aargau, and is under the management of Axpo Power AG. The average annual production over the last five years was 9,022 GWh. In 2015, the company generated 8,599 GWh of electricity, which is below the five-year average due to a slightly longer-than-expected revision combined with small unplanned outages and repair work. The company's ownership structure is dominated by the large Swiss electrical utilities. The largest shareholder is Axpo Group, with a combined stake of around 53%, followed by Alpiq Group at 32%. The shareholders are contractually committed to purchasing the energy generated, and covering the related share of annual costs.


We have assigned a High BBB rating to Kernkraftwerk Leibstadt, which reflects the power purchase agreement with its shareholders, combined with the anticipated default probability of the shareholders over the next five years, which we consider to be fairly low. The rating is supported by the plant's importance for the electricity supply in Switzerland, but constrained by the general risks and challenges related to nuclear power generation. The outlook is Stable, incorporating a potential downgrade of some key shareholders.



Net power generation (GWh) 9,481 7,881 9,692 9,458 8,599 9,022 Generation costs (cents/kWh) 5.02 6.99 4.74 5.25 5.99 5.60 P&L Annual cost to shareholders 475.8 550.7 459.2 496.9 515.2 499.6 EBITDA 295.2 321.8 256.7 289.0 316.7 295.9 EBIT 110.5 125.5 44.9 101.5 169.6 110.4 Cash flow FFO 232.5 251.0 295.9 221.4 244.8 249.1 CAPEX −99.7 −119.9 −115.9 −118.8 −119.6 −114.8 FCF 148.9 53.4 125.6 105.8 –42.2 78.3 Balance sheet Cash and near-cash 75.4 104.3 153.4 182.6 0.0 103.1 Net debt 2,046.0 2,071.7 2,054.2 1,894.2 2,370.1 2,087.2 Equity 506.4 507.9 509.5 511.0 512.6 509.5 Total assets 3,971.0 4,129.1 4,292.2 4,343.4 4,533.5 4,253.8 Key ratios FFO/net debt 11.4% 12.1% 14.4% 11.7% 10.3% 12.0% Net debt/EBITDA 6.9x 6.4x 8.0x 6.6x 7.5x 7.1x Net leverage 80.2% 80.3% 80.1% 78.8% 82.2% 80.3% Net debt/GWh (000s) 216 263 212 200 276 233






KKWLEB High BBB, Stable 2.500 29/03/2019 200

KKWLEB High BBB, Stable 1.500 16/12/2022 200


5.4%

32.4%

22.8%

9.5%

13.6%

16.3%

AEW Energie AG Alpiq Axpo Power AG BKW CKW Axpo Trading AG

6,000

7,000

8,000

9,000

10,000

0.0

2.5

5.0

7.5

10.0

2011 2012 2013 2014 2015

GWh



38%

9%23%

7%

13%

10%

Operational costs Nuclear fuel consumption Nuclear waste disposal

Plant closure Depreciation, amortization Financial income, profit

0

600

1,200

1,800

2,400

2016 2017 2018 2019 >2020

CHF m

Bonds and private placements Plant closure net provisions

152



Kraftwerk Amsteg – Mid AA, Stable Daniel Rupli Partner plant Bond ticker: AMSTEG


The Kraftwerk Amsteg AG, located in Silenen-Amsteg in the Canton of Uri, was established to supply the Swiss Federal Railways (SBB) and, among others, the Gotthard railway. The power plant serves as a source for part of the SBB's energy supply, and has an installed capacity of 120 MW. The hydroelectric run-of-the-river power plant had a net power generation of 484 GWh in 2015, and the shareholders are contractually committed to purchase the energy generated, and to cover the related share of annual costs. Since the energy and power generated helps to ensure the railways' electricity supply, the SBB is the main shareholder with a stake of 90%. The two other shareholders are the Canton of Uri (9%) and the Cantonal Bank of Uri (1%). The generation costs in 2015 were 6.24 cents/kWh, and the partner plant's concession ends in 2043.


We have assigned a Mid AA rating to Kraftwerk Amsteg, reflecting the power purchase agreement with its shareholders, combined with the anticipated default probability of its shareholders over the next five years, which we consider to be very low. The rating is further supported by the company's importance to the Swiss railways, but constrained by above-average generation costs compared to peers, as well as its high financial leverage. The rating outlook remains Stable, reflecting the stable ownership structure and credit quality of its shareholders.



Net power generation (GWh) 382 489 498 483 484 467 Generation costs (cents/kWh) 8.20 6.35 6.23 6.14 6.24 6.56 P&L Annual cost to shareholders 31.3 31.1 31.0 29.7 30.2 30.7 EBITDA 21.0 20.7 19.8 19.7 18.4 19.9 EBIT 9.5 9.0 8.6 8.3 7.7 8.6 Cash flow FFO 12.1 12.1 11.1 12.5 10.9 11.7 CAPEX −0.9 −0.9 −1.0 −1.3 −3.7 −1.6 FCF 10.6 11.5 10.6 10.5 6.1 9.8 Balance sheet Cash and near-cash 0.1 0.0 0.3 0.1 0.1 0.1 Net debt 314.9 304.0 293.3 283.9 277.9 294.8 Equity 33.2 33.0 33.0 33.0 32.8 33.0 Total assets 353.3 341.9 331.8 322.3 315.1 332.9 Key ratios FFO/net debt 3.8% 4.0% 3.8% 4.4% 3.9% 4.0% Net debt/EBITDA 15.0x 14.7x 14.8x 14.4x 15.1x 14.8x Net leverage 90.5% 90.2% 89.9% 89.6% 89.4% 89.9% Net debt/GWh (000s) 825 622 589 587 574 639






AMSTEG Mid AA, Stable 2.375 09.03.2018 150


90%

9% 1%

SBB Canton of Uri Cantonal Bank of Uri

0

130

260

390

520

0

3

6

9

12

2011 2012 2013 2014 2015

GWh



18%

33%23%

26%



0

50

100

150

200

2016 2017 2018 2019 2020 >2020

CHF m

Bonds & private placements Loans & Others

153



Kraftwerke Hinterrhein – High BBB, Stable Daniel Rupli Partner plant Bond ticker: KWHINT


Kraftwerke Hinterrhein AG is located in Thusis in the Canton of Graubünden. The company is founded on an international treaty between Switzerland and Italy, which enabled the construction of the power plant in 1956. Kraftwerke Hinterrhein AG has an installed capacity of 660 MW, and is therefore one of the larger hydroelectric power generators in Switzerland. In 2015, the company reported electricity generation of 1,615 GWh, which is markedly above the previous two years due to overall renovation work that has now been finished. The company's ownership structure is dominated by the large Swiss electrical utilities and public entities. Beside the various Swiss partners, the Italian energy company Edison S.p.A. holds an equity share of 20%. The shareholders are contractually committed to purchasing the energy generated, and covering the related share of annual costs. The concession ends in 2042.


We have assigned a High BBB rating to Kraftwerke Hinterrhein. The credit rating reflects the power purchase agreement with its shareholders, combined with the anticipated default probability of its shareholders over the next five years, which we consider to be low in view of their overall solid creditworthiness. The rating is constrained by the above-average generation costs compared to peers in recent years. The outlook is Stable, as it incorporates a potential downgrade of the two largest shareholders Alpiq and Axpo.



Net power generation (GWh) 1,719 1,207 925 1,615 1,615 1,416 Generation costs (cents/kWh) 3.76 4.56 5.83 3.84 3.66 4.16 P&L Annual cost to shareholders 64.7 55.1 53.9 62.1 59.1 59.0 EBITDA 27.2 26.2 13.5 30.8 17.9 23.1 EBIT 13.5 8.8 –2.5 13.3 –0.4 6.5 Cash flow FFO 17.2 19.5 28.9 9.1 19.8 18.9 CAPEX –39.5 –78.8 –60.8 –45.6 –34.8 –51.9 FCF –57.8 –21.2 –22.2 –30.8 –19.8 –30.4 Balance sheet Cash and near-cash 18.0 26.9 32.1 34.2 13.6 25.0 Net debt 202.0 223.1 272.9 270.8 291.4 252.0 Equity 123.0 122.1 122.2 122.3 121.5 122.2 Total assets 393.4 420.0 488.4 483.2 471.5 451.3 Key ratios FFO/net debt 8.5% 8.7% 10.6% 3.4% 6.8% 7.6% Net debt/EBITDA 7.4x 8.5x 20.1x 8.8x 16.3x 12.2x Net leverage 62.2% 64.6% 69.1% 68.9% 70.6% 67.1% Net debt/GWh (000s) 118 185 295 168 180 189






KWHINT High BBB, Stable 2.375 28.07.2022 100


19.5%

19.5%

12.0%9.3%

7.7%

6.5%

3.0%

2.5%

20.0%

City of Zürich Axpo Canton of Graubünden

Alpiq BKW Repower

Municipalities Ind. Werke Basel Italy: Edison S.p.A.

0

500

1,000

1,500

2,000

0

3

6

9

12

2011 2012 2013 2014 2015

GWh



32%

26%

11%

31%



0

50

100

150

200

250

2016 2017-2020 >2020

CHF m

Bonds & private placement Loans

154



Kraftwerke Linth-Limmern – Mid A, Negative Daniel Rupli Partner plant Bond ticker: KWLILI


Kraftwerke Linth-Limmern AG, based in Linthal, is a partnership between the Canton of Glarus and Axpo Power AG, under whose management the company has been set up. The power plants use the water inflow from an area of around 140 km2 in the headwaters of the Linth river. The Linthal 2015 expansion project is set to invest approximately CHF 2.1 bn in boosting the installed capacity to 1,480 MW. The construction process is both timely and financially on track, with the first synchronization having taken place in 2015. The aim is to be fully up and running in 2017. In 2015, the amount of energy delivered was 542 GWh, which is above the five-year average of 491 GWh. The partner plant's concession ends in 2096. The shareholders are contractually committed to purchase the energy generated, and to cover the related share of annual costs.


We have assigned a Mid A rating to Kraftwerke Linth-Limmern, which reflects the power purchase agreement with its shareholders, combined with the anticipated default probability of its shareholders over the next five years, which we consider to be very low in view of their solid overall creditworthiness. The rating is constrained by the above-average generation costs compared to peers, and partially due to the company's high financial leverage. The outlook is Negative, due to the main shareholder Axpo also having a Negative outlook.



Net power generation (GWh) 403 542 695 272 542 491 Generation costs (cents/kWh) 13.73 12.88 10.27 30.18 13.22 14.27 P&L Annual cost to shareholders 55.3 69.8 71.4 82.1 71.6 70.0 EBITDA 37.9 45.1 47.2 58.8 52.7 48.3 EBIT 27.1 34.3 35.3 46.7 42.4 37.1 Cash flow FFO 16.6 16.5 16.7 20.8 15.8 17.3 CAPEX –267.9 –375.6 –300.5 –309.1 –296.2 –309.9 FCF –305.4 –368.1 –292.0 –284.8 –279.6 –306.0 Balance sheet Cash and near-cash 0.0 0.0 0.1 0.1 0.0 0.1 Net debt 1,200.0 1,530.0 1,689.9 2,089.9 2,250.0 1,751.9 Equity 214.0 213.3 213.5 367.7 364.5 274.6 Total assets 1,496.6 1,827.2 1,978.3 2,525.5 2,724.1 2,110.3 Key ratios FFO/net debt 1.4% 1.1% 1.0% 1.0% 0.7% 1.0% Net debt/EBITDA 31.7x 33.9x 35.8x 35.5x 42.7x 35.9x Net leverage 84.9% 87.8% 88.8% 85.0% 86.1% 86.5% Net debt/GWh (000s) 2,977 2,821 2,431 7,683 4,154 4,013




Table 2: Selected outstanding bonds (listed only)


KWLILI Mid A, Negative 2.125 10.03.2017 200



KWLILI Mid A, Negative 1.250 11.09.2024 270 Source: Company data, Credit Suisse

15%

85%

Canton of Glarus Axpo

0

200

400

600

800

0

8

16

24

32

2011 2012 2013 2014 2015

GWh



26%

13%

52%

9%



0

500

1000

1500

2000

2016 2017 2018 2019 2020 >2020

CHF m

Bonds

155



Kraftwerke Mauvoisin – Low A, Stable Daniel Rupli Partner plant Bond ticker: n.a.


Forces Motrices de Mauvoisin SA, located in the Canton of Valais, is a hydroelectric partner plant under the management of Axpo Power AG. It uses water from the Drance de Bagnes Rhone tributary, and the Lac de Mauvoisin reservoir for storage purposes. The company has an installed capacity of 421 MW and generated 1,166 GWh in 2015, which is above the five-year average of 1,058 GWh. With this net power generation, the company is among the mid-sized hydroelectric power generators in Switzerland. Generation costs were low last year, at 4.27 cents/kWh, which is below its five-year average. The concession period ends in 2041. The company's ownership structure is dominated by large electrical utilities, with the Axpo group holding over two-thirds through their various subsidiaries. With EDF, there is also a foreign utility company among the owners. Furthermore, the shareholders are contractually committed to purchasing the energy generated, and covering the related share of annual costs.


We have assigned a Low A rating to Kraftwerke Mauvoisin, which reflects the power purchase agreement with its shareholders, combined with the anticipated default probability of its shareholders over the next five years, which we consider to be low, in view of their overall solid creditworthiness. The outlook is Stable, already taking a potential downgrade of the Axpo group into account.



Net power generation (GWh) 982 1,159 1,043 941 1,166 1,058 Generation costs (cents/kWh) 5.03 4.60 4.37 5.13 4.27 4.66 P&L Annual cost to shareholders 49.4 53.4 45.5 48.2 49.8 49.3 EBITDA 21.1 22.1 14.0 19.2 20.8 19.4 EBIT 15.5 16.5 8.4 13.3 15.1 13.8 Cash flow FFO 10.1 10.8 10.8 11.0 7.6 10.1 CAPEX −10.9 −6.7 −8.4 −6.7 −10.9 −8.7 FCF 16.6 –12.4 –1.9 6.9 2.2 2.3 Balance sheet Cash and near-cash 32.5 15.1 9.5 11.5 16.8 17.1 Net debt 166.2 183.6 190.5 188.5 183.2 182.4 Equity 118.2 118.5 118.8 119.0 119.3 118.8 Total assets 390.3 378.2 379.6 380.0 349.2 375.4 Key ratios FFO/net debt 6.1% 5.9% 5.7% 5.8% 4.2% 5.5% Net debt/EBITDA 7.9x 8.3x 13.6x 9.8x 8.8x 9.7x Net leverage 58.4% 60.8% 61.6% 61.3% 60.6% 60.5% Net debt/GWh (000s) 169 158 183 200 156 173






– – – – –


29.3%

19.5%19.5%

19.5%

9.8%2.5%

Axpo Trading Axpo Power AG BKW CKW EDF Commune de Bagnes

0

300

600

900

1,200

0

2

4

6

8

2011 2012 2013 2014 2015

GWh



23%

10%

19%

48%



0

40

80

120

160

2016-2020 > 2020

CHF m

Loans

156



Kraftwerke Oberhasli – High A, Stable Daniel Rupli Partner plant Bond ticker: KWOBER


Kraftwerk Oberhasli (KWO), located in Innertkirchen in the Canton of Bern, is one of the largest hydroelectric power generators in Switzerland, with a total of nine power stations fed by eight reservoirs. Since 1925, an impressive and complex power plant system has been developed to harness the water of the Grimsel and Susten areas. In 2015, the company delivered 2,266 GWh, which is slightly above the five-year average of 2,195 GWh. The company employs around 530 workers, and the partner plant's concession ends in 2042. KWO is also a key contributor of ancillary services in Switzerland, which makes its generation costs less important. The "TANDEM" project to modernize plants (CHF 305 m, ending 2016) is progressing as planned, and further projects to enlarge storage facilities are under way. The ownership structure is dominated by BKW (50% stake) and public entities. The shareholders are contractually committed to purchasing the energy generated, and covering the related share of annual costs.


Kraftwerke Oberhasli's rating is High A, reflecting the power purchase agreement with its shareholders, combined with the anticipated default probability of its shareholders over the next five years, which we consider to be very low in view of their overall solid creditworthiness. Further, it is supported by the company's position as one of the largest hydroelectric power producers in Switzerland. The outlook is Stable, reflecting the Stable outlook of its shareholders.



Net power generation (GWh) 2,107 2,312 2,255 2,037 2,266 2,195 Generation costs (cents/kWh) 5.71 5.96 5.70 6.84 5.48 5.92 P&L Annual cost to shareholders 120.3 137.8 128.6 139.4 124.2 130.1 EBITDA 47.2 49.4 53.5 66.2 52.6 53.8 EBIT 20.1 20.8 23.2 22.1 20.9 21.4 Cash flow FFO 33.8 35.6 37.4 50.8 38.6 39.2 CAPEX –64.7 –79.5 –112.7 –102.5 –90.2 –89.9 FCF –22.7 –45.2 –76.6 –64.8 -43.0 -50.5 Balance sheet Cash and near-cash 75.2 79.9 103.2 72.2 40.2 74.1 Net debt 438.3 483.5 610.1 641.0 673.0 569.2 Equity 151.4 158.5 165.5 172.6 179.7 165.5 Total assets 697.3 751.5 914.9 910.6 917.3 838.3 Key ratios FFO/net debt 7.7% 7.4% 6.1% 7.9% 5.7% 7.0% Net debt/EBITDA 9.3x 9.8x 11.4x 9.7x 12.8x 10.6x Net leverage 74.3% 75.3% 78.7% 78.8% 78.9% 77.2% Net debt/GWh (000s) 208 209 271 315 297 260






KWOBER High A, Stable 2.750 04/04/2017 130

KWOBER High A, Stable 1.875 21/02/2025 150


50.0%

16.7%

16.7%

16.7%

BKW IWB, Industrielle Werke Basel Energie Wasser Bern City of Zurich

0

750

1,500

2,250

3,000

0

2

4

6

8

2011 2012 2013 2014 2015

GWh



50%

20%

12%

18%



0

125

250

375

500

2016 2017-2020 >2021

CHF m

Financial debt

157

Kraftwerke Sarganserland – Mid A, Negative Daniel Rupli Partner plant Bond ticker: n.a.


Kraftwerke Sarganserland AG, domiciled in Pfäfers in the Canton of St. Gallen, is a hydroelectric pump power generation plant under the management of Axpo Power AG. Owing to its readily available and large installed capacity of 370 MW, the power plant is used to generate consumer-adjusted peak energy. With power generation of 424 GWh in 2015 and a five-year average of 426 GWh, it belongs to the mid-sized hydroelectric power generators in Switzerland. To run its business, which centers on the Gigerwald storage lake with a storage capacity of about 33 million cubic meters, the company employs a workforce of 28 people. The company's ownership structure is dominated by the Axpo Group, which holds a 98.5% stake. The other 1.5% share is owned by the Canton of St. Gallen. The shareholders are contractually committed to purchasing the energy generated, and covering the related share of annual costs. The partner plant's concession period ends in 2057.


We have assigned a Mid A rating to Kraftwerke Sarganserland, reflecting the power purchase agreement with its shareholders, combined with the anticipated default probability of its shareholders over the next five years, which we consider to be very low in view of their overall solid creditworthiness. While the rating is constrained by the rather small size of the company, it is supported by the low average generation costs compared to peers. The outlook is Negative, reflecting the credit quality of its key shareholder Axpo.



Net power generation (GWh) 386 490 438 392 424 426 Generation costs (cents/kWh) 6.00 4.91 4.57 5.39 5.19 5.19 P&L Annual cost to shareholders 23.2 24.1 20.0 21.1 22.0 22.1 EBITDA 3.4 4.0 1.4 2.9 5.3 3.4 EBIT 1.4 1.9 –0.8 0.7 1.6 1.0 Cash flow FFO 2.6 3.3 3.4 3.4 4.0 3.3 CAPEX –3.6 –11.8 –21.0 –33.3 –21.7 –18.3 FCF –5.9 –6.4 –7.5 –32.5 –20.4 –14.5 Balance sheet Cash and near-cash 0.0 0.9 0.9 3.2 0.0 1.0 Net debt 18.0 23.1 37.1 65.8 98.0 48.4 Equity 61.5 61.3 61.3 61.3 60.8 61.2 Total assets 83.2 91.4 115.8 145.2 170.3 121.2 Key ratios FFO/net debt 14.2% 14.2% 9.1% 5.1% 4.1% 9.4% Net debt/EBITDA 5.4x 5.8x 26.2x 22.9x 18.6x 15.8x Net leverage 22.6% 27.4% 37.7% 51.8% 61.7% 40.3% Net debt/GWh (000s) 47 47 85 168 231 116






– – – – –


98.5%

1.5%

Axpo Canton of St. Gallen

0

150

300

450

600

0

2

4

6

8

2011 2012 2013 2014 2015

GWh



52%

16%

6%

26%

0%

Operational costs Depreciation, amortizationNet financial expense & net profit Levies & income taxesOther expenditures

0

15

30

45

60

2016-20120 >2020

CHF m

Loans

158



Maggia Kraftwerke – Mid A, Negative Daniel Rupli Partner plant Bond ticker: MAGGKW


Maggia Kraftwerke (Ofima), founded in 1949, is a hydroelectric partner plant located in the Canton of Ticino. It uses the water power of the Maggia and its feeding rivers, and is one of the larger Swiss hydroelectric power generators, with a total of six power plants. The company has an installed capacity of 600 MW, and generated 1,533 GWh in 2015, which is above the five-year average of approximately 1,404 GWh per year. Its generation costs are relatively low compared to its peers. Since 2003, the company has been certified as a producer of electricity from renewable energy sources. The company's ownership structure is dominated by the large Swiss electrical utilities and public entities, with Axpo as the key shareholder with a 30% stake. The shareholders are contractually committed to purchasing the energy generated, and covering the related costs. The concession periods end in 2035 and 2048.


We have assigned a Mid A rating to Maggia Kraftwerke, reflecting the power purchase agreement with its shareholders, combined with the anticipated default probability of the shareholders over the next five years, which we regard as low in view of their overall solid creditworthiness. The rating is held back by that of Alpiq, and the outlook is Negative, given the Negative outlook of Alpiq and Axpo.



Net power generation (GWh) 1,277 1,367 1,347 1,496 1,533 1,404 Generation costs (cents/kWh) 5.64 5.12 4.56 4.67 4.22 4.82 P&L Annual cost to shareholders 72.0 70.0 61.5 69.8 64.6 67.6 EBITDA 29.7 31.6 32.7 33.7 28.0 31.1 EBIT 16.5 16.2 7.1 16.6 12.5 13.8 Cash flow FFO 13.2 15.2 16.7 19.5 19.1 16.7 CAPEX −39.7 −38.1 −35.0 −20.8 −17.7 −30.2 FCF –35.0 –25.4 –18.0 4.3 4.3 –13.9 Balance sheet Cash and near-cash 7.2 5.9 15.6 6.1 7.1 8.4 Net debt 252.8 284.1 294.4 293.9 292.9 283.6 Equity 120.3 120.2 120.4 120.6 120.6 120.4 Total assets 414.6 436.7 457.4 448.1 451.0 441.6 Key ratios FFO/net debt 5.2% 5.3% 5.7% 6.6% 6.5% 5.9% Net debt/EBITDA 8.5x 9.0x 9.0x 8.7x 10.5x 9.1x Net leverage 67.8% 70.3% 71.0% 70.9% 70.8% 70.1% Net debt/GWh (000s) 198 208 219 196 191 202






– – – – –


20.0%

30.0%

12.5%

12.5%

10.0%

10.0%

5.0%

Canton of Ticino Axpo Industr. Werke BaselAlpiq City of Zürich BKWEnergie Wasser Bern

0

500

1,000

1,500

2,000

0

2

4

6

8

2011 2012 2013 2014 2015

GWh



35%

19%13%

33%



0

50

100

150

200

2016 2017-2020 >2020

CHF m

Financial liabiliites

159



Nant de Drance – Low A, Negative Daniel Rupli Partner plant Bond ticker: NANTDR


Nant de Drance SA, located in the Canton of Valais, is planning to start operations in 2018, when it will become one of Switzerland's largest pump-storage power plants. Situated in an underground cavern between the Emosson (1,930 meters above sea level) and Vieux Emosson (2,225 meters above sea level) reservoirs, the power station is designed to generate electricity for peak consumption, and to balance the intermittent production of electricity from renewable energies. The power plant will have a pump turbine capacity of 900 MW, and will generate around 2,500 GWh of energy per year. At end-2015, the project was on track with around 70% of the construction completed. The company's shareholders are Alpiq (39%), Swiss Federal Railways (SBB, 36%), Industrielle Werke Basel (IWB, 15%) and Forces Motrices Valaisanne (FMV, 10%). The shareholders are contractually committed to purchasing the energy generated, and covering the related share of annual costs.


We have assigned a Low A rating to Nant de Drance, reflecting the power purchase agreement with its shareholders, combined with the anticipated default probability of its shareholders over the next five years, which we consider to be low in view of their overall solid creditworthiness. The rating is somewhat constrained by that of Alpiq, one of its main shareholders, which has the weakest stand-alone credit rating of its peers. The outlook is Negative, given the downward pressure on the rating of its main shareholder Alpiq.

Power plant still under construction



Net power generation (GWh) n.a. n.a. n.a. n.a. n.a. n.a. Generation costs (cents/kWh) n.a. n.a. n.a. n.a. n.a. n.a. P&L Annual cost to shareholders n.a. 0.0 2.3 2.9 2.4 1.9 EBITDA n.a. −0.9 −2.0 −4.0 −2.6 −2.4 EBIT n.a. −0.9 −2.0 −4.0 −2.6 −2.4 Cash flow FFO n.a. −8.2 −3.0 −3.8 −1.9 −4.3 CAPEX n.a. −161.8 −284.4 −243.4 −180.2 −217.4 FCF n.a. −175.8 −286.4 −247.6 −183.1 −223.2 Balance sheet Cash and near-cash n.a. 25.7 18.5 114.7 34.5 48.3 Net debt n.a. 427.9 725.1 835.3 1,065.5 763.5 Equity n.a. 145.0 143.0 288.7 285.8 215.6 Total assets n.a. 642.4 913.0 1,269.6 1,420.7 1,061.4 Key ratios FFO/net debt n.a. −1.9% −0.4% −0.5% −0.2% −0.7% Net debt/EBITDA n.a. n.m. n.m. n.m. n.m. n.m. Net leverage n.a. 74.7% 83.5% 74.3% 78.8% 77.8% Net debt/GWh (000s) n.a. n.a. n.a. n.a. n.a. n.a.






NANTDR Low A, Neg 1.500 15/02/2021 250

NANTDR Low A, Neg 1.750 18/07/2024 300

NANTDR Low A, Neg 2.000 02/02/2026 240

NANTDR Low A, Neg 2.375 15/02/2028 300 Source: Company data, Credit Suisse

39%

36%

15%

10%

Alpiq AG SBB IWB Industrielle Werke Basel FMV SA

43%

44%

13%

Operational costs Net financial expense & net profit Levies & income taxes

0

300

600

900

1,200

2016 2017 2018 2019 2020 > 2020

CHF m

Bonds and private placements

160



Our rating model for Swiss cantons is shown in Figure 1. We distinguish between the quantitative factors to assess the current financial stability and flexibility of a canton and the qualitative factors that give an indication of the medium- to long-term trend of the cantonal finances and assess a canton's ability to meet future debt-servicing obligations and generate additional taxable income. The individual factors considered and their weightings are described below. The financial assessment is based on information provided by the cantonal finances, contingent liabilities and to some extent the CS long-term dynamic indicator. The qualitative assessment uses the CS locational quality indicator, which is an index compiled by economists at the Credit Suisse Economic Research unit. It allows us to draw conclusions about the long-term growth potential of individual cantons. The resource index provides an indication of a canton's ability to generate additional taxable income in the future. These qualitative factors are key elements in the assessment of a canton's credit quality. The five main elements result in a CS rating score, which is the basis for the final rating assignment.

Quantitative factors: Business profile Locational quality index: The Credit Suisse Locational Quality Index (LQI) is compiled by economists at the Credit Suisse Economic Research unit. The LQI is a relative index in which Switzerland has been assigned a zero value. A positive value indicates that a canton offers better locational quality than the Swiss average, while a negative value suggests below-average locational quality. This indicator allows us to draw conclusions about the long-term growth potential of the individual cantons. It is calculated on the basis of the following locational quality factors: 1) personal corporate tax rates; 2) corporate tax rates; 3) transportational accessibility; 4) the level of education; and 5) the availability of highly skilled labor.

Resources index: The data considered thus far, i.e. figures from the Committee for Cantonal Financial Questions (FkF), long-term dynamic indicator, reflect the cantons’ current financial state, taking into account existing revenue, spending structures and debt levels. We also consider a canton’s potentially exploitable resources to evaluate its ability to meet its financial obligations. A canton’s entire resource potential would first have to be depleted before its debt-servicing ability would definitely be in doubt.

To determine the resource potential, we consult the resources index compiled for the redesign of the financial equalization system and the division of duties between the federal and cantonal governments. The index comprises the taxable income and assets of natural persons as well as reported profits from legal entities. It thus indicates a canton’s potential tax revenue base regardless of the actual level of taxation. The basic idea behind this concept is that a canton’s entire tax revenue potential stems from these three sources. The calculation of the index score takes into consideration that the tapping of taxable resources is limited by legal, economic and social constraints.

The most recent data on resource potential is taken from the 2013 resources index, which is entirely based on data compiled by the cantons. Cantons with an index score above 100 are considered to be resource-rich and those with a score below 100 are classified as resource-poor.

Weighting of individual factors In order to compare individual cantons, we index key data and factors to 100. We assign different weightings to the five factors – “cantonal finances,” “cantonal banks,” “dynamic long-term indicator,” “locational quality” and “resources index” in order to underscore their differences (see Table 1).

Credit Suisse rating methodology – Swiss cantons

Figure 1 Rating model for Swiss cantons


Cantonal banks

• Capital adequacy ratio• Customer loan coverage ratio• Impaired loan ratio• Loan loss provision ratio• Unsecured loan ratio• Cost/income ratio• Return on equity• Net interest margin• Debt cantonal revenue ratio

Pension funds

• Underfunded pension liabilities• Coverage ratio Other

Cantonal finances

• Budget balances to revenue ratio• Interest coverage ratio• Debt to cantonal GDP ratio• Self-financing ratio• Cumulative budget deficit/surplus

Resources index

• Future tax revenue potential• Canton’s financial capacity

Dynamic long-term indicator

• Future financial situation based on debt ratios

• Forecast of primary operating balance

• Debt service coverage ratio

Locational quality indicator

• Overview of the economic condition• Long-term growth potential of

regional added value• Compiled through factors such as

personal and corporate tax rates, transportational accessibility, the population’s level of education, and the availability of highly skilled labor.

Contingent liabilities

• Future tax revenue potential• Canton’s financial capacity

Credit Suisse Rating Score

Quantitative – ‘Financial Profile’ Qualitative – ‘Business Profile’

161



The greatest weighting is assigned to cantonal finances (including the CS long-term dynamic indicator) since these reflect the current financial state of each canton. We also stress the resources index since we believe it is a very good reflection of a canton’s revenue potential, and because this index is likely to be prone to only minor fluctuations. The dynamic long-term indicator is a tool for evaluating the cantons’ future financial situation and is based on a number of assumptions, which is why we do not assign a similarly strong weighting to it. Finally, there are the cantonal banks, which represent contingent liabilities. It is difficult to estimate whether and to what extent these liabilities could lead to actual expenses for the corresponding cantons. However, history has shown that it can indeed be very costly for a canton if its cantonal bank runs into financial trouble.

Quantitative factors: Financial profile Accounting standards: The cantons have been using a harmonized accounting model (HRM) for years. The harmonized calculation methods distinguish between administrative assets and financial assets. According to the public finance accounting handbook published by the Conference of Cantonal Finance Ministers (FDK), revenue-producing assets in public ownership are the realizable assets of a community, i.e. those that are administered by public officials in accordance with commercial principles. Reliability is the decisive criterion. Assets can be considered realizable (financial assets) if they can be liquidated without violating specific legal (public-law) obligations. Administrative assets, in contrast, are defined as the sum of all assets that are earmarked for the fulfillment of public-sector duties. They are thus characterized by a permanent dedication to a purpose established by the public sector. Administrative assets are all those assets that relate to the provision of public services and that have a useful life extending over several fiscal years. Over the next few years, many cantons will switch from HRM1 to HRM2 (comparable to international IPSAS standards), which will result in different balance sheets given the true and fair value approach of HRM2. Wherever the cantons have provided HRM2 data, we have included the latest financial measures accordingly.

The administrative account captures the conversion of financial assets into administrative assets, i.e. the appropriation of funds for the fulfillment of public obligations. Hence, the administrative account contains all revenues and expenditures that relate to the discharge of public duties. The administrative account consists of an operating account and an investment account. The operating account is similar to the income statement reported in the corporate sector. The investment account deviates from standard commercial accounting practices in that capital spending is not immediately recognized in the balance sheet (as administrative assets). Instead, such spending is initially stated separately and, at a later stage, revenues and expenditures in the investment account are recognized as assets or liabilities and thus carried over to the balance sheet. The investment account has three tiers. Net investment spending leads to an increase

in administrative assets, while a public entity’s debt rises or falls depending on its borrowing needs. According to the harmonized accounting model, the investment account thus contains all revenues and expenditures that lead to a change in administrative assets.

Applied metrics The quantitative factors are largely based on data gathered by the FkF. These are based on the accounts rendered by the cantons and are statistically adjusted in some cases to improve comparability. We also obtain the data on cantonal debt and balance-sheet surpluses or – as the case may be – deficits from the FkF. We apply the metrics listed in Table 2, which are similar to those used by rating agencies.

A balance-sheet deficit occurs when a canton’s assets are insufficient to cover its liabilities. It is reported under assets in a canton’s statement of financial position (balance sheet). The balance-sheet deficit by and large corresponds to the cumulative bottom-line results of the operating accounts (income statement) for previous periods. A private enterprise with a balance-sheet deficit would be over-indebted and would – depending on the jurisdiction – have to file for bankruptcy. Gross debt (total liabilities less special financing and provisions) could be higher than the balance-sheet deficit; the difference would stem from the fact that some of the borrowed capital will have been invested in financial assets (cash and cash equivalents, deposit accounts and investments) and in administrative assets (capital assets, loans and shareholdings).

Weighting The weighting of the individual metrics is also shown in Table 2. We have assigned a greater weighting to the average values of the 2005–14 period if the corresponding ratios fluctuate significantly from one year to the next. For metrics that represent multi-year trends (interest payable, debt, balance-sheet surplus/deficit), we assign a greater weighting to most recently reported data. As for the self-financing ratio, which can fluctuate very sharply from year to year, we use only the average value for the 2005–14 period.

We assign a high weighting to the debt/cantonal GDP ratio as it generally takes cantons much longer to repay debt than, for instance, corporates. This also explains the 20% weighting of the interest payable/total revenue ratio, which expresses how much total revenue must be channeled into debt servicing. The budget balance/total revenue ratio and the self-financing ratio reveal whether a canton generates funding surpluses and whether it can fund its capital

Table 1: Weighting of factors in the model Factor Weighting

Cantonal finances 0.30 except for SO and AR (0.40*)

Cantonal banks 0.10 except for SO and AR (0.00*)

CS long-term dynamic indicator 0.10

CS locational quality index 0.15

Resources index 0.35

* Solothurn (SO) and Appenzell A.-Rh. (AR) no longer have cantonal banks Source: Credit Suisse

Table 2: Key credit metrics for cantons Metric Description Weighting of years Weighting in

FkF & FFA data Budget balance/total revenue Financing balance as % of total revenue. Ø 2006–2015: 0.7

2015: 0.2 2016B: 0.1

0.15

Interest payable/total revenue Interest expense stated in operating account as % of total revenue. Ø 2006-2015: 0.2 2015: 0.7

2016B: 0.1

0.20

Debt/cantonal GDP Gross debt (based on Credit Suisse estimates) as % of nominal cantonal GDP (based on Credit Suisse estimates); corresponds to cantonal debt ratio.

2015: 0.8 2016B: 0.2

0.30

Adjusted debt/cantonal GDP Gross debt (incl. funding shortfalls in cantonal pension plans, other contingent liabilities) as % of nominal cantonal GDP (based on Credit Suisse estimates).

2015: 0.8 2016B: 0.2

0.10

Self-financing ratio Ratio of self-financing to net capital investment. Ø 2006–2015: 1.0 0.15

Balance sheet surplus or deficit/assets

Balance sheet surplus or deficit (based on Credit Suisse estimates) as % of total assets. Ø 2006–2015: 0.2 2015: 0.8

0.10

Source: Committee for Cantonal Financial Questions (FkF), Federal Finance Administration (FFA) Credit Suisse B = budget

162



investments from own revenue sources. The surplus or deficit position in a canton’s balance sheet allows us to determine whether capital was accumulated or consumed in the past and whether there are any surplus reserves that can be used to cushion future deficits.

Dynamic long-term indicator The dynamic long-term indicator is computed by the Credit Suisse Economic Research unit. This model combines the anticipated future values of primary surpluses, growth in cantonal GDP and interest rates. It also factors in the current ratio of debt to cantonal GDP. The model thus provides an indication of a canton’s future financial capacity to fund investments and/or repay debt. The average primary surplus during the previous economic cycle was used as a guide to estimating imputed primary surpluses up to the year 2014. Since forecasts of primary surpluses have not yielded consistent results so far, we have to resort to average historical values instead. By taking the values for an entire economic cycle into consideration, cyclical effects should be eliminated, leaving, as far as possible, only the structural characteristics of the operating accounts. We calculated the historical primary surplus values based on the actual figures for the period from 2010 to 2014 (budget figures). Projections of cantonal GDP up to 2014 and expected interest rates are also included in the long-term indicator. Forecasts of interest rates are based on the implied interest rates for each canton. Over the forecasting period, these gradually approach the anticipated average for all cantons in 2014. This expected value is extrapolated from Credit Suisse’s yield forecast for 10-year Swiss Confederation bonds, the average yield spread between federal and cantonal bonds, and the observable inertia of the mean value for all cantons. This procedure is based on the assumption that the different interest rates among the cantons will converge toward the mean over time.

Contingent liabilities Contingent liabilities include any potential obligations for the cantons stemming from the backing of cantonal banks, underfunding of cantonal pension plans and others. Other contingent liabilities include those liabilities that in all probability will lead to an outflow of funds for the canton (e.g. the clean-up of waste disposal sites, guarantees in connection with rescue companies for cantonal banks). In accordance with Standard & Poor’s rating methodology, we assign pension fund shortfalls (taking into consideration any fluctuation reserves) to debt. No differentiation is made between pension plans with state guarantees and those without. The adjusted gross debt figure is calculated from the published gross debt, to which we add underfunded pensions liabilities plus other contingent liabilities.

The cantonal banks are the biggest contingent liability for the cantons and the most difficult to quantify. Except for Appenzell-Ausserrhoden (privatization and sale of Appenzell-Ausserrhodische Kantonalbank to Union Bank of Switzerland in 1996) and Solothurn (privatization and sale of Solothurner Kantonalbank to Swiss Bank Corporation in 1994), each canton has its own bank. Most cantons back their cantonal banks with guarantees. Geneva only guarantees a limited sum, and Bern and Vaud no longer provide such guarantees. However, as the past has shown, the cantons could still rescue their cantonal banks when they are in trouble. We therefore include a review of each cantonal bank in the cantonal credit ratings. The relevant model inputs are shown in Table 3. Ideally, we would like to include non-performing loans and the appropriate coverage ratio, but unfortunately only a few cantonal banks disclose this enlightening data. We have therefore resorted to impaired loans as an approximation. The contingent liabilities of the cantonal banks also include irrevocable credit commitments, call liabilities and derivatives transactions (net).

Table 3: Key credit metrics for cantonal banks Metric Description Weighting

Capital adequacy ratio Eligible equity capital in relation to legally required equity capital. 2015 0.20

Customer loan coverage ratio Customer assets (savings and investment accounts, other liabilities due to customers, medium-term notes) % f

Ø 2012–2015: 0.10

Impaired loans/total customer Impaired loans (gross) as % of total customer loans outstanding. Ø 2012–2015: 0.05

Impairments and provisions/total Impairments and loan-loss provisions plus risk reserves as % of total customer loans outstanding. Ø 2012–2015: 0.05

Unsecured loans/total customer Unsecured loans due from customers as % of total customer loans outstanding. Ø 2012–2015: 0.05

Impairment, provisioning and loss Impairment, provisioning and loss expenses as % of operating income. Ø 2012–2015: 0.05

Cost/income ratio Operating expenses (incl. depreciation of fixed assets) as % of operating income. Ø 2012–2015: 0.15

ROE Full-year profit (incl. change in reserves for general banking risks) as % of average shareholders’ equity. Ø 2012–2015: 0.15

Net interest margin Net interest income as % of average customer loans outstanding. Ø 2012–2015: 0.10

Liabilities/cantonal revenue Liabilities (incl. contingent liabilities) as % of the total revenue of the canton. 2015: 0.10


163



Canton of Aargau – High AA, Stable Daniel Rupli Public Sector Bond ticker: ARGOVI

Canton description Locational quality index

The Canton of Aargau has a population of over 650,000 at end-2015 and is one of the larger cantons in Switzerland, generating around CHF 40 bn, or over 6% of Swiss domestic GDP. Unemployment stood at a low 3.3% at end-April 2016. Health care and retail account for the largest share of industry, each generating just above 6% of employment. The size of the Canton of Aargau is 1,404 sq. km. and it has 213 communities, which is a relatively high number, in our view. Population growth has been above the Swiss average over the past ten years, and we expect a similar trend for the next few years. At 51.1%, the canton's home ownership ratio is one of the highest in Switzerland, indicating that real estate has remained affordable despite a relatively solid locational quality index, where the canton ranks sixth in Switzerland. Real estate prices have increased faster than disposable income, but are still at the lower end of Swiss prices, indicating that the canton is still not one of the so-called hot spot areas yet.

Rating rationale Total debt and interest expense

The rating of the Canton of Aargau benefits from its solid operating performance recently. While 2014 was weak due to lower revenues and higher costs related to hospital financings, 2015 was a successful year with excess revenues and a sound self-financing ratio. Last year, indebtedness increased for the first time since years while the current year remained flattish. On average, debt per capital remains at a low level compared to other cantons. Contingent liabilities are rather minimal currently with a pension fund that just has a very small deficit at this stage and a cantonal bank which performed solidly. The canton benefits from its relative proximity and connections to the economic centers of Zurich and Basel. The above-average tax regime, particularly for corporates, supports the locational quality index. The broad sector and export structure should provide sustainability in terms of corporate tax revenues, in our view. The Stable outlook reflects our expectation that the Canton of Aargau will continue its solid trend over time.

Financial ratios (CHF m) 2012 2013 2014 2015 2016B Degree of self-financing / self-financing ratio

Operating account

Total expenditure operating account 4,753.4 4,879.1 4,988.2 5,157.5 5,116.2 Of which: Interest expense 59.2 48.7 37.9 29.7 22.7 Of which: Depreciation of administrative assets 251.0 217.0 142.5 158.6 178.4 Total revenue operating account 4,754.3 4,880.8 4,913.6 5,129.5 5,088.7 Excess expenditure/revenue 0.9 1.7 -74.6 -28.0 -27.5 Primary operating balance 60.1 50.4 -36.8 1.7 -4.7 Investment account Total expenditure investment account 330.6 286.1 217.2 268.9 290.3 Total revenue investment account 92.0 80.8 63.6 105.3 119.2 Net investment 238.7 205.3 153.7 163.6 171.0 Total revenue 4,547.7 4,671.8 4,621.2 4,898.1 4,876.0 Total expenditure 4,528.7 4,662.2 4,808.0 4,974.8 4,987.0 Financing Degree of self-financing 251.9 218.7 -0.9 143.8 89.4 Financing deficit/surplus 13.2 13.4 -154.6 -19.7 -81.6 Self-financing ratio 105.5% 106.5% -0.6% 87.9% 52.3% Balance sheet Total assets 4,111.9 4,028.0 3,372.4 3,361.5 n.a. Gross debt 2,636.0 2,542.2 2,311.0 2,290.8 2,372.41 Equity (+)/balance sheet deficit (–) 958.7 892.2 414.5 353.2 325.71 Key ratios Primary operating balance/Total revenue 1.3% 1.1% -0.8% 0.0% -0.1% Financing balance/Total revenue 0.3% 0.3% -3.3% -0.4% -1.7% Gross debt/Total revenue 58.0% 54.4% 50.0% 46.8% 48.7% Interest expense/Total revenue 1.3% 1.0% 0.8% 0.6% 0.5% Interest expense/Total expenditure 1.3% 1.0% 0.8% 0.6% 0.5% Per capita gross debt (in CHF) 4,202.1 3,996.2 3,583.9 3,505.2 3,577.51

1 Credit Suisse estimates B = Budget HRM2 as of FY2014

Financial ratios based on FkF and Swiss Canton data n.a. = not available

Debt maturity profile end-2015

Source: FkF, Federal Statistical Office, Swiss canton data, Credit Suisse

Fiscal attractiveness for private individuals

Fiscal attractiveness for legal entities

Availability of specalist labor

Availability of well-qualified personnel

Population accessibility

Employee accessibility

Acces to airports

Swiss average

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

0

600

1,200

1,800

2,400

3,000

3,600

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

B

CHF m

Gross debt

Interest expense/total revenues (r.h.s.)

0%

40%

80%

120%

160%

200%

0

70

140

210

280

350

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

B

CHF m

Degree of self-financing Self-financing ratio (r.h.s.)

0

150

300

450

600

750

Year-end2015

2016 2017 2018 2019 2020 2021 > 2021

CHF m

Cash & equivalents Maturity profile financial debt

164



Canton of Appenzell-Ausserrhoden – High AA, Stable Daniel Rupli Public Sector Bond ticker: APPENZ


The Canton of Appenzell-Ausserrhoden has 54,530 inhabitants, with fairly low population growth in recent years, below the Swiss average. The canton generates CHF 3.0 bn, or 0.5% of the country's total GDP. The healthcare sector accounts for more than 10% of total employment, followed by care homes and agriculture. The unemployment rate stood at a very low 1.9% – significantly below the Swiss average. The canton is small in size, but has 20 different municipalities. The home ownership ratio stands at 43.2%, which is above-average. The financial residential attractiveness remains at the higher end. Housing construction activity has been below the Swiss average in recent years, with over 40% of houses built 100 years ago or more. With regard to taxes, we highlight that the canton has more people in the lower income range, and the number of people with income above CHF 75,000 is very low. The canton ranks very high in terms of disposable income, indicating that the cost of living is generally low.


The rating of the Canton of Appenzell-Ausserrhoden benefits from a good locational quality index, which is supported by a high fiscal attractiveness for both private individuals and legal entities. However, the resource index is only average, given the canton's topographical situation. The contributions of the financial equalization system amount to around 10% of total revenues, which reflects a relatively high ratio in our view. Last year, the canton returned to a positive primary operating balance thanks to cost savings and larger revenues (increased taxable income). After weak years, the self-financing ratio came back to solid levels last year. The debt per capita reading is average, while financial debt and interest expenses are very low. Contingent liabilities are virtually zero, as the pension fund is fully financed and the canton is one of only two without a cantonal bank. The long-term dynamic indicator is above-average, reflecting the low financial debt. The outlook is Stable, as we expect the canton to maintain adequate financial ratios.


Operating account

Total expenditure operating account 510.0 456.8 454.9 452.4 451.4 Of which: Interest expense 0.7 0.9 1.2 1.1 1.3 Of which: Depreciation of administrative assets 30.4 24.2 13.0 13.3 14.3 Total revenue operating account 488.1 432.5 444.8 463.5 462.3 Excess expenditure/revenue –21.9 –24.3 –10.1 11.1 10.9 Primary operating balance –21.3 –23.3 –8.9 12.2 12.2 Investment account Total expenditure investment account 137.0 48.8 32.1 33.3 38.9 Total revenue investment account 20.7 14.4 11.9 16.7 11.7 Net investment 116.3 34.4 20.3 16.6 27.2 Total revenue 464.2 408.8 422.9 447.1 439.0 Total expenditure 521.9 443.3 440.3 439.2 441.0 Financing Degree of self-financing 8.4 3.6 –3.6 14.8 13.5 Financing deficit/surplus –107.8 –30.8 –23.9 –1.8 –13.7 Self-financing ratio 7.2% 10.5% –17.7% 89.2% 49.6% Balance sheet Total assets 298.2 308.1 439.0 429.5 n.a. Gross debt 201.2 190.2 224.3 220.5 234.31 Equity (+)/balance sheet deficit (–) 47.8 85.9 180.4 177.3 188.21 Key ratios Primary operating balance/Total revenue –4.6% –5.7% –2.1% 2.7% 2.8% Financing balance/Total revenue –23.2% –7.5% –5.6% –0.4% –3.1% Gross debt/Total revenue 43.3% 46.5% 53.0% 49.3% 53.4% Interest expense/Total revenue 0.1% 0.2% 0.3% 0.2% 0.3% Interest expense/Total expenditure 0.1% 0.2% 0.3% 0.2% 0.3% Per capita gross debt (in CHF) 3,767.9 3,542.8 4,148.9 4,044.4 4,280.31











Acces to airports

Swiss average

0.0%

0.4%

0.8%

1.2%

1.6%

2.0%

0

50

100

150

200

250

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

B

CHF m

Gross debt


-40%

0%

40%

80%

120%

160%

-15

0

15

30

45

60

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

B

CHF m


0

25

50

75

100

125

Year-end

2015

2015 2016 2017 2018 2019 2020 > 2019 n.a.

CHF m


165



Canton of Appenzell-Innerrhoden – High AA, Stable Daniel Rupli Public Sector Bond ticker: n.a.


The Canton of Appenzell-Innerrhoden has a population just below 16,000, making it the smallest canton in the country. While the number of inhabitants has increased steadily over the years, the growth rate has remained below-average. The canton generates CHF 0.9 bn, or only 0.1% of the national GDP. We highlight that the average GDP per employee is slightly below the Swiss average, and that the unemployment rate of 1.1% is among the lowest in Switzerland. At 57.5%, the home ownership rate is one of the highest in Switzerland. Over the past five years, house prices have increased sharply above the Swiss average, but the price-to-income ratio remains favorable compared to other cantons. Disposable income is above-average. The canton is dominated by the agricultural industry, which employs more than 10% of workers, followed by the construction, retailing and hotel industries. The migration trend indicates that a good number of foreigners have moved to the canton, which is the main growth driver, in our view.


The rating of the Canton of Appenzell-Innerrhoden is supported by its sound financials and consistently solid operating performance. Last year was solid, with lower costs and stable revenues that resulted in a positive degree of self-financing and another year with a ratio of above 100%. Indebtedness remained low, with financial gross debt being low. When taking just financial debt into account, the canton presented a net cash position at end-2015. The locational quality index benefits from the attractiveness for private individuals and legal entities in terms of taxes. In contrast, the accessibility to Swiss airports and for the population and employees reads below the Swiss average. Appenzell-Innerrhoden is also a receiver canton in the financial equalization system due to its topography. The cantonal pension fund is fully covered and does not impact the adjusted debt measures. The performance of the cantonal bank was also solid over the past year, which limits the contingent liabilities. The outlook is Stable.


Operating account

Total expenditure operating account 148.0 149.3 158.1 152.4 148.0 Of which: Interest expense 0.0 0.0 0.0 0.0 0.0 Of which: Depreciation of administrative assets 4.9 5.3 11.2 1.4 3.8 Total revenue operating account 148.3 149.8 158.8 157.1 146.1 Excess expenditure/revenue 0.3 0.4 0.7 4.7 -2.0 Primary operating balance 0.3 0.5 0.7 4.7 -2.0 Investment account Total expenditure investment account 10.6 9.7 15.7 13.3 21.0 Total revenue investment account 1.6 1.4 13.4 3.2 2.2 Net investment 8.9 8.3 2.2 10.2 18.8 Total revenue 141.7 142.8 152.9 152.0 139.2 Total expenditure 143.3 145.1 151.4 150.7 156.8 Financing Degree of self-financing 5.2 5.8 11.9 13.7 1.2 Financing deficit surplus -3.7 -2.6 9.7 3.5 -17.6 Self-financing ratio 58.5% 69.3% 534.1% 134.9% 6.3% Balance sheet Total assets 132.5 140.4 133.8 186.5 n.a. Gross debt 40.2 44.0 57.1 58.5 76.11 Equity (+)/balance sheet deficit (–) 51.3 51.8 52.5 122.4 120.41 Key ratios Primary operating balance/Total revenue 0.2% 0.3% 0.5% 3.1% -1.4% Financing balance/Total revenue -2.6% -1.8% 6.3% 2.3% -12.6% Gross debt/Total revenue 28.4% 30.8% 37.3% 38.5% 54.7% Interest expense/Total revenue 0.0% 0.0% 0.0% 0.0% 0.0% Interest expense/Total expenditure 0.0% 0.0% 0.0% 0.0% 0.0% Per capita gross debt (in CHF) 2,559.4 2,791.3 3,600.5 3,662.5 4,745.41











Acces to airports

Swiss average

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

0

15

30

45

60

75

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

B

CHF m

Gross debt


0%

100%

200%

300%

400%

500%

0

5

10

15

20

25

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

B

CHF m


0

15

30

45

60

75

Year-end

2015

2016 2017 2018 2019 2020 2021 > 2021 n.a.

CHF m


166



Canton of Basel-Land – Mid AA, Stable Daniel Rupli Public Sector Bond ticker: KTBL


The Canton of Basel-Land is split into 86 municipalities with a population of around 285,000. It measures a total area of 51,755 hectares. The canton generated CHF 18.7 bn of GDP (roughly 3% of Switzerland), which results in an above-average GDP per capita employed. Although the unemployment rate increased to 3.0%, it remained below Swiss-wide levels. The home ownership ratio of 43.0% is slightly above the Swiss average. The canton has no significant exposure to a single industry, but wholesale trading accounts for more than 8%, followed by healthcare (roughly 7%). In some areas of the canton, particularly those that are close to the city, house prices have increased significantly, resulting in signs of an overheating (as measured by the price-to-income trend). The canton benefits from a high share of wealthy people (more than 40%) who earn more than CHF 75,000 per annum. This ranks above the Swiss average.


The rating of the Canton of Basel-Land benefits from the solid resource index that reads almost 100, indicating that the canton only receives a small portion in the financial equalization system but will have the ability to generate additional taxable income in the future. The locational quality ranks slightly above-average thanks to its accessibility to airports, population and employees. In contrast, the fiscal attractiveness weighs somewhat on the canton's locational quality. The financial profile has weakened strongly over the past year, due to a combination of rising costs and a flat revenue trend. Furthermore, Basel-Land recapitalized its pension fund in 2014, causing substantially higher indebtedness and a weak self-financing ratio. That said, excluding this one-off, the self-financing ratio would still have remained below 100%. In the future, higher interest expenses and continued pressure on costs will weigh on key metrics. Debt per capita has increased to among the highest in Switzerland. The outlook is Stable now.

Financial ratios (CHF m) 2012 2013 2014 2015 2016B Degree of self-financing/self-financing ratio

Operating account

Total expenditure operating account 2,582.3 2,516.9 4,066.0 2,623.4 2,614.6 Of which: Interest expense 29.6 29.0 29.1 47.2 43.0 Of which: Depreciation of administrative assets 59.9 69.5 75.7 68.0 63.4 Total revenue operating account 2,550.1 2,512.6 2,895.7 2,597.4 2,573.6 Excess expenditure/revenue –32.3 –4.2 –1,170.3 –26.0 –41.1 Primary operating balance –2.7 24.8 –1,141.2 21.3 1.9 Investment account Total expenditure investment account 190.1 300.0 217.2 193.0 232.5 Total revenue investment account 75.1 82.6 36.7 44.5 37.4 Net investment 114.9 217.4 180.6 148.5 195.1 Total revenue 2,623.4 2,593.2 2,932.2 2,641.7 2,610.8 Total expenditure 2,688.8 2,724.2 4,207.3 2,726.1 2,761.2 Financing Degree of self-financing –49.2 –17.3 –1,086.0 49.5 39.2 Financing deficit/surplus –164.1 –234.7 –1,266.6 –99.0 –156.0 Self-financing ratio –42.8% –8.0% –601.5% 33.3% 20.1% Balance sheet Total assets 3,186.6 3,759.8 3,945.7 4,031.2 n.a. Gross debt 2,148.7 2,462.4 3,576.4 4,199.2 4,355.21 Equity (+)/balance sheet deficit (–) 319.5 552.3 –616.6 –595.0 –636.01 Key ratios Primary operating balance/Total revenue –0.1% 1.0% –38.9% 0.8% 0.1% Financing balance/Total revenue –6.3% –9.1% –43.2% –3.7% –6.0% Gross debt/Total revenue 81.9% 95.0% 122.0% 159.0% 166.8% Interest expense/Total revenue 1.1% 1.1% 1.0% 1.8% 1.6% Interest expense/Total expenditure 1.1% 1.1% 0.7% 1.7% 1.6% Per capita gross debt (in CHF) 7,771.1 8,838.2 12,715.4 14,830.1 15,283.61



* FY 2014: CHF -1,086 m, -601.5%









Acces to airports

Swiss average

0.0%

0.7%

1.4%

2.1%

2.8%

3.5%

0

1,000

2,000

3,000

4,000

5,000

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

B

CHF m

Gross debt


-60%

0%

60%

120%

180%

240%

-100

0

100

200

300

400

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

*

2015

2016

B

CHF m


0

600

1,200

1,800

2,400

3,000

Year-end2015

2016 2017 2018 2019 2020 2021 > 2021

CHF m


167



Canton of Basel-Stadt – High AA, Stable Daniel Rupli Public Sector Bond ticker: KTBS


In terms of area, the Canton of Basel-Stadt is the smallest canton in Switzerland, while it had a population of 191,757 at end-2015. The canton generated CHF 31.2 bn in GDP (roughly 5% of the national GDP), resulting in a GDP per employed capita significantly in excess of CHF 200,000. The canton is dominated by the pharmaceutical industry, which employs over 11% of workers, followed by healthcare (>8%). Both sectors are paving the way for further growth, in our view. Given the canton's status as a quasi-city, the financial attractiveness of living is fairly low, and population growth has remained well below the Swiss average in recent years. Every day, three times as many people commute into the canton than out. The average age of the existing buildings is well above the national average, with construction activity over the past 20 years being at the lower end. The average house price has increased slightly faster than the Swiss average, which in our view is due to a shortage of offerings. The price-to-income ratio is relatively high.


The rating of the Canton of Basel-Stadt benefits from its strong financial performance in recent years, with excess revenues over many years. Despite cost pressures, the canton achieved a self-financing ratio that was again above 100%. That said, indebtedness remains high, which is not surprising given the infrastructure intensity of a quasi-city canton. As such, debt per capita ranks among the highest. The resource index reading supports the rating strongly, as it represents the canton's ability to generate tax revenues going forward. In contrast, the canton has to contribute to the financial equalization system, which weighs on costs. The locational quality index reading is the third highest in Switzerland, thanks to accessibility for employees and inhabitants, as well as the availability of specialist and highly-qualified labor. In contrast, the tax attractiveness for both corporates and individuals is below-average. The Stable outlook reflects our view that the Canton of Basel-Stadt will maintain its solid financials and strong locational quality over the cycle.


Operating account

Total expenditure operating account 3,846.8 4,012.2 4,181.3 4,125.8 5,091.9 Of which: Interest expense 58.6 59.9 51.1 38.4 38.5 Of which: Depreciation of administrative assets 124.9 179.5 177.1 180.6 795.6 Total revenue operating account 4,029.8 4,097.6 4,360.6 4,558.3 4,139.6 Excess expenditure/revenue 183.0 85.4 179.3 432.4 -952.3 Primary operating balance 241.6 145.3 230.4 470.8 -913.8 Investment account Total expenditure investment account 623.8 477.4 367.5 597.6 545.5 Total revenue investment account 51.0 229.8 97.2 99.7 15.9 Net investment 572.8 247.6 270.3 497.9 529.6 Total revenue 3,840.8 4,085.6 4,202.4 4,401.8 3,886.5 Total expenditure 4,110.2 4,073.1 4,121.8 4,293.2 4,579.3 Financing Degree of self-financing 307.9 264.9 356.5 613.1 -156.5 Financing deficit/surplus -269.4 17.3 86.1 115.2 -686.1 Self-financing ratio 53.8% 107.0% 131.9% 123.1% -29.5% Balance sheet Total assets 6,690.6 10,538.8 10,947.8 11,266.2 n.a. Gross debt 5,998.4 6,419.9 6,654.2 6,483.6 7,169.61 Equity (+)/balance sheet deficit (–) 1,656.9 3,671.5 3,893.1 4,325.5 3,373.21 Key ratios Primary operating balance/Total revenue 6.3% 3.6% 5.5% 10.7% -23.5% Financing balance/Total revenue -7.0% 0.4% 2.0% 2.6% -17.7% Gross debt/Total revenue 156.2% 157.1% 158.3% 147.3% 184.5% Interest expense/Total revenue 1.5% 1.5% 1.2% 0.9% 1.0% Interest expense/Total expenditure 1.4% 1.5% 1.2% 0.9% 0.8% Per capita gross debt (in CHF) 32,008.5 33,922.1 34,926.6 33,811.4 37,226.51

1 Estimates Credit Suisse B = Budget HRM2 as of FY2013










Acces to airports

Swiss average

0%

2%

4%

6%

8%

10%

0

1,500

3,000

4,500

6,000

7,500

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

B

CHF m

Gross debt


-100%

0%

100%

200%

300%

400%

-200

0

200

400

600

800

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

B

CHF m


0

300

600

900

1,200

1,500

Year-end

2015

2016 2017 2018 2019 2020 2021 > 2021 n.a.

CHF m


168



Canton of Bern – Mid AA, Stable Daniel Rupli Public Sector Bond ticker: BERN


The Canton of Bern is the second largest canton, with a population of over 1,000,000. Bern also has a high number of municipalities (352) spread over 596,000 hectares. The canton generated a GDP of CHF 76.4 bn in 2015, according to the federal statistical office, representing around 12% of the Swiss total. GDP per employed capita ranks above-average. The unemployment rate stood at a low 2.8% at end-April 2016. The canton is characterized by substantial differences between the Swiss capital city of Bern, and some very small peripheral villages and municipalities in the country areas. Across the canton, around 8% of employment comes from the public sector, with a strong concentration in the city of Bern, followed by healthcare (7%). The financial residential attractiveness differs substantially between the city of Bern and the country areas, with disposable income in the city area being much lower. The price-to-income ratio has remained relatively stable across the canton, indicating no overheating in property prices.


The rating of the Canton of Bern benefits from the solid operating performance reflected in excess revenues and a positive primary operating balance. Self-financing ratios have been solidly above 100%, indicating that the canton have been able to fully self-finance its net investments. Further, Bern is one of just a few that guides to fully self-financed net investments in the current budget. However, indebtedness remains elevated, and the balance sheet deficit of CHF 3.5 bn has increased further due to the underfunded pension fund. The resource index is weak, making the canton the largest receiver in the financial equalization system. While this weighs on the business profile, it adds CHF 1.3 bn to the canton's income in 2016. The locational quality is below-average, due to the levels of fiscal attractiveness for both private individuals and legal entities. Contingent liabilities decreased, but the underfunded pensions fund still amounted to CHF 1.5 bn at end-2015. The performance of the cantonal bank was sustainable. The outlook is Stable.


Operating account

Total expenditure operating account 10,555.7 10,245.8 10,065.0 10,739.4 10,555.1 Of which: Interest expense 108.0 107.4 102.8 112.6 115.9 Of which: Depreciation of administrative assets 603.7 574.5 467.5 407.3 440.8 Total revenue operating account 10,360.1 10,402.8 10,276.7 10,909.1 10,774.6 Excess expenditure/revenue -195.6 157.0 211.7 169.7 219.5 Primary operating balance -87.6 264.4 314.4 282.4 335.3 Investment account Total expenditure investment account 1,283.2 1,032.1 939.8 856.5 878.1 Total revenue investment account 677.3 480.8 417.1 376.7 349.4 Net investment 605.9 551.2 522.7 479.9 528.7 Total revenue 10,663.5 10,558.9 10,523.2 10,978.9 10,958.4 Total expenditure 10,991.3 10,462.3 10,348.8 10,673.9 10,815.0 Financing Degree of self-financing 408.1 731.4 679.1 577.0 660.3 Financing deficit/surplus -197.7 180.2 156.4 97.1 131.5 Self-financing ratio 67.4% 132.7% 129.9% 120.2% 124.9% Balance sheet Total assets 8,438.6 8,231.8 8,080.8 10,065.3 n.a. Gross debt 7,146.0 6,965.9 6,854.8 7,404.0 6,457.2 Equity (+)/balance sheet deficit (–) -1,960.9 -1,840.2 -1,654.2 -3,540.9 -1,310.4 Key ratios Primary operating balance/Total revenue -0.8% 2.5% 3.0% 2.6% 3.1% Financing balance/Total revenue -1.9% 1.7% 1.5% 0.9% 1.2% Gross debt/Total revenue 67.0% 66.0% 65.1% 67.4% 58.9% Interest expense/Total revenue 1.0% 1.0% 1.0% 1.0% 1.1% Interest expense/Total expenditure 1.0% 1.0% 1.0% 1.1% 1.1% Per capita gross debt (in CHF) 7,200.7 6,959.5 6,792.3 7,278.9 6,298.3

B = Budget HRM1










Acces to airports

Swiss average

0.0%

0.8%

1.6%

2.4%

3.2%

4.0%

0

2,000

4,000

6,000

8,000

10,000

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

B

CHF m

Gross debt


0%

50%

100%

150%

200%

250%

0

160

320

480

640

800

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

B

CHF m


0

600

1,200

1,800

2,400

3,000

Year-end

2015

2016 2017 2018 2019 2020 2021 > 2021 n.a.

CHF m


169



Canton of Fribourg – High AA, Stable Daniel Rupli Public Sector Bond ticker: FRIBRG


The Canton of Fribourg encompasses 163 municipalities spread over an area of 159,116 hectares. At end-2015, the canton counted 307,409 residents, making it the tenth largest in Switzerland. The population grew consistently above the national average, and this is expected to continue. The canton's GDP amounted to CHF 17.0 bn, with GDP per capita coming in below the Swiss average due to the absence of larger cities. The unemployment rate stood at 3.0%, and was slightly below the Swiss average at end-April 2015. No single industry sector has a large employment concentration. The age of houses built over the past 30 years is well above the national average, which underpins the population growth rate. There is a good share of construction zone reserves for residential housing, which would pave the way for further growth. The rise in the price-to-income ratio indicates that the relative attractiveness of real estate has weakened, and financial attractiveness has deteriorated, in particular towards the City of Fribourg.


The rating of the Canton of Fribourg is supported by its strong financial performance over recent years. Last year was another in which the canton presented excess revenues despite increasing costs. The degree of self-financing was sound, resulting in a strong self-financing ratio of 180% despite higher net investments. Fribourg has a net cash position and no financial debt outstanding at end-2015. As such, the long-term dynamic indicator reading remains sound. The resource index remains weak, making the canton a receiver in the financial equalization system which adds revenues to the operating account but weighs on the resource potential of the canton in the long run. Contingent liabilities remain high, with an underfunded pension fund of CHF 1.3 bn and a low coverage ratio of only 74.1%, which could substantially weaken Fribourg's financial flexibility in the event of refinancing. The performance of the cantonal banks was sound last year. The outlook is Stable as we expect a continued solid financial performance in 2016.


Operating account

Total expenditure operating account 3,136.0 3,187.6 3,247.3 3,374.7 3,324.7 Of which: Interest expense 16.3 14.0 4.2 3.9 3.8 Of which: Depreciation of administrative assets 61.0 64.4 72.6 78.5 75.1 Total revenue operating account 3,146.6 3,186.7 3,247.6 3,398.7 3,325.3 Excess expenditure/revenue 10.6 -0.9 0.2 24.0 0.5 Primary operating balance 26.8 13.1 4.4 27.9 4.3 Investment account Total expenditure investment account 178.3 187.6 175.3 164.4 164.5 Total revenue investment account 67.8 45.5 57.9 37.6 34.9 Net investment 110.6 142.1 117.4 126.7 129.7 Total revenue 3,138.5 3,178.6 3,276.8 3,406.9 3,331.7 Total expenditure 3,167.5 3,244.1 3,321.3 3,431.1 3,385.7 Financing Degree of self-financing 114.1 117.8 94.3 227.9 56.1 Financing deficit/surplus 3.5 –24.3 –23.2 101.2 –73.6 Self-financing ratio 103.2% 82.9% 80.3% 179.9% 43.2% Balance sheet Total assets 3,011.7 2,624.0 2,671.2 3,047.9 n.a. Gross debt 887.2 548.3 601.2 904.0 977.61 Equity (+)/balance sheet deficit (–) 1,538.2 1,552.2 1,548.1 1,568.8 1,569.31 Key ratios Primary operating balance/Total revenue 0.9% 0.4% 0.1% 0.8% 0.1% Financing balance/Total revenue 0.1% –0.8% –0.7% 3.0% –2.2% Gross debt/Total revenue 28.3% 17.2% 18.3% 26.5% 29.3% Interest expense/Total revenue 0.5% 0.4% 0.1% 0.1% 0.1% Interest expense/Total expenditure 0.5% 0.4% 0.1% 0.1% 0.1% Per capita gross debt (in CHF) 3,045.6 1,842.8 1,981.8 2,940.6 3,118.91

1 Credit Suisse estimates B = Budget HRM2 as of FY 2012










Acces to airports

Swiss average

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

0

300

600

900

1,200

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CHF m

Gross debt


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2015

2016 2017 2018 2019 2020 2021 > 2021 n.a.

CHF m

Cash & equivalents Bonds & loans

170



Canton of Geneva – Low AA, Stable Daniel Rupli Public Sector Bond ticker: GENEVA


The Canton of Geneva consists of 45 municipalities with 477,321 residents, representing 5.8% of Switzerland. With an area of only 24,566 hectares, Geneva is one of the smaller cantons. In contrast, with GDP of CHF 47.4 bn, it has the third highest per employed capita reading. The banking sector employs almost 8% of workers, followed by wholesale trading and healthcare. No single industry has a substantial exposure, although the share of the banking sector is substantially above-average. Over the past year, the population has grown slightly above the Swiss average, and the share of people in the higher income classes is markedly above the country's average, indicating higher wealth. In contrast, disposable income is among the lowest in Switzerland, mainly due to a high cost of living. Growth in real estate prices in Geneva has been well above-average, and the price-to-income ratio is one of the highest in Switzerland. The vacancy rate is close to zero, suggesting a high imbalance of supply and demand.


The rating of the Canton of Geneva is supported by the stable and solid operating performance over recent years. The canton was able to present a positive primary operating balance, excess revenues and relatively solid degrees of self-financing, indicating that it is able to self-finance its net investments. Indebtedness remains high, with debt per capita being among the highest in Switzerland, given its nature as a quasi-city canton. There are contingent liabilities, coming mainly from the underfunded pension funds, which could add up to CHF 7.8 bn of financial debt in the event of an immediate full refinancing. The cantonal bank improved its performance and capitalization, but remains among the weaker in Switzerland with a high exposure to a real estate hot spot area. The resource index is among the strongest in the country, indicating its potential to generate additional taxable income in the future. The locational quality is also above-average, which supports the credit quality of Geneva. The outlook is Stable.


Operating account

Total expenditure operating account 9,168.5 8,036.9 8,229.1 8,395.8 7,953.0 Of which: Interest expense 285.8 250.3 250.6 233.6 224.3 Of which: Depreciation of administrative assets 1,408.5 33.6 462.0 477.0 477.0 Total revenue operating account 8,708.8 8,082.0 8,235.3 8,375.0 7,962.4 Excess expenditure/revenue –459.8 45.1 6.3 –20.8 9.4 Primary operating balance –174.0 295.4 256.9 212.8 233.8 Investment account Total expenditure investment account 718.3 666.2 635.5 638.7 794.7 Total revenue investment account 137.9 177.0 79.5 145.3 23.7 Net investment 580.4 489.2 556.0 493.4 771.0 Total revenue 8,833.5 8,241.5 8,301.2 8,506.1 7,970.4 Total expenditure 8,305.0 8,299.2 8,034.2 8,176.2 7,901.8 Financing Degree of self-financing 948.7 484.0 454.9 440.9 450.9 Financing deficit/surplus 368.3 –5.2 –101.1 –52.5 –320.0 Self-financing ratio 163.5% 98.9% 81.8% 89.4% 58.5% Balance sheet Total assets 19,120.9 20,764.2 20,159.6 19,938.3 n.a. Gross debt 14,616.8 17,430.6 16,805.8 16,278.9 16,598.91 Equity (+)/balance sheet deficit (–) 2,754.4 2,718.3 2,621.0 2,675.6 2,685.01 Key ratios Primary operating balance/Total revenue –2.0% 3.6% 3.1% 2.5% 2.9% Financing balance/Total revenue 4.2% –0.1% –1.2% –0.6% –4.0% Gross debt/Total revenue 165.5% 211.5% 202.5% 191.4% 208.3% Interest expense/Total revenue 3.2% 3.0% 3.0% 2.7% 2.8% Interest expense/Total expenditure 3.4% 3.0% 3.1% 2.9% 2.8% Per capita gross debt (in CHF) 31,583.3 37,148.3 35,326.9 33,603.1 33,836.11

1 Credit Suisse estimates B = Budget IPSAS as of FY 2014










Acces to airports

Swiss average

0.0%

1.5%

3.0%

4.5%

6.0%

7.5%

0

5,000

10,000

15,000

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25,000

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B

CHF m

Gross debt


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171



Canton of Glarus – High AA, Stable Daniel Rupli Public Sector Bond ticker: GLARUS


The Canton of Glarus has just three municipalities, following a concentration back in 2011. It had just above 40,000 residents at end-2015, and while population growth has been positive in recent years, it is well below the Swiss average. The canton measures around 68,000 hectares, but less than 3% of this area is populated. Glarus generated a GDP of CHF 2.6 bn, with GDP per employed capita being slightly below-average. The unemployment rate is low, at 2.4% at end-April 2016, with the retailing and building construction industries each employing close to 6% of workers. No industry has substantial exposure, leaving the canton well diversified with regard to employers. The canton has a good amount of construction reserves, resulting in a low price-to-income ratio that offers housing at attractive prices. The property price index has trended below the Swiss average in past years. Living costs are low in Glarus, as reflected in the level of disposable income, which is one of the highest in Switzerland.


The rating of the Canton of Glarus benefits from a sound operating performance recently. The canton was able to present consistently excess revenues and a positive primary operating balance, which underpins the financial discipline of the canton in our view. Self-financing ratios have on average remained solidly above 100% in recent years, indicating that Glarus has been able to fully self-finance its net investments. Financial debt is low, and the canton presented a net cash position at end-2015. Contingent liabilities are low compared to other cantons, as the pensions fund has a coverage ratio above 100%. However, the cantonal bank remains among the weakest, and the canton had to step in back in 2010 to inject new capital. The locational quality index benefits from the fiscal attractiveness for both legal entities and private individuals. The resource index is, however, among the weakest, given its topography which weighs on the business profile. In contrast, it adds revenues to the operating account every year. The outlook is Stable.


Operating account

Total expenditure operating account 328.6 340.9 376.8 349.1 352.1 Of which: Interest expense 2.4 1.6 0.9 0.8 0.7 Of which: Depreciation of administrative assets 8.5 4.2 5.6 5.1 4.9 Total revenue operating account 329.3 342.1 391.4 351.5 339.0 Excess expenditure/revenue 0.7 1.2 14.6 2.4 –13.1 Primary operating balance 3.1 2.8 15.5 3.2 –12.4 Investment account Total expenditure investment account 25.3 29.0 37.4 36.4 31.8 Total revenue investment account 11.7 16.4 15.8 13.5 13.6 Net investment 13.6 12.6 21.5 22.9 18.2 Total revenue 328.5 345.8 396.5 353.9 340.4 Total expenditure 329.6 351.1 397.8 369.4 366.8 Financing Degree of self-financing 20.3 22.4 50.2 19.1 –2.5 Financing deficit/surplus 6.7 9.8 28.6 –3.8 –20.7 Self-financing ratio 149.0% 177.8% 233.0% 83.4% –13.9% Balance sheet Total assets 570.9 564.3 576.5 561.2 n.a. Gross debt 182.2 183.1 158.5 169.6 190.31 Equity (+)/balance sheet deficit (–) 381.8 374.4 411.5 381.1 368.01 Key ratios Primary operating balance/Total revenue 0.9% 0.8% 3.9% 0.9% –3.6% Financing balance/Total revenue 2.0% 2.8% 7.2% –1.1% –6.1% Gross debt/Total revenue 55.5% 52.9% 40.0% 47.9% 55.9% Interest expense/Total revenue 0.7% 0.5% 0.2% 0.2% 0.2% Interest expense/Total expenditure 0.7% 0.5% 0.2% 0.2% 0.2% Per capita gross debt (in CHF) 4,623.6 4,623.6 3,982.1 4,238.1 4,727.71

1 Credit Suisse estimates B = Budget IPSAS as of FY 2014










Acces to airports

Swiss average

0.0%

0.4%

0.8%

1.2%

1.6%

2.0%

0

80

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CHF m

Gross debt


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172



Canton of Graubünden – High AA, Stable Daniel Rupli Public Sector Bond ticker: GRAUBU


The Canton of Graubünden has 114 municipalities, with a total population of almost 200,000 residents. Population growth has been below-average in recent years, with certain areas even recording negative rates. Graubünden is the largest canton in Switzerland, with a total area of 710,515 hectares, representing 17.2% of Switzerland. However, due to its topography, less than 2.0% of the total area is populated. The unemployment rate of only 2.0% in May 2016 is lower than the Swiss average, but varies seasonally given its exposure to tourism. Indeed, tourism is an important pillar of the canton, with more than 15% of people being employed in the hotel and gastro sector. Depending on the area in the canton, this can be substantially higher. Graubünden generates CHF 13.7 bn in GDP. Financial attractiveness of living varies across the canton, with some regions having good disposable income and other areas considered as hot-spots in terms of real estate prices.


The rating of the Canton of Graubünden benefits from strong performance, with self-financing ratios that consistently come in above 100%, indicating that the canton has been able to fully self-finance its net investments. The higher indebtedness resulted from the issuance of a bond last year. In terms of net debt, Graubünden has reported another year with a net cash position, and liquidity as such is sound. The locational quality index is among the lowest in Switzerland given its levels of accessibility to airports, employees and population. Fiscal attractiveness for private individuals and legal entities is slightly above-average. The resource index makes the canton a receiver in the financial equalization system, which weighs on the business profile but adds about roughly 10% to Graubünden's revenues. Contingent liabilities are not a burden given the coverage ratio of the cantonal pension fund being above 100%. The cantonal bank presented another year with above-average metrics among the cantonal banks. The outlook remains Stable.


Operating account

Total expenditure operating account 2,480.9 2,489.1 2,511.1 2,639.2 2,413.8 Of which: Interest expense 5.5 2.4 1.6 0.9 0.4 Of which: Depreciation of administrative assets 164.9 73.8 64.4 82.2 83.1 Total revenue operating account 2,524.6 2,455.5 2,566.3 2,655.9 2,363.0 Excess expenditure/revenue 43.7 –33.5 55.2 16.7 –50.8 Primary operating balance 49.2 –31.1 56.7 17.6 –50.4 Investment account Total expenditure investment account 364.8 373.2 378.9 415.7 400.3 Total revenue investment account 190.2 212.4 250.9 252.4 153.0 Net investment 174.6 160.8 128.0 163.3 247.2 Total revenue 2,453.0 2,493.1 2,663.7 2,754.5 2,331.3 Total expenditure 2,429.3 2,630.4 2,672.2 2,823.4 2,552.1 Financing Degree of self-financing 208.7 105.3 183.4 240.2 105.1 Financing deficit/surplus 34.1 –55.5 55.4 76.9 –142.2 Self-financing ratio 119.5% 65.5% 143.2% 147.1% 42.5% Balance sheet Total assets 2,353.4 3,672.5 3,817.1 3,716.0 n.a. Gross debt 969.8 667.6 751.8 1,062.9 1,205.01 Equity (+) / balance sheet deficit (–) 1,049.9 2,688.9 2,732.4 2324.6 2,275.31 Key ratios Primary operating balance/Total revenue 2.0% –1.2% 2.1% 0.6% –2.2% Financing balance/Total revenue 1.4% –2.2% 2.1% 2.8% –6.1% Gross debt/Total revenue 39.5% 26.8% 28.2% 38.6% 51.7% Interest expense/Total revenue 0.2% 0.1% 0.1% 0.0% 0.0% Interest expense/Total expenditure 0.2% 0.1% 0.1% 0.0% 0.0% Per capita gross debt (in CHF) 5,001.4 3,425.0 3,837.4 5,407.3 6,099.51











Acces to airports

Swiss average

0.0%

0.3%

0.6%

0.9%

1.2%

1.5%

0

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173



Canton of Jura – High A, Stable Daniel Rupli Public Sector Bond ticker: JURA


The Canton of Jura has 72,771 residents in 57 different municipalities, resulting in a relatively large number of very small communities. The canton's GDP totals CHF 4.5 bn, giving it the third-lowest GDP per employed capita in the country. Jura is spread over 83,851 hectares, of which 5.7% is populated. The unemployment rate has increased to 4.6% at end-April 2016, and is above the Swiss average, while population growth has been below the country's average over the past few years. The watch and electronics industries play an important role in the canton, providing well over 15% of the total jobs available. Construction activity has been below the Swiss average in recent years, while the canton still offers a good degree of land reserves for real estate construction. The canton benefits from a high degree of disposable income, and property prices have more or less grown on a par with income. Growth in house prices has been well below the Swiss average in recent years.


The rating is supported by its solid operating performance over recent years, with either small excesses in revenues or expenditures. The self-financing ratios have been solid and above 100% on average over the past few years, which is a sound measure. The balance sheet is relatively solid, with capitalization now adequate, having suffered back in 2013. The current budget predicts excess expenditures and a relatively high financing deficit compared to previous years, where the canton guided more optimistically in our view. The resource index has one of the weakest readings, indicating challenges in collecting additional taxable income in the coming years. In contrast, the canton receives payments from the national financial equalization system. The locational quality index is the weakest in the country, which weighs on the rating. Availability of labor, accessibility and tax attractiveness are all below the national average. The outlook is Stable, as we see the canton well positioned in its rating category.


Operating account

Total expenditure operating account 848.8 873.7 889.7 912.7 913.3 Of which: Interest expense 6.9 4.9 6.5 6.5 7.0 Of which: Depreciation of administrative assets 38.5 37.6 36.7 35.8 35.2 Total revenue operating account 841.7 872.2 890.2 913.7 906.5 Excess expenditure/revenue -7.1 -1.5 0.5 1.0 -6.8 Primary operating balance -0.3 3.4 7.0 7.5 0.2 Investment account Total expenditure investment account 54.4 55.6 53.6 46.0 50.7 Total revenue investment account 16.5 17.8 16.7 11.9 14.8 Net investment 37.8 37.9 36.9 34.0 35.9 Total revenue 853.3 885.1 906.5 925.3 920.9 Total expenditure 855.0 882.6 906.2 922.5 928.4 Financing Degree of self-financing 36.2 30.5 40.3 55.0 18.4 Financing deficit/surplus -1.7 -7.4 3.4 21.0 -17.5 Self-financing ratio 95.6% 80.4% 109.2% 161.6% 51.2% Balance sheet Total assets 702.4 732.4 715.7 730.3 n.a. Gross debt 444.7 477.2 500.5 495.8 513.41 Equity (+) / balance sheet deficit (–) 216.4 166.7 176.5 196.2 189.41 Key ratios Primary operating balance/Total revenue 0.0% 0.4% 0.8% 0.8% 0.0% Financing balance/Total revenue -0.2% -0.8% 0.4% 2.3% -1.9% Gross debt/Total revenue 52.1% 53.9% 55.2% 53.6% 55.7% Interest expense/Total revenue 0.8% 0.6% 0.7% 0.7% 0.8% Interest expense/Total expenditure 0.8% 0.6% 0.7% 0.7% 0.8% Per capita gross debt (in CHF) 6,272.8 6,653.9 6,913.9 6,813.7 7,014.91











Acces to airports

Swiss average

0.0%

0.7%

1.4%

2.1%

2.8%

3.5%

0

150

300

450

600

750

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B

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174



Canton of Lucerne – High AA, Stable Daniel Rupli Public Sector Bond ticker: LUCERN


With almost 400,000 residents at end-2015, the Canton of Lucerne represents almost 5% of Switzerland's population. It is spread over around 150,000 hectares, of which about 10% is populated (which is above the Swiss average). The canton has 83 municipalities generating a total GDP of CHF 24.8 bn. Overall, the canton has a negative commuter balance, despite the relatively large city of Lucerne. The unemployment rate stood at a low 2.2% at end-April 2016, and the canton benefits from good diversification across industries, with retailing and healthcare being the two largest providers of jobs (slightly above 6% each). Population growth has been almost on par with Switzerland in recent years. The canton benefits from relatively high disposable income, although this differs markedly depending on the area. Real estate prices have grown below the Swiss average, with the exception of the city. The price-to-income ratio indicates that property prices in the canton are not overheated, particularly in the more peripheral areas.


The rating of the Canton of Lucerne is supported by a sound degree of self-financing over the past three years, indicating that the canton has been able to fully self-finance its net investments. Lucerne has been able to keep both costs and revenues relatively stable over recent years, thereby achieving excess revenues and positive primary operating balances. Debt per capita is average, while the resource index ranks in the middle, making the canton a receiver which weighs somewhat on the credit quality but adds revenues to the operating account every year. The CS locational quality index is above-average thanks to fiscal attractiveness, in particular for legal entities, but it is also above the national average for residents. Contingent liabilities continue not to impact the canton's credit quality, thanks to a fully covered pension fund. The cantonal bank presented another solid set of results last year, and ranks average among all cantonal bank. The outlook is Stable based on the relatively solid budget Lucerne presented for this year.


Operating account

Total expenditure operating account 3,542.7 3,631.7 3,634.7 3,608.0 3,657.8 Of which: Interest expense 32.0 28.1 25.1 23.8 22.8 Of which: Depreciation of administrative assets 116.7 116.9 122.4 119.8 124.1 Total revenue operating account 3,485.3 3,636.9 3,647.4 3,631.3 3,636.6 Excess expenditure/revenue –57.4 5.2 12.8 23.3 –21.2 Primary operating balance –25.4 33.3 37.9 47.1 1.6 Investment account Total expenditure investment account 208.3 179.7 173.7 170.9 191.6 Total revenue investment account 68.4 63.8 49.6 42.7 48.5 Net investment 139.9 115.9 124.1 128.3 143.2 Total revenue 3,133.6 3,252.4 3,261.8 3,288.5 3,685.0 Total expenditure 3,211.7 3,244.6 3,250.7 3,273.6 3,327.9 Financing Degree of self-financing 80.1 142.7 154.0 158.5 117.0 Financing deficit/surplus –59.8 26.9 29.9 30.2 –26.1 Self-financing ratio 57.3% 123.2% 124.0% 123.6% 81.7% Balance sheet Total assets 5,686.3 6,218.8 6,197.8 6,172.2 n.a. Gross debt 1,437.0 2,059.8 2,084.5 1,991.4 2,017.51 Equity (+)/balance sheet deficit (–) 3,830.3 3,819.0 3,796.4 3,868.6 3,847.41 Key ratios Primary operating balance/Total revenue –0.8% 1.0% 1.2% 1.4% 0.0% Financing balance/Total revenue –1.9% 0.8% 0.9% 0.9% –0.7% Gross debt/Total revenue 45.9% 63.3% 63.9% 60.6% 54.7% Interest expense/Total revenue 1.0% 0.9% 0.8% 0.7% 0.6% Interest expense/Total expenditure 1.0% 0.9% 0.8% 0.7% 0.7% Per capita gross debt (in CHF) 3,722.8 5,277.8 5,283.0 4,994.7 5,002.01











Acces to airports

Swiss average

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

0

500

1,000

1,500

2,000

2,500

2005

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B

CHF m

Gross debt


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175



Canton of Neuchatel – High A, Stable Daniel Rupli Public Sector Bond ticker: NEUNBG


The Canton of Neuchatel has over 178,000 residents spread across 37 municipalities, after a substantial reduction recently. The population growth rate in recent years has been markedly below the national average. Its GDP amounts to CHF 14.5 bn, representing just over 2% of the country's GDP. The canton is spread over 71,695 hectares, of which 9.3% is populated. At 5.8%, Neuchatel has one of the highest unemployment rates in the country. The electronic equipment and watch industry accounts for almost 20% of total jobs, which indicates a high exposure to a single industry. The financial attractiveness of living in Neuchatel is below-average, with the area around the city of Neuchatel being less attractive. A large amount of the canton's housing stock (>30%) is around 100 years old, indicating that construction activity in the past few years has been below the Swiss average. The price-to-income ratio suggests that prices have increased faster than income, indicating a slight overheating of house prices.


The rating of the Canton of Neuchatel is supported by a good operating performance in recent years, resulting in self-financing ratios above 100% (excluding 2013 due to the recapitalization of the pension fund). The balance sheet continues to carry a high amount of debt per capita as well as a deficit, which increased after the cantonal pension fund reforms to stand at over CHF 2.0 bn now. The current budget indicates a relatively good degree of self-financing compared to other cantons, but still requires external financing. The resource index is below 100, which weighs on the credit quality but adds revenues every year. The CS long-term dynamic indicator suggests that the canton will be challenged to service and reduce its indebtedness in the years to come. The locational quality index reading is also weak, due to the unattractive tax regimes for individuals and corporates, as well as the lack of overall accessibility. The outlook is Stable.


Operating account

Total expenditure operating account 2,058.3 2,327.0 2,217.2 2,188.7 2,191.8 Of which: Interest expense 33.2 32.0 29.8 28.4 26.3 Of which: Depreciation of administrative assets 64.4 55.5 56.5 51.6 51.1 Total revenue operating account 2,058.3 2,090.3 2,217.3 2,188.8 2,177.4 Excess expenditure revenue 0.1 -236.8 0.1 0.1 -14.4 Primary operating balance 33.3 -204.7 29.9 28.5 11.9 Investment account Total expenditure investment account 102.1 112.3 80.3 69.0 96.2 Total revenue investment account 44.0 58.1 31.5 21.7 34.7 Net investment 58.1 54.2 48.8 47.3 61.5 Total revenue 2,015.3 2,055.2 2,055.2 2,075.3 2,103.4 Total expenditure 1,959.6 2,016.8 2,107.4 2,063.1 2,122.3 Financing Degree of self-financing 64.5 -181.2 56.6 51.6 36.7 Financing deficit/surplus 6.4 -235.4 7.8 4.3 -24.7 Self-financing ratio 111.0% -334.4% 116.0% 109.2% 59.8% Balance sheet Total assets 1,827.8 2,074.2 1,887.9 1,980.5 n.a. Gross debt 1,677.3 1,644.9 1,526.3 1,638.6 1,663.31 Equity (+) / balance sheet deficit (–) -378.3 -615.0 -614.9 -614.9 -629.31 Key ratios Primary operating balance/Total revenue 1.7% -10.0% 1.5% 1.4% 0.6% Financing balance/Total revenue 0.3% -11.5% 0.4% 0.2% -1.2% Gross debt/Total revenue 83.2% 80.0% 74.3% 79.0% 79.1% Interest expense/Total revenue 1.6% 1.6% 1.5% 1.4% 1.2% Interest expense/Total expenditure 1.7% 1.6% 1.4% 1.4% 1.2% Per capita gross debt (in CHF) 9,608.8 9,325.0 8,607.0 9,206.9 9,291.01



* FY 2013: CHF -181.2, -334.4%



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2015

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CHF m


176



Canton of Nidwalden – AAA, Stable Daniel Rupli Public Sector Bond ticker: NIDWAL


The Canton of Nidwalden covers an area of 24,150 hectares, of which 6.1% is populated. One of the smaller cantons in Switzerland, Nidwalden has just 11 municipalities. The canton had over 42,000 residents at end-2015, and its growth rate has been below the Swiss average, particularly so in the past five years. GDP amounts to CHF 2.8 bn, with a GDP per employed capita that is slightly below the Swiss average. The unemployment rate was holding at a record-low of 1.1% at end-April 2016, with vehicle manufacturing providing the largest amount of jobs, followed by construction and retailing, and no single industry having a substantial exposure. Disposable income is at the higher end of the scale in Switzerland, which makes the cost of living relatively attractive. The canton does not have substantial construction land reserves, and real estate construction activity has been well above the Swiss average over the past 30 years. Property prices have grown slightly below average, while the price-to-income index indicates a relatively stable trend.


The rating of the Canton of Nidwalden benefits from a strong financial performance over the last two years. In FY 2015, the canton presented a small excess revenue and a positive primary operating balance, thanks to markedly higher taxable income. The degree of self-financing was high, resulting in a strong self-financing ratio indicating that the canton fully self-financed its net investments, which remained constant from the previous year. The CS locational quality index is supported by the very high fiscal attractiveness for private individuals and legal entities. The resource index reading is among the strongest, which also supports the credit quality and resource potential. In contrast, Nidwalden is one of the few cantons that are payers into the financial equalization system, which results in yearly outgoings. Contingent liabilities are close to zero thank to a good coverage ratio of the cantonal pension fund, as well as an adequate performance of the cantonal bank. The outlook is Stable, as we expect the canton to continue its solid trend.


Operating account Total expenditure operating account 355.4 365.7 370.0 406.4 393.7 Of which: Interest expense 3.2 2.8 2.9 2.7 2.5 Of which: Depreciation of administrative assets 8.7 7.5 6.9 8.6 8.3 Total revenue operating account 355.5 364.5 368.7 406.9 391.6 Excess expenditure/revenue 0.2 –1.2 –1.4 0.6 –2.1 Primary operating balance 3.4 1.7 1.5 3.2 0.5 Investment account Total expenditure investment account 34.1 26.8 27.3 25.3 30.5 Total revenue investment account 11.8 8.3 13.8 12.1 15.0 Net investment 22.3 18.6 13.5 13.2 15.5 Total revenue 338.2 343.7 350.6 387.4 372.6 Total expenditure 350.6 357.0 358.6 391.2 381.8 Financing Degree of self-financing 14.1 12.4 17.1 49.9 –0.9 Financing deficit/surplus –8.3 –6.2 3.6 36.7 –16.4 Self-financing ratio 63.0% 66.8% 126.5% 378.1% –5.7% Balance sheet Total assets 385.9 369.7 391.6 619.2 n.a. Gross debt 243.8 242.7 266.0 266.6 283.01 Equity (+)/balance sheet deficit (–) 117.6 100.9 99.0 318.6 316.51 Key ratios Primary operating balance/Total revenue 1.0% 0.5% 0.4% 0.8% 0.1% Financing balance/Total revenue –2.4% –1.8% 1.0% 9.5% –4.4% Gross debt/Total revenue 72.1% 70.6% 75.9% 68.8% 76.0% Interest expense/Total revenue 1.0% 0.8% 0.8% 0.7% 0.7% Interest expense/Total expenditure 0.9% 0.8% 0.8% 0.7% 0.7% Per capita gross debt (in CHF) 5,861.6 5,795.5 6,320.8 6,285.5 6,629.31

1 Estimates Credit Suisse B = Budget HRM2










Acces to airports

Swiss average

0.0%

0.8%

1.6%

2.4%

3.2%

4.0%

0

60

120

180

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300

2005

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B

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Gross debt


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400%

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125

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Cash & equivalent Maturity profile financial debt

177



Canton of Obwalden – High AA, Stable Daniel Rupli Public Sector Bond ticker: KANOBW


The Canton of Obwalden has around 37,000 residents in seven municipalities, spread over 48,068 hectares, with a relatively low populated area of only 3.3%. Population growth is in line with the Swiss average. The canton's GDP amounts to CHF 2.3 bn, with a below-average GDP per capita. The unemployment rate of only 1.1% at end-April 2016 was well below the national average, indicating Obwalden's sound local economy. No single industry carries a large exposure in the canton, with electronics, and technical and expansion construction each providing roughly 8% of jobs, followed by agriculture and tourism (hotels). Disposable income is attractive, thanks to affordable housing combined with low taxes. Although the canton does not have any substantial property construction land reserves, property price increases are below the Swiss average. As such, the price-to-income ratio is stable and does not indicate any signs of overheating in the real estate market. Nevertheless, the vacancy rate is close to zero.


The rating of the Canton of Obwalden benefits from the very low indebtedness and the sound debt per capita levels, which provides financial flexibility. Last year, the self-financing ratio was strong, despite another year with excess expenditure. Higher taxable income added solid cash flows, and lower net investments brought about this strong result. The CS locational quality index is supported by the very high fiscal attractiveness for private individuals and legal entities. The resource index reading is below 100 but in the upper half of all cantons, reflecting a relatively solid figure, in our view. Nevertheless, the index measurement makes Obwalden a receiver in the financial equalization system. The canton has limited exposure to contingent liabilities, as the pensions fund had a coverage ratio of above 100% at end-2015. The performance of the cantonal bank was stable last year, but the ratios are below-average compared to peers. The outlook is Stable, as we expect a relatively stable performance despite the weak budget.


Operating account Total expenditure operating account 282.2 294.0 298.7 329.2 309.1 Of which: Interest expense 0.5 0.6 0.6 0.7 0.3 Of which: Depreciation of administrative assets 7.0 7.1 7.6 8.3 9.2 Total revenue operating account 280.1 291.9 295.0 326.7 301.6 Excess expenditure/revenue –2.2 –2.1 –3.8 –2.5 –7.4 Primary operating balance –1.7 –1.4 –3.2 –1.8 –7.2 Investment account Total expenditure investment account 72.9 58.1 43.8 22.9 30.3 Total revenue investment account 51.6 29.4 19.3 11.2 15.5 Net investment 21.3 28.7 24.5 11.6 14.7 Total revenue 308.5 298.4 291.8 315.8 294.8 Total expenditure 325.1 322.6 312.5 329.9 317.0 Financing Degree of self-financing 5.7 9.5 1.9 37.6 –5.0 Financing deficit/surplus –15.6 –19.2 –22.6 25.9 –19.8 Self-financing ratio 27.2% 32.6% 7.9% 322.8% –34.0% Balance sheet Total assets 300.1 302.2 308.9 303.7 n.a. Gross debt 90.0 95.2 113.8 93.4 113.21 Equity (+)/balance sheet deficit (–) 195.4 190.3 175.5 193.0 185.51 Key ratios Primary operating balance/Total revenue –0.5% –0.5% –1.1% –0.6% –2.4% Financing balance/Total revenue –5.0% –6.4% –7.7% 8.2% –6.7% Gross debt/Total revenue 29.2% 31.9% 39.0% 29.6% 38.4% Interest expense/Total revenue 0.2% 0.2% 0.2% 0.2% 0.1% Interest expense/Total expenditure 0.2% 0.2% 0.2% 0.2% 0.1% Per capita gross debt (in CHF) 2,494.3 2,609.1 3,088.5 2,520.1 3,020.41

1 Credit Suisse estimates B = Budget HRM2










Acces to airports

Swiss average

0.0%

0.4%

0.8%

1.2%

1.6%

2.0%

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178



Canton of Schaffhausen – High AA, Stable Daniel Rupli Public Sector Bond ticker: SCHAFF


The Canton of Schaffhausen, which had just under 80,000 residents across 26 municipalities at end-2015, is spread over an area of 29,819 hectares, of which 11.4% is populated – a relatively high ratio compared to other Swiss cantons. The annual population growth rate is below the Swiss average. The canton generates a total GDP of CHF 6.8 bn, with GDP per capita being above the Swiss average. The unemployment rate of 3.4% at end-April 2016 was more or less on par with the rest of Switzerland. The retail trade, wholesale trade and healthcare industries each employ roughly 5%−6% of workers, and no single industry has substantial exposure. Financial residential attractiveness ranks among the highest in the country, which is also reflected in property prices, which have been growing below the Swiss average in the past few years. Real estate construction activity has been below-average in recent years, reflected in an above-average share of buildings around 100 years old. The price-to-income index is average.


The rating of the Canton of Schaffhausen is supported by the solid operating account last year that turned positive after a few challenging years. The canton was able to increase its taxable income and revenues overall, while costs remained fairly stable. As such, the canton was able to fully self-finance its net investments, which were even slightly higher than last year. Indebtedness increased slightly, but debt per capita still remains relatively low in our view. The resource index is solid, and puts Schaffhausen in the first third of all cantons, supporting its business profile. The financial profile is neutral, while the CS locational quality index benefits from a high fiscal attractiveness for legal entities and an above-average availability of specialist labor. Contingent liabilities are low, thanks to a fully financed cantonal pension fund and a cantonal bank that is the best capitalized in the country. The outlook is Stable, as we expect the canton to continue its stable path despite rather cautious budget guidance for this year.


Operating account Total expenditure operating account 655.4 666.7 675.7 681.8 684.4 Of which: Interest expense 3.5 1.8 1.7 1.9 2.9 Of which: Depreciation of administrative assets 15.3 17.4 17.2 17.5 18.4 Total revenue operating account 625.5 649.2 653.1 686.7 668.3 Excess expenditure/revenue –29.9 –17.4 –22.7 4.9 –16.1 Primary operating balance –26.4 –15.6 –20.9 6.9 –13.3 Investment account Total expenditure investment account 48.2 39.3 42.1 27.9 32.8 Total revenue investment account 13.1 13.4 23.6 5.9 7.8 Net investment 35.1 25.9 18.5 22.0 25.0 Total revenue 609.4 632.7 646.2 662.9 646.2 Total expenditure 658.5 657.9 660.3 642.9 658.4 Financing Degree of self-financing –14.6 –0.1 –5.4 22.5 2.3 Financing deficit/surplus –49.7 –26.0 –23.9 0.5 –22.7 Self-financing ratio –41.4% –0.3% –29.4% 102.2% 9.2% Balance sheet Total assets 441.8 449.9 457.2 505.4 n.a. Gross debt 251.3 275.3 305.9 350.7 373.41 Equity (+)/balance sheet deficit (–) 158.1 140.7 118.0 123.0 106.91 Key ratios Primary operating balance/Total revenue –4.3% –2.5% –3.2% 1.0% –2.1% Financing balance/Total revenue –8.2% –4.1% –3.7% 0.1% –3.5% Gross debt/Total revenue 41.2% 43.5% 47.3% 52.9% 57.8% Interest expense/Total revenue 0.6% 0.3% 0.3% 0.3% 0.4% Interest expense/Total expenditure 0.5% 0.3% 0.3% 0.3% 0.4% Per capita gross debt (in CHF) 3,221.3 3,494.9 3,851.6 4,392.8 4,637.51





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179



Canton of Schwyz – AAA, Stable Daniel Rupli Public Sector Bond ticker: SCHWYZ


The Canton of Schwyz had around 154,000 residents at end-2015, with average population growth above that of Switzerland in recent years. The canton measures 85,151 hectares, of which 6.5% is populated – slightly below the Swiss average. The canton generates a total GDP of CHF 8.7 bn, and its average GDP per employed capita lies below the national average. The unemployment rate remained low at end-April 2016, at 1.8%. The finishing trade offers almost 8% of jobs in the canton, followed by retail (almost 7%), while there is no single industry with substantial exposure to the job market. The canton's financial residential attractiveness varies substantially, from being very expensive in the Höfe region to financially more attractive in the more peripheral areas. Across the canton, property prices have grown above the Swiss average, driven in particular by the Höfe region. Nevertheless, the price-to-income ratio gives a relatively balanced reading and limited signs of overheating.


The rating of the Canton of Schwyz benefits from the strong resource index reading, which is among the highest in Switzerland. This indicates that the canton should be able to generate additional taxable income in the future. The CS locational quality index benefits from a high attractiveness for private individuals and legal entities with regard to taxes. After several years of negative self-financing ratios and weakening capitalization, Schwyz reported a strong set of operating results last year, with excess revenues and a good degree of self-financing, as well as the national bank dividend, which had not been budgeted for. While the financial ratios are still above-average and liquidity remains solid, the overall financial profile has weakened over recent years. Contingent liabilities are limited with a relatively solid funded cantonal pension fund, and the performance of the cantonal bank has remained strong. The outlook is Stable.


Operating account Total expenditure operating account 1,284.6 1,339.9 1,395.8 1,401.8 1,452.7 Of which: Interest expense 5.1 5.2 5.3 3.6 2.2 Of which: Depreciation of administrative assets 72.7 77.2 76.0 81.1 56.4 Total revenue operating account 1,189.8 1,199.2 1,184.7 1,412.2 1,397.5 Excess expenditure/revenue -94.8 -140.7 -211.1 10.4 -55.2 Primary operating balance -89.7 -135.5 -205.8 14.0 -53.0 Investment account Total expenditure investment account 91.8 88.0 106.8 99.7 77.3 Total revenue investment account 36.5 35.3 34.1 35.4 31.6 Net investment 55.3 52.7 72.7 64.3 45.7 Total revenue 1,129.4 1,126.7 1,107.1 1,327.5 1,324.2 Total expenditure 1,202.0 1,231.9 1,326.7 1,324.4 1,319.2 Financing Degree of self-financing -22.1 -63.4 -135.1 91.5 1.2 Financing deficit/surplus -77.4 -116.1 -207.8 27.2 -44.6 Self-financing ratio -40.0% -120.4% -185.8% 142.3% 85.2% Balance sheet Total assets 895.9 730.4 695.9 557.3 n.a. Gross debt 476.6 451.7 628.4 479.1 523.61 Equity (+)/balance sheet deficit (–) 419.3 278.6 67.5 77.9 22.71 Key ratios Primary operating balance/Total revenue -7.9% -12.0% -18.6% 1.1% -4.0% Financing balance/Total revenue -6.9% -10.3% -18.8% 2.0% -3.4% Gross debt/Total revenue 42.2% 40.1% 56.8% 36.1% 39.5% Interest expense/Total revenue 0.5% 0.5% 0.5% 0.3% 0.2% Interest expense/Total expenditure 0.4% 0.4% 0.4% 0.3% 0.2% Per capita gross debt (in CHF) 3,180.7 2,983.9 4,113.3 3,109.4 3,365.01

1 Credit Suisse estimates B = Budget HRM2 as of FY 2016B










Acces to airports

Swiss average

0.0%

0.3%

0.6%

0.9%

1.2%

1.5%

0

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CHF m

Gross debt


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180



Canton of Solothurn – High AA, Negative Daniel Rupli Public Sector Bond ticker: SOLEUR


The Canton of Solothurn measures around 79,000 hectares, of which 13.9% is populated. The canton's population has grown to over 265,000 over the years, which is in line with the Swiss average. Solothurn generates a total GDP of CHF 16.8 bn, and GDP per employed capita is more or less around the national average. While the unemployment rate has increased to 3.0%, it remains below the Swiss average. There is good diversification among the various industries in the canton. The finishing trade, retail trade and healthcare industries each cover roughly 5%−6% of total jobs, with no single sector having high exposure. The financial residential attractiveness is slightly above-average, despite the fact that the construction zones reserved for housing are rather limited. The vacancy rate in the canton is above-average, and as such growth in property prices has been markedly lower than much of the rest of the country in recent years. The price-to-income index shows a stable trend and no signs of overheating in the canton's real estate market.


The rating of the Canton of Solothurn is supported by a relatively solid resource index reading that indicates that the canton should be able to generate additional taxable income in the future, given its resource potential. The CS locational quality index is slightly above the Swiss average, thanks to the canton's population and employee accessibility. Fiscal attractiveness for both private individuals and legal entities is more or less on a par with the Swiss average. In contrast, the financial profile has weakened markedly over recent years. The canton has presented excess expenditures and negative primary operating balances for many years now, in an environment where many other cantons were able to generate positive figures. Although the recapitalization of the pension fund needs to be seen as a one-off, the indebtedness will remain high for longer. Capitalization also weakened over the past year. The outlook is Negative, as we expect an ongoing challenging environment for the canton over the upcoming year.


Operating account Total expenditure operating account 1,897.3 1,922.9 2,023.5 3,158.5 2,087.4 Of which: Interest expense 9.4 7.9 10.7 32.1 28.6 Of which: Depreciation of administrative assets 48.4 52.9 55.7 62.4 61.8 Total revenue operating account 1,761.6 1,822.8 1,888.7 2,031.0 2,022.2 Excess expenditure/revenue –135.7 –100.1 –134.9 –1,127.6 –65.2 Primary operating balance –126.3 –92.2 –124.2 –1,095.4 –36.7 Investment account Total expenditure investment account 174.1 173.3 129.1 132.7 162.2 Total revenue investment account 51.4 64.3 41.7 34.2 35.2 Net investment 122.8 109.1 87.4 98.5 127.0 Total revenue 1,726.1 1,802.5 1,930.4 2,065.1 2,053.3 Total expenditure 1,933.5 1,956.5 2,096.9 3,228.8 2,159.5 Financing Degree of self-financing –47.0 –49.6 –52.7 –1,031.9 32.4 Financing deficit/surplus –169.8 –158.7 –140.1 –1,130.4 –94.7 Self-financing ratio –38.3% –45.5% –60.3% –1047.1% 28.0% Balance sheet Total assets 2,558.0 2,672.6 2,648.0 2,555.7 n.a. Gross debt 921.5 1,096.8 1,186.0 2,242.9 2,337.61 Equity (+)/balance sheet deficit (–) 944.0 822.6 687.8 74.5 9.31 Key ratios Primary operating balance/Total revenue –7.3% –5.1% –6.4% –53.0% –1.8% Financing balance/Total revenue –9.8% –8.8% –7.3% –54.7% –4.6% Gross debt/Total revenue 53.4% 60.8% 61.4% 108.6% 113.8% Interest expense/Total revenue 0.5% 0.4% 0.6% 1.6% 1.4% Interest expense/Total expenditure 0.5% 0.4% 0.5% 1.0% 1.3% Per capita gross debt (in CHF) 3,555.2 4,195.9 4,498.2 8,420.3 8,719.61











Acces to airports

Swiss average

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CHF m

Gross debt


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181



Canton of St. Gallen – High AA, Stable Daniel Rupli Public Sector Bond ticker: STGALN


The Canton of St. Gallen has almost 500,000 inhabitants, making it the fifth-largest Swiss canton. Its population growth is slightly below the Swiss average. It measures around 200,000 hectares, of which around 10% is populated. With 77 municipalities at end-2015, St. Gallen has an above-average number of residents per municipality. The unemployment rate of 2.66% at end-April 2016 was above the Swiss average, benefiting from a well-diversified offering of job opportunities across many sectors. Retail trade and healthcare each provide roughly 6%−7% of total jobs in the canton. Depending on the area, the financial residential attractiveness ranges from attractive (e.g. in the peripheral area of the region around Wil) to expensive (nearer Lake Zurich). In certain areas, the canton has some construction reserve zones for housing. Growth in property prices across the canton is below the Swiss average. With the exception of a few select locations, the price-to-income index indicates no signs of overheating in real estate prices.


The rating of the Canton of St. Gallen benefits from a solid operating account with excess revenues and a positive primary operating balance. Financial discipline last year resulted in a sound self-financing ratio, which kept the canton's indebtedness relatively stable. The debt per capita reading is solid when comparing to other cantons in Switzerland. Liquidity at end-2015 was strong (CHF 836 m), with limited exposure to short-term debt maturities. The resource index is below-average, which weighs somewhat on the canton's business profile. In contrast, it adds almost CHF 400 m of revenues to the canton's operating account. The CS locational quality index benefits from a high fiscal attractiveness for legal entities, while the remaining parameters are on par with the Swiss average. Contingent liabilities are limited, thanks to a well-funded cantonal pension fund. The performance of the cantonal bank was more or less in line with peers. The outlook is Stable.


Operating account Total expenditure operating account 4,490.9 4,475.2 4,583.8 4,682.7 4,897.7 Of which: Interest expense 24.8 24.7 30.2 29.1 32.8 Of which: Depreciation of administrative assets 99.8 107.6 110.4 117.0 167.3 Total revenue operating account 4,485.6 4,548.5 4,607.6 4,837.2 4,928.6 Excess expenditure/revenue -5.3 73.4 23.8 154.5 30.9 Primary operating balance 19.5 98.1 54.0 183.6 63.7 Investment account Total expenditure investment account 211.2 149.0 429.1 193.8 320.7 Total revenue investment account 37.2 34.1 48.2 51.2 54.4 Net investment 174.0 114.9 380.9 142.6 266.2 Total revenue 3,843.6 4,013.7 4,225.8 4,437.2 4,418.4 Total expenditure 4,124.9 4,068.2 4,472.5 4,308.3 4,486.4 Financing Degree of self-financing 94.5 180.9 89.1 236.7 67.7 Financing deficit/surplus -79.6 66.1 -291.8 94.0 -198.6 Self-financing ratio 54.3% 157.5% 22.6% 166.5% 25.4% Balance sheet Total assets 2,830.1 3,117.6 3,076.7 3,225.0 n.a. Gross debt 1,438.0 1,783.6 1,596.9 1,614.6 1,813.21 Equity (+)/balance sheet deficit (–) 751.4 683.6 891.7 988.7 1,019.61 Key ratios Primary operating balance/Total revenue 0.5% 2.4% 1.3% 4.1% 1.4% Financing balance/Total revenue -2.1% 1.6% -6.9% 2.1% -4.5% Gross debt/Total revenue 37.4% 44.4% 37.8% 36.4% 41.0% Interest expense/Total revenue 0.6% 0.6% 0.7% 0.7% 0.7% Interest expense/Total expenditure 0.6% 0.6% 0.7% 0.7% 0.7% Per capita gross debt (in CHF) 2,952.8 3,627.8 3,221.1 3,235.6 3,602.51

1 Credit Suisse estimates B = Budget BS impact due to HRM2 as of FY 2014


* FY 2007: 5,976.2%









Acces to airports

Swiss average

0.0%

0.4%

0.8%

1.2%

1.6%

2.0%

0

500

1,000

1,500

2,000

2,500

2005

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2008

2009

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2011

2012

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2016

B

CHF m

Gross debt


0%

100%

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300%

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500%

0

100

200

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400

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2005

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2007

*

2008

2009

2010

2011

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B

CHF m


0

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1,000

Year-end

2015

2016 2017 2018 2019 2020 2021 > 2020 n.a.

CHF m


182



Canton of Thurgau – High AA, Stable Daniel Rupli Public Sector Bond ticker: THURGO


The population of the Canton of Thurgau, which is spread across 80 municipalities, has grown to over 267,000 over recent years, at a rate slightly above the Swiss average. Thurgau generates an annual GDP of CHF 15.6 bn, with a slightly below-average GDP per employed capita. No single industry has large exposure, and jobs are well diversified across various industries. The finishing trades, healthcare and retail trade industries each provide roughly 6% of total jobs. The unemployment rate was at 2.8% at end-April 2016, which is below the Swiss average. The financial residential attractiveness is above-average across the canton. Although it has only limited construction zone reserves for housing, growth in house prices was below the Swiss average. Construction activity in recent years has been higher than average, as almost 40% of existing housing has been built over the last 30 years. The price-to-income ratio does not indicate any overheating.


The rating of the Canton of Thurgau is supported by a sound financial performance over recent years, thanks to solidly increased revenues and cost discipline, which resulted in excess revenues and a positive operating account. Thurgau spent less than originally budgeted, which resulted in a sound self-financing ratio covering net investments three times. Indebtedness has remained fairly stable, with debt per capita being moderate, in our view. The resource index is rather weak, which weighs on the canton's business profile as it reflects limited resource potential for growth in the future. In contrast, it adds over CHF 200 m of additional revenues to the canton's operating account. The CS locational quality index ranks slightly above-average, thanks to the fiscal attractiveness for legal entities and private individuals. Contingent liabilities are marginal, given the solid coverage ratio of the cantonal pension fund. The cantonal bank's performance was slightly below average, but does not reflect a substantial risk at this stage. The outlook is Stable.


Operating account Total expenditure operating account 1,928.6 1,943.5 2,195.2 2,101.3 2,048.8 Of which: Interest expense 10.2 8.7 7.1 6.6 6.3 Of which: Depreciation of administrative assets 65.9 45.0 48.7 36.7 38.2 Total revenue operating account 1,892.0 1,934.5 2,190.2 2,109.1 2,040.9 Excess expenditure/revenue –36.6 –9.0 –5.1 7.8 –7.9 Primary operating balance –26.4 –0.4 2.0 14.4 –1.6 Investment account Total expenditure investment account 157.4 128.8 109.3 87.3 105.6 Total revenue investment account 69.6 46.6 40.6 34.7 46.2 Net investment 87.8 82.2 68.7 52.6 59.4 Total revenue 1,791.0 1,820.3 2,085.6 1,994.1 1,935.8 Total expenditure 1,868.6 1,855.8 2,110.8 2,002.2 1,964.9 Financing Degree of self-financing –6.2 27.0 268.5 162.0 1.5 Financing deficit/surplus –94.0 –55.2 199.7 109.3 –57.9 Self-financing ratio –7.1% 32.8% 390.6% 307.8% 2.5% Balance sheet Total assets 1,522.6 1,533.8 1,647.0 1,921.3 n.a. Gross debt 935.0 1,022.3 983.7 1,089.6 1,147.51 Equity (+)/balance sheet deficit (–) 421.1 405.7 506.8 642.8 634.91 Key ratios Primary operating balance/Total revenue –1.5% 0.0% 0.1% 0.7% –0.1% Financing balance/Total revenue –5.3% –3.0% 9.6% 5.5% –3.0% Gross debt/Total revenue 52.2% 56.2% 47.2% 54.6% 59.3% Interest expense/Total revenue 0.6% 0.5% 0.3% 0.3% 0.3% Interest expense/Total expenditure 0.5% 0.5% 0.3% 0.3% 0.3% Per capita gross debt (in CHF) 3,649.4 3,928.4 3,730.5 4,074.8 4,230.21











Acces to airports

Swiss average

0%

1%

2%

3%

4%

5%

0

300

600

900

1,200

1,500

2005

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B

CHF m

Gross debt


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0

60

120

180

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*

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B

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2015

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CHF m


183



Canton of Ticino – High A, Stable Daniel Rupli Public Sector Bond ticker: TESSIN


The population of the Canton of Ticino amounts to over 350,000, living in 135 municipalities – a relatively large number, despite some consolidation over recent years. The population growth rate has been more or less on par with Switzerland. Ticino generated an annual GDP of CHF 27.7 bn, with a slightly below-average GDP per employed capita. Wholesale retail, retail and healthcare are the most important industry sectors, with all providing just above 6% of employment. Tourism also plays an important role for the canton, but the employment is spread across various sectors. Unemployment stood at 3.4% at end-April 2016 – around par with the domestic rate. The financial residential attractiveness is above-average when compared to the rest of Switzerland, with the exception of hot-spot areas across the lake in the areas around Lugano and Locarno, where house prices have increased markedly over recent years. The price-to-income ratio also indicates potential overheating in certain areas.


The rating of the Canton of Ticino benefits from the resource index reading which is slightly below 100%, indicating that the canton has more resource potential than many others in Switzerland. The reading also makes the canton a small receiver in the financial equalization system, and thus adds some revenues every year. In contrast, the financial profile is rather weak when compared to other cantons. Indebtedness is high, and debt per capita has risen towards the highest in Switzerland. For many years, the canton has reported excess expenditure, a negative primary operating balance and self-financing ratios that are clearly below 100%, and in some years even negative. We appreciate the government's efforts to re-align costs and to achieve improving financials over the medium-term. In addition to the pressure on the reported financials, Ticino also declared over CHF 2 bn of underfunded pension liabilities, which will most likely weigh on the canton's financial flexibility over time. The outlook remains Stable for now.


Operating account Total expenditure operating account 3,347.0 3,493.8 3,551.1 3,577.2 3,605.1 Of which: Interest expense 44.5 46.4 35.3 34.9 35.4 Of which: Depreciation of administrative assets 185.7 180.5 93.7 94.8 103.1 Total revenue operating account 3,249.5 3,316.2 3,423.1 3,486.7 3,517.2 Excess expenditure/revenue –97.6 –177.6 –128.0 –90.5 –87.9 Primary operating balance –53.1 –131.2 –92.7 –55.6 –52.5 Investment account Total expenditure investment account 278.9 378.5 326.8 320.1 343.0 Total revenue investment account 99.6 96.6 118.3 114.4 132.4 Net investment 179.3 281.8 208.5 205.7 210.7 Total revenue 3,148.7 3,212.3 3,346.7 3,601.1 3,649.6 Total expenditure 3,211.5 3,465.3 3,589.5 3,594.2 3,643.8 Financing Degree of self-financing 88.1 2.9 57.5 91.2 104.9 Financing deficit/surplus –91.2 –278.9 –151.0 –114.5 –105.8 Self-financing ratio 49.1% 1.0% 27.6% 44.4% 49.8% Balance sheet Total assets 2,358.9 3,287.8 6,102.6 6,665.9 n.a. Gross debt 2,331.1 3,254.8 5,374.1 5,971.3 6,077.11 Equity (+)/balance sheet deficit (–) –173.5 –351.1 –347.8 –439.0 –526.91 Key ratios Primary operating balance/Total revenue –1.7% –4.1% –2.8% –1.5% –1.4% Financing balance/Total revenue –2.9% –8.7% –4.5% –3.2% –2.9% Gross debt/Total revenue 74.0% 101.3% 160.6% 165.8% 166.5% Interest expense/Total revenue 1.4% 1.4% 1.1% 1.0% 1.0% Interest expense/Total expenditure 1.4% 1.3% 1.0% 1.0% 1.0% Per capita gross debt (in CHF) 6,824.2 9,394.1 15,337.1 16,969.0 17,122.01











Acces to airports

Swiss average

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

0

1,500

3,000

4,500

6,000

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CHF m

Gross debt


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125

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375

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184



Canton of Uri – Mid AA, Positive Daniel Rupli Public Sector Bond ticker: n.a.


With a total population of just around 36,000, the Canton of Uri is the second smallest when measured by population. Its growth rate has been substantially below the Swiss average and almost flat over the past ten years. The canton measures 105,751 hectares, of which only 1.9% is populated. Uri generates a cantonal GDP of around CHF 1.8 bn, which is the second lowest in Switzerland. In contrast, the unemployment rate stood at a record-low 1.0% at end-April 2016, which is much better than the Swiss average. The agriculture industry is the largest employer in the canton, providing just over 6% of total jobs, followed by fabricated metal products and healthcare. Disposable income in the canton is very high, driven by attractive taxes and high financial residential attractiveness. The canton holds a sizable amount of construction zone reserves for housing growth in some municipalities. Growth in housing prices was well below average, and there are no signs of any overheating in real estate at this stage.


The rating of the Canton of Uri benefits from its sound operating account and solid financial performance overall over recent years. Despite higher costs, Uri was able to generate even higher revenues, leaving solid excess revenues and a positive primary operating balance. As net investment has remained fairly stable, the self-financing ratio came in at a solid rate, confirming that the canton has been able to fully self-finance its investments. As such, indebtedness further eased, and the balance sheet remains sound. Debt per capita was above-average, which further underpins Uri's strong balance sheet measures, in our view. The resource index reading is weak, as a result of the Uri's topography and accessibility. This is also mirrored in its CS locational quality index rating, which is below-average. However, Uri's score benefits from the fiscal attractiveness for both private individuals as well as legal entities. The Positive outlook reflects our expectation that Uri's rating might get an uplift should the canton continue to present sound financials.


Operating account Total expenditure operating account 382.8 386.5 383.5 392.9 401.6 Of which: Interest expense 2.3 1.9 1.4 1.0 0.7 Of which: Depreciation of administrative assets 6.3 5.6 5.3 5.8 6.0 Total revenue operating account 387.4 408.5 399.4 414.0 401.9 Excess expenditure/revenue 4.6 22.0 15.9 21.1 0.3 Primary operating balance 7.0 23.8 17.4 22.1 1.0 Investment account Total expenditure investment account 55.4 46.7 42.1 36.7 80.6 Total revenue investment account 35.0 26.2 17.3 14.4 58.2 Net investment 20.4 20.6 24.8 22.3 22.4 Total revenue 406.6 417.4 400.5 412.0 443.9 Total expenditure 413.2 407.4 404.0 407.5 460.0 Financing Degree of self-financing 17.2 33.3 27.9 37.1 10.7 Financing deficit/surplus –3.3 12.7 3.1 14.8 –11.8 Self-financing ratio 84.0% 161.7% 112.5% 166.3% 47.5% Balance sheet Total assets 342.5 357.4 368.7 400.2 n.a. Gross debt 125.5 123.1 115.7 123.2 134.91 Equity (+)/balance sheet deficit (–) 187.4 203.0 221.0 244.6 244.91 Key ratios Primary operating balance/Total revenue 1.7% 5.7% 4.3% 5.4% 0.2% Financing balance/Total revenue –0.8% 3.0% 0.8% 3.6% –2.7% Gross debt/Total revenue 30.9% 29.5% 28.9% 29.9% 30.4% Interest expense/Total revenue 0.6% 0.4% 0.4% 0.3% 0.2% Interest expense/Total expenditure 0.6% 0.5% 0.4% 0.3% 0.1% Per capita gross debt (in CHF) 3,514.6 3,433.8 3,212.9 3,424.1 3,738.61











Acces to airports

Swiss average

0.0%

0.4%

0.8%

1.2%

1.6%

2.0%

0

50

100

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300

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CHF m

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40%

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15

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75

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CHF m


185



Canton of Valais – Mid AA, Stable Daniel Rupli Public Sector Bond ticker: n.a.


With a population of over 330,000 residents spread across 134 municipalities, Valais is one of the larger cantons in Switzerland, with population growth above the national average. Valais is also the third largest canton in Switzerland in terms of surface area (over 520,000 hectares), of which 3.5% is populated. The canton generates an annual GDP of CHF 17.0 bn, resulting in a below-average GDP per employed capita. Unemployment had grown to 3.9% at end-April 2016, which is slightly higher than the Swiss average. The retail trade industry provides roughly 8% of total jobs in the canton, with finishing trades and healthcare second and third. Valais' financial residential attractiveness is not ranked among the highest in Switzerland, although it varies substantially across regions. Growth in housing prices has been above-average, with a few spots in the Lake Geneva area as well as mountain regions showing signs of overheating.


The rating of the Canton of Valais is supported by strong financial discipline last year, with total revenues significantly increasing thanks to higher-than-expected taxes, and the dividend from the Swiss National Bank which the canton has not budgeted for. As such, the primary operating balance allowed Valais to fully self-finance its net investments. The canton was also able to turn a minor balance sheet deficit into equity, but this still represents a very small figure in our view. Indebtedness remains relatively high, and debt per capita levels are above-average. We would also highlight the canton's contingent liabilities of over CHF 1.0 bn, due to an underfunded pension fund. The cantonal bank of Valais performed solidly, which means that it is not a burden at this stage in our view. The resource index is weak, which weighs on the business profile but adds revenues every year. Its CS locational quality index rating is among the weakest, due to its accessibility level and its rather unattractive tax regime versus peers. The outlook is Stable.


Operating account Total expenditure operating account 3,118.9 3,188.2 3,225.4 3,212.4 3,168.2 Of which: Interest expense 36.4 34.7 36.1 30.0 30.4 Of which: Depreciation of administrative assets 180.9 172.7 174.7 182.8 195.1 Total revenue operating account 3,120.1 3,134.6 3,141.5 3,308.1 3,205.8 Excess expenditure revenue 1.1 –53.5 –83.9 95.7 37.6 Primary operating balance 37.6 –18.9 –47.8 125.7 30.4 Investment account Total expenditure investment account 503.2 520.0 518.0 506.6 588.7 Total revenue investment account 322.1 318.2 343.0 325.3 398.7 Net investment 181.1 201.8 175.0 181.3 190.0 Total revenue 3,242.9 3,229.5 3,276.2 3,456.7 3,415.8 Total expenditure 3,203.0 3,306.0 3,354.6 3,315.6 3,419.2 Financing Degree of self-financing 182.0 119.1 90.7 278.5 232.7 Financing deficit/surplus 0.9 –82.6 –84.2 97.2 42.8 Self-financing ratio 100.5% 59.0% 51.9% 153.6% 122.5% Balance sheet Total assets 2,866.7 2,877.2 2,910.1 3,102.9 n.a. Gross debt 2,489.5 2,549.3 2,604.2 2,723.8 2,681.01 Equity (+)/balance sheet deficit (–) 74.6 21.0 –62.9 33.1 33.11 Key ratios Primary operating balance/Total revenue 1.2% –0.6% –1.5% 3.6% 0.9% Financing balance/Total revenue 0.0% –2.6% –2.6% 2.8% 1.3% Gross debt/Total revenue 76.8% 78.9% 79.5% 78.8% 78.5% Interest expense/Total revenue 1.1% 1.1% 1.1% 0.9% 0.9% Interest expense/Total expenditure 1.1% 1.0% 1.1% 0.9% 0.9% Per capita gross debt (in CHF) 7,740.9 7,806.6 7,848.8 8,115.7 7,872.31











Access to airports

Swiss average

0.0%

0.7%

1.4%

2.1%

2.8%

3.5%

0

600

1,200

1,800

2,400

3,000

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B

CHF m

Gross debt


0%

70%

140%

210%

280%

350%

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70

140

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350

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186



Canton of Vaud – AAA, Stable Daniel Rupli Public Sector Bond ticker: VAUD


The Canton of Vaud has over 770,000 inhabitants spread across 318 municipalities, making it one of the largest cantons by population. The total area measures 282,264 hectares, of which 10.6% is populated. Vaud generates an annual GDP of CHF 50.6 bn, resulting in a GDP per employed capita that is slightly below the Swiss average. The unemployment rate was relatively high at end-April 2016 at 4.8%, but this is in line with other cantons in the French-speaking part of Switzerland. Healthcare, retail trade and education are the three largest industries in terms of jobs, with no single industry having large exposure. Population has grown markedly above the national average in recent years, despite the relatively weak financial residential attractiveness (particularly with regard to the area around Lake Geneva). Housing prices have grown well above the Swiss average, with some regions indicating signs of overheating, as measured by the price-to-income ratio.


The rating benefits from the canton's strong operating performance over the years, characterized by strong excess revenues, high financing surpluses and healthy self-financing ratios. Indebtedness has declined substantially, and capitalization measures have consistently improved. Liquidity is strong, with available cash and equivalents of CHF 2.2 bn. However, some pressure remains from the pension fund, which is underfunded by almost CHF 3.0 bn. The current budget indicates another adequate year, albeit below previous performance. The resource index has improved strongly, making the canton a payer into the financial equalization system, which weighs on costs to some extent, but supports the credit profile overall. Its CS locational quality index rating is below-average, due to the relatively unattractive tax regimes for corporates and individuals, while the accessibility of the canton is average. There is above-average availability of well-qualified labor. The outlook is Stable.


Operating account Total expenditure operating account 8,790.4 9,271.7 9,518.0 9,653.0 9,159.1 Of which: Interest expense 69.7 59.1 34.0 26.2 42.3 Of which: Depreciation of administrative assets 169.1 183.1 174.5 123.3 169.8 Total revenue operating account 8,796.8 9,279.6 9,599.2 10,012.3 9,160.7 Excess expenditure/revenue 6.4 7.9 81.2 359.4 1.5 Primary operating balance 76.2 67.0 115.2 385.5 43.8 Investment account Total expenditure investment account 306.3 279.7 376.2 391.0 463.1 Total revenue investment account 48.4 38.8 32.9 56.7 25.2 Net investment 257.9 240.9 343.3 334.3 437.9 Total revenue 8,790.2 9,260.7 9,624.2 10,064.1 9,181.5 Total expenditure 8,688.0 9,086.3 9,711.8 9,915.7 9,448.1 Financing Degree of self-financing 175.6 191.0 550.6 899.2 198.3 Financing deficit/surplus –82.3 –49.9 207.3 564.9 –239.6 Self-financing ratio 68.1% 79.3% 160.4% 269.0% 45.3% Balance sheet Total assets 7,840.5 7,405.5 8,183.3 7,725.4 n.a. Gross debt 4,953.0 3,802.9 4,918.4 4,305.6 4,545.21 Equity (+)/balance sheet deficit (–) 461.8 539.7 660.7 1,864.2 1,865.81 Key ratios Primary operating balance/Total revenue 0.9% 0.7% 1.2% 3.8% 0.5% Financing balance/Total revenue –0.9% –0.5% 2.2% 5.6% –2.6% Gross debt/Total revenue 56.3% 41.1% 51.1% 42.8% 49.5% Interest expense/Total revenue 0.8% 0.6% 0.4% 0.3% 0.5% Interest expense/Total expenditure 0.8% 0.7% 0.3% 0.3% 0.4% Per capita gross debt (in CHF) 6,748.9 5,078.6 6,461.7 5,568.3 5,786.31











Acces to airports

Swiss average

0%

1%

2%

3%

4%

5%

0

2,500

5,000

7,500

10,000

12,500

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B

CHF m

Gross debt


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800%

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in CHF m


187



Canton of Zug – AAA, Stable Daniel Rupli Public Sector Bond ticker: n.a.


With a population of just over 120,000, Zug is one of the smaller cantons – also geographically as it only covers 20,705 hectares. The population has grown solidly above the Swiss average over recent years. Zug has 11 municipalities, and generates an annual GDP of over CHF 18.0 bn, resulting in one of the strongest GDP per capita measures of all the cantons. The wholesale trade industry provides close to 15% of total jobs, which leaves the canton somewhat exposed to this industry. The unemployment rate stood at 2.5% at end-April 2016. Zug's financial residential attractiveness reading is below-average, due to high property prices, although these are partially offset by attractive taxes for individuals and legal entities. The canton has additional construction zone reserves for housing that could offer further growth, despite the fact that construction activity has been substantially above the Swiss average. The price-to-income index shows signs of an overheating, which is also evident in the well-above-average growth in house prices.


The rating of the Canton of Zug is supported by its strong resource index that outperforms all other cantons by far, indicating that it will be able to generate additional taxable income in the future. Zug also ranks highest in the CS locational quality index, thanks to its solid accessibility and attractive tax regimes for corporates and individuals. Recent financial performance has been rather weak, with excess expenditures due to rising costs and lower-than-expected tax income. We would also highlight that the canton has to pay over CHF 325 m into the financial equalization system, representing over 20% of the canton's cost base, which is the downside of the resource index. The canton still maintains a strong balance sheet with a strong net cash position, high liquidity and sound capitalization. The pension fund is fully funded, and the cantonal bank performed solidly, which does not expose Zug to substantial contingent liabilities. The Stable outlook reflects our expectation that Zug will weather the current challenges over the cycle.


Operating account Total expenditure operating account 1,328.3 1,391.6 1,407.1 1,443.2 1,458.5 Of which: Interest expense 0.0 0.0 0.0 0.0 0.0 Of which: Depreciation of administrative assets 58.4 64.4 59.8 58.8 71.3 Total revenue operating account 1,334.4 1,371.1 1,268.1 1,355.2 1,288.2 Excess expenditure/revenue 6.0 –20.5 –139.0 –87.9 –170.3 Primary operating balance 6.1 –20.5 –139.0 –87.9 –170.3 Investment account Total expenditure investment account 107.0 89.3 114.9 90.3 128.2 Total revenue investment account 26.4 12.3 21.4 12.5 18.1 Net investment 80.6 77.0 93.4 77.8 110.1 Total revenue 1,357.7 1,379.5 1,286.4 1,364.8 1,304.1 Total expenditure 1,363.7 1,408.2 1,459.0 1454.0 1503.8 Financing Degree of self-financing 85.1 10.7 –55.3 –41.0 –79.9 Financing deficit/surplus 4.5 –66.4 –148.7 –118.8 –190.0 Self-financing ratio 105.5% 13.9% –59.2% –52.7% –72.6% Balance sheet Total assets 1,925.9 3,672.5 1,675.4 1,596.0 n.a. Gross debt 657.2 667.6 577.5 620.8 819.01 Equity (+)/balance sheet deficit (–) 1,204.0 2,688.9 1,010.5 893.3 722.91 Key ratios Primary operating balance/Total revenue 0.4% –1.5% –10.8% –6.4% –13.1% Financing balance/Total revenue 0.3% –4.8% –11.6% –8.7% –14.6% Gross debt/Total revenue 48.4% 48.4% 44.9% 45.5% 62.8% Interest expense/Total revenue 0.0% 0.0% 0.0% 0.0% 0.0% Interest expense/Total expenditure 0.0% 0.0% 0.0% 0.0% 0.0% Per capita gross debt (in CHF) 5,636.3 5,653.8 4,809.7 5,169.5 6,667.31











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Canton of Zurich – AAA, Stable Daniel Rupli Public Sector Bond ticker: ZURICH


The Canton of Zurich is the largest canton in Switzerland in terms of population, with almost 1,500,000 inhabitants. Population growth has been above the Swiss average over the past few years. The canton has an area of 166,087 hectares, of which 22.8% is populated. It has 169 municipalities, and generates an annual GDP of CHF 137.1bn. The GDP per capita is among the highest in Switzerland. The unemployment rate stands at 3.7% at end-April 2016, which is on par with the Swiss average. Banking and healthcare are the main job providers in the canton, providing just over 6% each, followed by the education and retail industries. No single industry carries substantial exposure. Zurich's financial residential attractiveness is rather weak compared to other cantons, resulting in relatively low disposable income. The vacancy rate remains well below the Swiss average, with some regions virtually at zero. Property prices in certain areas continue to remain rather high when measured by the price-to-income ratio.


The rating of the Canton of Zurich benefits from its sustainable recent financial performance. Last year was characterized by a sound performance, with excess revenues and a positive operating balance. However, net investment increased markedly versus the previous year, due to the increased capital of over CHF 500 m invested in the cantonal bank. Excluding this one-off, the self-financing ratio would have again been well above 100%. Capitalization remained sound and indebtedness decreased further. The canton's resource index rating is among the highest in Switzerland, which supports its business profile but weighs on costs every year. Its CS locational quality index reading is strong, thanks to high levels of accessibility and availability of labor, while the tax regime for corporates and individuals lags slightly behind its peers. Contingent liabilities increased, as the coverage ratio dropped to 96%. The cantonal bank remains solid, but represents a tail risk, as seen with the recent capital injection, in our view. The outlook remains Stable.


Operating account Total expenditure operating account 14,157.7 14,226.8 14,413.9 14,820.4 15,154.4 Of which: Interest expense 138.0 134.6 122.6 133.8 117.0 Of which: Depreciation of administrative assets 454.1 457.5 503.7 493.7 466.7 Total revenue operating account 14,263.3 14,189.2 14,291.0 14,838.3 15,222.9 Excess expenditure/revenue 105.6 –37.6 –123.0 17.9 68.5 Primary operating balance 243.6 97.0 –0.3 151.7 185.5 Investment account Total expenditure investment account 859.0 896.8 1,017.9 1,249.2 1,074.6 Total revenue investment account 340.4 294.1 577.2 167.9 116.3 Net investment 518.6 602.7 440.7 1,081.2 958.3 Total revenue 14,493.3 14,463.2 14,868.1 15,006.2 15,339.2 Total expenditure 14,496.9 14,575.2 14,928.1 15,575.9 15,762.3 Financing Degree of self-financing 711.8 613.1 542.5 681.6 570.2 Financing deficit/surplus 193.2 10.3 101.8 –399.7 –388.1 Self-financing ratio 137.3% 101.7% 123.1% 63.0% 59.5% Balance sheet Total assets 21,925.7 20,828.7 21,361.3 20,380.1 n.a. Gross debt 6,810.1 9,041.9 9,924.0 9,057.3 9,445.41 Equity (+)/balance sheet deficit (–) 8,441.8 8,453.9 8,351.0 8,378.1 8,446.61 Key ratios Primary operating balance/Total revenue 1.7% 0.7% 0.0% 1.0% 1.2% Financing balance/Total revenue 1.3% 0.1% 0.7% –2.7% –2.5% Gross debt/Total revenue 47.0% 62.5% 66.7% 60.4% 61.6% Interest expense/Total revenue 1.0% 0.9% 0.8% 0.9% 0.8% Interest expense/Total expenditure 1.0% 0.9% 0.8% 0.9% 0.7% Per capita gross debt (in CHF) 4,836.0 6,344.7 6,862.6 6,177.9 6,351.11



* FY 2011: CHF -1,061.8, -156.8%









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City of Bern – Mid AA, Stable Daniel Rupli Public Sector Bond ticker: BERNCTY

City description Locational quality index

The City of Bern has over 140,000 inhabitants. While population growth is below the Swiss average, it is in line with the canton in which it is located. The Bern region consists of 28 municipalities, and generates a GDP of CHF 35.5 bn, resulting in a GDP per employed capita that ranks on par with the country's average, and above the canton's average. The region around and including the City of Bern – the nation's capital city – is dominated by the public sector, which provides nearly 15% of total jobs. The financial residential attractiveness of the City of Bern is weak, due to high taxes and the low housing offering, which has pushed prices up over the past year. There are limited construction zone reserves for housing, and construction activity has been substantially below the national average over the past 30 years. The vacancy rate of residential housing is low, but the price-to-income ratio does not indicate an overheating of house prices, which have grown less than the Swiss average in recent years.


The rating of the City of Bern benefits from a disciplinary operating performance and a cautious investment policy that has resulted in solid self-financing ratios and the ability to strengthen the balance sheet. Self-financing ratios have weakened recently but financial net debt (excluding BernMobil, Stadtbauten and EWB) remained fairly stable over the past few years. Equity has benefited substantially from the change in accounting standards toward HRM2, which resulted in the revaluation of assets. For the current year, the budget indicates an adverse trend. Net investments are expected to increase, which will result in a lower self-financing ratio that should not, however, weaken the balance sheet substantially. From a quality perspective, the CS locational quality index rating benefits from transport accessibility, as well as a high degree of highly skilled labor, partially offset by the below-average tax rates for individuals. The Stable outlook reflects our view that Bern is well positioned within its current rating category.


Operating account Total expenditure operating account 1,200.1 1,207.2 1,229.1 1,270.0 1,227.1 Of which: Interest expense 28.8 27.1 52.0 51.4 59.5 Of which: Depreciation of administrative assets 39.1 40.8 45.3 51.7 60.5 Total revenue operating account 1,087.3 1,141.5 1,229.1 1,270.0 1,227.1 Excess expenditure/revenue -8.2 17.8 0.3 -4.6 -3.8 Primary operating balance 20.6 44.9 52.3 46.8 55.7 Investment account Total expenditure investment account 30.7 45.7 126.5 126.5 122.9 Total revenue investment account 4.3 2.9 7.6 25.8 3.7 Net investment 26.4 42.8 118.9 100.7 119.2 Total revenue 1,089.4 1,105.9 1,086.2 1,145.3 1,068.9 Total expenditure 1,184.7 1,173.6 1,126.8 1,111.8 1,129.6 Financing Degree of self-financing 30.9 58.6 45.6 47.1 56.6 Financing deficit/surplus 4.5 15.8 -73.3 -53.6 -62.6 Self-financing ratio 117.0% 136.9% 38.4% 46.8% 47.5% Balance sheet Total assets 1,908.0 2,055.6 2,736.6 2,866.2 n.a. Gross debt 1,237.9 1,355.0 1,622.4 1,636.8 1,699.41 Equity (+)/balance sheet deficit (–) 48.5 66.3 969.7 1,102.6 1,098.81 Key ratios Primary operating balance/Total revenue 1.9% 4.1% 4.8% 4.1% 5.2% Financing balance/Total revenue 0.4% 1.4% -6.7% -4.7% -5.9% Gross debt/Total revenue 113.6% 122.5% 149.4% 142.9% 159.0% Interest expense/Total revenue 2.6% 2.5% 4.8% 4.5% 5.6% Interest expense/Total expenditure 2.4% 2.3% 4.6% 4.6% 5.3% Per capita gross debt (in CHF) 8,982.1 9,816.7 11,664.5 11,678.4 12,032.61


n.a. = not available









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City of Geneva – Low AA, Stable Daniel Rupli Public Sector Bond ticker: GENCTY


The City of Geneva numbers close to 200,000 inhabitants, with a growth rate just slightly above the Swiss average. Geneva is the second largest city in Switzerland when measured by population. The unemployment rate in the City of Geneva is markedly above the Swiss average, as can also be seen with the relatively high figure for the canton. The banking, wholesale trade and healthcare sectors are the largest employers in the city. Geneva's financial residential attractiveness is one of the weakest in Switzerland due to high housing costs and less-favorable tax systems for individuals. Furthermore, the availability of construction zone reserves for housing is very low and construction activity has been below average in recent years. The vacancy rate is close to zero. Looking at the price-to-income ratio, the City of Geneva appears to be exposed to an overheating price environment for housing, and has seen the highest price increases in Switzerland over the past few years.


The rating of the City of Geneva is supported by its solid balance sheet reflected in a sound capitalization compared to other cities. Thanks to another disciplined financial performance last year, the city presented solid excess revenues that resulted in a high degree of self-financing last year. Geneva was almost able to fully self-finance its net investments. That said, we appreciate the current budget, which indicates another solid performance in our view. Indebtedness remained fairly unchanged, with debt per capital being at the lower end compared to other large cities in Switzerland. The CS locational quality index is above-average thanks to its good accessibility as well as the above-average availability of labor. The tax systems for both corporates and individuals are weak, and we note that some contingent liabilities are weighing on the credit quality (underfunded pension liabilities). The outlook is Stable as we expect the city to continue its solid performance, reflected in a relatively solid budget for the current year.


Operating account Total expenditure operating account 1,130.3 1,257.7 1,149.7 1,182.9 1,180.3 Of which: Interest expense 29.1 19.3 20.9 23.3 24.4 Of which: Depreciation of administrative assets 74.8 84.9 79.0 84.6 79.1 Total revenue operating account 1,132.5 1,222.5 1,169.0 1,222.4 1,195.8 Excess expenditure / revenue 2.2 -35.2 19.3 39.5 15.5 Primary operating balance 31.4 -15.9 40.2 62.8 39.9 Investment account Total expenditure investment account 174.9 123.2 142.2 140.2 130.0 Total revenue investment account 22.3 23.2 18.8 8.0 0.0 Net investment 152.7 100.1 123.4 132.2 130.0 Total revenue 1,112.2 1,212.5 1,150.5 1,192.6 1,153.0 Total expenditure 1,171.1 1,246.2 1,159.3 1,183.6 1,170.9 Financing Degree of self-financing 77.1 49.8 98.3 124.2 94.5 Financing deficit / surplus -75.6 -50.3 -25.0 -8.1 -35.5 Self-financing ratio 50.5% 49.7% 79.7% 93.9% 72.7% Balance sheet Total assets 2,659.5 2,630.9 2,718.3 2,712.3 n.a. Gross debt 1,614.5 1,631.1 1,585.4 1,591.1 1,626.61 Equity (+) / balance sheet deficit (–) 986.4 951.2 966.1 1,005.7 1,021.11 Key ratios Primary operating balance/Total revenue 2.8% -1.3% 3.5% 5.3% 3.5% Financing balance/Total revenue -6.8% -4.1% -2.2% -0.7% -3.1% Gross debt/Total revenue 145.2% 134.5% 137.8% 133.4% 141.1% Interest expense/Total revenue 2.6% 1.6% 1.8% 2.0% 2.1% Interest expense/Total expenditure 2.5% 1.5% 1.8% 2.0% 2.1% Per capita gross debt (in CHF) 8,358.8 8,357.9 8,337.4 8,281.6 8,379.01

1 Estimates Credit Suisse B = Budget










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191



City of Lausanne – High A, Stable Daniel Rupli Public Sector Bond ticker: LAUSAN


The City of Lausanne has a population of over 140,000 inhabitants, with a growth rate below that of the regions and the canton, but above the Swiss average. With 23 municipalities, the region of Lausanne is roughly double the size of the city in terms of population. The region's GDP totals CHF 24.0 bn, with GDP per capita on par with the Swiss average. Lausanne benefits from a high amount of jobs provided by the healthcare and education sectors, with both contributions well above the canton and Swiss average, but below 10% and thus not resulting in a single concentration of exposure to any one industry, in our view. The city's financial residential attractiveness is hindered by comparatively high taxes and expensive real estate prices, which have grown markedly above the Swiss average in recent years. The percentage of taxpayers that earn more than CHF 75,000 a year is above average. The vacancy rate is close to zero and property prices indicate an overheating when measured by the price-to-income ratio.


The rating of the City of Lausanne benefits from its solid financial performance last year, with excess revenues indicating that Lausanne was able to keep costs under control. The primary operating balance was sound and, given the fact that net investments were markedly lower than budgeted, this resulted in a high self-financing ratio indicating that the city was able to fully self-finance investments. As such, indebtedness decreased slightly with debt per capita being lower than in the previous year, but still relatively high in our view. The city continues to carry a large balance sheet deficit, which weighs on the financial profile. The CS locational quality index reading is average, while the accessibility reading is above average. In contrast, taxes for individuals and corporates are below average. Contingent liabilities are weighing on reported financials, with the city's pension fund revealing a deficit of CHF 1.2 bn (65.4% coverage ratio), which is pressuring credit metrics. The outlook is Stable.


Operating account Total expenditure operating account 1,990.1 1,913.9 1,851.0 1,888.1 1,847.5 Of which: Interest expense 66.1 67.7 66.8 65.7 65.1 Of which: Depreciation of administrative assets 138.6 166.3 140.9 144.2 134.3 Total revenue operating account 1,910.3 1,917.6 1,855.5 1,892.7 1,849.8 Excess expenditure / revenue -79.8 3.7 4.4 4.6 2.3 Primary operating balance -13.7 71.3 71.3 70.3 67.4 Investment account Total expenditure investment account 160.4 174.4 125.6 116.2 182.8 Total revenue investment account 15.6 17.6 15.9 41.5 29.6 Net investment 144.8 156.8 109.7 74.7 153.2 Total revenue 1,635.0 1,750.8 1,677.6 1,738.4 1,654.8 Total expenditure 1,814.2 1,688.4 1,644.9 1,634.0 1,711.0 Financing Degree of self-financing 58.8 170.0 145.4 148.8 136.6 Financing deficit / surplus -86.0 13.1 35.7 74.1 -16.6 Self-financing ratio 40.6% 108.4% 132.5% 199.2% 89.2% Balance sheet Total assets 3,070.1 3,154.1 3,141.2 3,086.5 n.a. Gross debt 2,689.9 2,708.3 2,698.6 2,599.4 2,616.01 Equity (+) / balance sheet deficit (–) -1,004.0 -1,000.4 -995.9 -991.4 -989.01 Key ratios Primary operating balance/Total revenue -0.8% 4.1% 4.2% 4.0% 4.1% Financing balance/Total revenue -5.3% 0.8% 2.1% 4.3% -1.0% Gross debt/Total revenue 164.5% 154.7% 160.9% 149.5% 158.1% Interest expense/Total revenue 4.0% 3.9% 4.0% 3.8% 3.9% Interest expense/Total expenditure 3.6% 4.0% 4.1% 4.0% 3.8% Per capita gross debt (in CHF) 19,550.5 19,429.9 19,244.7 18,426.0 18,432.71











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City of Lugano – Mid A, Negative Daniel Rupli Public Sector Bond ticker: LUGANO


The City of Lugano is Switzerland's ninth-largest city measured by population. At end-2013, it had 67,201 residents, representing a substantial increase versus the prior year. Population growth was on par with the Swiss average and slightly higher than the Canton of Ticino. The main reason for the rise was the merger of various municipalities. The Lugano economic region consists of 59 municipalities and generated a total GDP of CHF 11.0 bn. GDP per capita is higher than the cantonal average, but lower than the Swiss average. The banking industry provides roughly 7% of the region's total employment, followed by the wholesale industry, which employed slightly fewer people, and the retailing industry, which employed 6% of the total. Lugano's financial residential attractiveness is below average due to the generally high cost of living in the city, while the outskirts are more attractive. House prices, particularly around the lake and close to the city, grew above the national average, while the price-to-income ratio indicates an average trend.


The rating of the City of Lugano benefits from an above-average CS locational quality index reading thanks to relatively attractive tax rates for individuals and access to labor. Its financial profile is characterized by an average debt per capita reading for cities. FY 2015 saw some relief compared to the previous years, but self-financing ratios still remain below 100%, which has resulted in another increase in indebtedness. The budget indicates further challenges ahead for Lugano. We appreciate the increase in the tax rate, which should make up for the weak budget to some extent. We also acknowledge the task force established to tackle the current medium-term financial plan, with the goal of avoiding a balance sheet deficit. The outlook remains Negative based on the ongoing challenges, although signs of a turnaround were visible in 2015. We will closely monitor the impact of the strong domestic currency and to what extent this has an impact on the local economy.


Operating account Total expenditure operating account 445.7 480.2 469.9 462.1 472.8 Of which: Interest expense 19.8 21.1 21.2 21.8 20.3 Of which: Depreciation of administrative assets 28.2 44.1 44.5 36.7 36.5 Total revenue operating account 410.7 430.3 467.0 462.0 450.4 Excess expenditure / revenue -35.0 -49.9 -2.9 -0.1 -22.5 Primary operating balance -15.2 -28.9 18.4 21.7 -2.1 Investment account Total expenditure investment account 94.7 115.4 93.3 57.4 72.3 Total revenue investment account 12.5 26.7 14.2 8.4 18.2 Net investment 82.2 88.7 79.1 49.0 54.1 Total revenue 418.5 454.6 479.1 479.1 466.1 Total expenditure 504.8 549.0 513.9 513.9 502.4 Financing Degree of self-financing -11.0 -5.8 41.7 36.6 14.1 Financing deficit / surplus -93.2 -94.5 -37.4 -12.4 -40.0 Self-financing ratio -13.4% -6.6% 52.7% 74.8% 26.0% Balance sheet Total assets 969.9 1,118.4 1,213.8 1,140.6 n.a. Gross debt 814.2 1,008.9 1,104.9 1,027.7 987.71 Equity (+) / balance sheet deficit (–) 141.9 144.9 92.1 92.0 69.61 Key ratios Primary operating balance/Total revenue -3.6% -6.3% 3.8% 4.5% -0.5% Financing balance/Total revenue -22.3% -20.8% -7.8% -2.6% -8.6% Gross debt/Total revenue 194.6% 221.9% 230.6% 214.5% 211.9% Interest expense/Total revenue 4.7% 4.6% 4.4% 4.5% 4.4% Interest expense/Total expenditure 3.9% 3.8% 4.1% 4.2% 4.0% Per capita gross debt (in CHF) 13,486.6 14,909.8 16,328.1 15,186.5 14,595.11











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City of Winterthur – Mid AA, Stable Daniel Rupli Public Sector Bond ticker: WINCTY


The City of Winterthur has a total population of over 110,000, with a growth rate above the Swiss average and higher than that of the Canton of Zurich in recent years. Winterthur has a total area of 6,807 hectares, of which 33.6% is populated. The city generates a GDP of over CHF 9.0 bn, resulting in a GDP per capita above the national average. At roughly 6% of total jobs, the healthcare sector is the largest employer in the city, followed by education and retail trade. The unemployment rate of the city stood at a low 2.4% in 2014 which reads above-average. The city reported some 10% construction zone reserves for housing. While the price-to-income ratio indicates the first signs of overheating, the situation is less intense than in the City of Zurich or around the Lake of Zurich. The vacancy rate is virtually zero, which underpins the high demand for housing in the City of Winterthur. The financial residential attractiveness is average, but markedly better than the City of Zurich's for instance.


The rating of the City of Winterthur benefits from the relatively solid financial discipline in recent years reflected in excess revenues, despite rising pressure on costs. Last year, Winterthur again reported a positive primary operating balance. Although the degree of self-financing is rising, self-financing ratios have been again below 100% indicating that the city is not able to fully self-finance its net investments. As such, indebtedness is increasing every year. Capitalization improved following the switch to HRM2 accounting standards. The CS locational quality index reading ranks in the top ten in Switzerland thanks to the strong accessibility. We also highlight the slightly above-average readings in the availability of both specialist and highly qualified labor, while taxes are attractive for individuals, but not for corporates. The current budget indicates that costs should remain under control, but net investments will most likely remain a challenge with the balance sheet set to weaken further. The outlook remains Stable for now.


Operating account Total expenditure operating account 1,491.2 1,465.2 1,423.2 1,491.7 1,495.0 Of which: Interest expense 24.9 25.5 28.4 28.1 34.2 Of which: Depreciation of administrative assets 111.5 104.8 79.3 100.2 88.3 Total revenue operating account 1,495.3 1,466.9 1,439.6 1,504.5 1,495.3 Excess expenditure / revenue 4.1 1.7 16.4 12.7 0.4 Primary operating balance 29.0 27.2 44.8 40.9 34.6 Investment account Total expenditure investment account 237.3 266.6 200.6 193.6 272.7 Total revenue investment account 35.5 33.4 47.2 44.8 46.9 Net investment 201.8 233.2 153.4 148.8 225.7 Total revenue 1,266.6 1,267.4 1,282.3 1,300.4 1,312.8 Total expenditure 1,359.5 1,377.9 1,312.2 1,313.4 1,438.0 Financing Degree of self-financing 115.6 106.5 95.8 112.9 88.6 Financing deficit / surplus -86.2 -126.7 -57.7 -35.9 -137.1 Self-financing ratio 57.3% 45.7% 62.4% 75.9% 39.3% Balance sheet Total assets 2,092.4 2,494.9 2,603.2 2,787.1 n.a. Gross debt 1,207.9 1,351.6 1,660.9 1,804.6 1,770.01 Equity (+) / balance sheet deficit (–) 28.0 63.8 747.9 779.2 779.61 Key ratios Primary operating balance/Total revenue 2.3% 2.1% 3.5% 3.1% 2.6% Financing balance/Total revenue -6.8% -10.0% -4.5% -2.8% -10.4% Gross debt/Total revenue 95.4% 106.6% 129.5% 138.8% 134.8% Interest expense/Total revenue 2.0% 2.0% 2.2% 2.2% 2.6% Interest expense/Total expenditure 1.8% 1.8% 2.2% 2.1% 2.4% Per capita gross debt (in CHF) 11,336.9 12,538.4 15,233.4 16,365.2 15,870.61











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City of Zurich – High AA, Stable Daniel Rupli Public Sector Bond ticker: ZURCTY


The City of Zurich has over 410,000 residents, with a population growth rate above the cantonal and country averages in recent years. It has a total area of 8,781 hectares, of which 60.9% is populated. GDP was CHF 61.8 bn, resulting in GDP per capita well above the Swiss average. Banking is Zurich's largest industry, providing roughly 11% of total jobs, which is a relatively large exposure. It is followed by education and healthcare at around 7% of jobs each. The vacancy rate is virtually zero, reflecting a high level of demand, despite high property prices, which have grown markedly above the Swiss average, thus underscoring the strong locational quality. Nevertheless, the residential financial attractiveness of Zurich is low based on the Swiss average due to its high population growth, its limited construction zone areas and its below-average construction activity over the past few years. The home ownership ratio increased to 12.6%, but remains low. The price-to-income ratio indicates some signs of an overheated property market.


The City of Zurich's rating benefits from another year of sustainable financial discipline characterized by another budgetary outperformance. Although costs increased, the city was able to generate higher revenue than the previous year. While net investments were markedly below the expected numbers, the degree of self-financing was sound, resulting in a self-financing ratio of above 100%, which indicates that the city was able to fully self-finance its investments. Net debt decreased slightly, resulting in a relatively high debt per capita in our view. The current budget indicates another relatively solid year despite a high amount of upcoming investments. The CS locational quality index is very strong thanks to the overall accessibility. While fiscal attractiveness for legal entities is low, the reading is above average for private individuals. Contingent liabilities are small, with the pensions fund coverage ratio still above 100%. The outlook is Stable as we see Zurich currently well positioned within its rating category.


Operating account Total expenditure operating account 8,331.1 8,214.7 8,541.3 8,446.1 8,665.3 Of which: Interest expense 199.9 181.0 175.6 166.2 160.5 Of which: Depreciation of administrative assets 586.8 607.7 646.5 677.2 674.7 Total revenue operating account 8,298.0 8,228.7 8,484.6 8,455.8 8,673.4 Excess expenditure / revenue -33.1 14.0 -56.7 9.7 8.1 Primary operating balance 166.8 195.0 118.9 175.9 168.6 Investment account Total expenditure investment account 828.0 966.9 927.4 858.2 1,168.0 Total revenue investment account 125.1 99.6 191.1 235.0 112.1 Net investment 702.9 867.3 736.3 623.2 1,055.9 Total revenue 7,215.0 7,322.8 7,470.2 7,644.7 7,737.0 Total expenditure 7,370.2 7,504.9 7,538.9 7,539.9 8,110.4 Financing Degree of self-financing 553.7 621.7 589.8 686.9 682.8 Financing deficit / surplus -149.2 -245.6 -146.5 63.7 -373.1 Self-financing ratio 78.8% 71.7% 80.1% 110.2% 64.7% Balance sheet Total assets 12,731.6 12,909.3 13,377.8 13,441.4 n.a. Gross debt 7,899.9 8,166.2 8,554.9 8,498.0 8,129.41 Equity (+) / balance sheet deficit (–) 722.8 723.9 667.1 676.9 685.01 Key ratios Primary operating balance/Total revenue 2.3% 2.7% 1.6% 2.3% 2.2% Financing balance/Total revenue -2.1% -3.4% -2.0% 0.8% -4.8% Gross debt/Total revenue 109.5% 111.5% 114.5% 111.2% 105.1% Interest expense/Total revenue 2.8% 2.5% 2.4% 2.2% 2.1% Interest expense/Total expenditure 2.7% 2.4% 2.3% 2.2% 2.0% Per capita gross debt (in CHF) 20,049.9 20,488.5 21,134.5 20,706.4 19,537.01











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Adjusted capital expenditures (capex) Gross capital expenditures (excluding acquisitions) plus depreciation part for operating leases.

Adjusted cash and cash equivalents Cash and cash equivalents, including investments that can be liquidated in the immediate future, adjusted for cash required for operating activities. Adjusted CFO Cash flow from operations (i.e. funds from operations after changes in net working capital) adjusted for the depreciation part from leasing & rental obligations and pension-related charges and contributions.

Adjusted EBIT Earnings before interest and taxes adjusted for the interest part from leasing & rental obligations and pension-related charges.

Adjusted EBITDA Earnings before interest, taxes, depreciation and amortization adjusted for leasing & rental charges and pension-related charges.

Adjusted equity Shareholder's equity (including minorities) minus pension deficit.

Adjusted FCF Cash flow from operations less gross capital expenditures, excluding acquisition-related investments and dividends, adjusted for leasing & rental depreciation charges and pension-related expenses.

Adjusted FFO Funds from operations adjusted for the depreciation part from leasing & rental and pension-related expenses and contributions.

Adjusted gross debt Short- and long-term interest-bearing liabilities adjusted for off-balance-sheet items related to pension deficits, leasing & rental obligations, contingencies and guarantees.

Adjusted gross leverage and adjusted net leverage Adjusted debt on a gross/net basis in relation to total adjusted equity plus adjusted debt on a gross/net basis.

Adjusted interest expense Interest expenses adjusted for the interest part from leasing & rental obligations.

Adjusted net debt Adjusted gross debt less adjusted cash & cash equivalents ("net cash" if cash & cash equivalents exceed gross debt).

Adjusted net gearing Adjusted net debt in relation to total adjusted equity.

Adjusted total asset base Reported total assets plus operating leasing debt (operating lease expense x applicable multiple).

Combined ratio The combined ratio equals expenses and losses divided by revenue from premiums. The result is expressed as a percentage. A value of less than 100% means the company is taking in more premiums than it is paying out via expenses and losses.

Commercial paper (CD) Short-term debt instruments (up to nine months) that are issued by established corporations in large sums and traded at a discount. They are a central funding tool and an alternative to bank credits.

Comprehensive income Net profit attributable to shareholders plus other income, i.e. unrealized gains/losses bypassing the P&L, e.g. foreign currency translation gains/losses or unrealized gains/losses on securities held-for-sale.

Core working capital Core working capital = receivables plus inventories minus payables.

Covenants Debt covenants form part of credit agreements stipulating ratios and conditions applicable to financial obligations.

Credit metrics Financial ratios (typically debt- and debt-service related) which are used to assess financial strength including debt service capacity.

Degree of self-financing Equals excess revenue plus depreciation on administrative property. This figure provides an indication with regard to cash flow of cantons and is comparable to cash from operating activities for corporates.

Foundation for accounting and reporting regulations (FER) Independent Swiss institution tasked with the further development of accounting standards in Switzerland to improve the quality and comparability of company accounts and to align them with the requirements of international accounting standards.

Goodwill An asset created when the price to acquire a company exceeds the value of its net assets and identifiable, measurable intangible assets.

HRM1 / HRM2 The harmonized accounting model (HRM) is a public sector accounting manual. The new HRM2 aims to make Switzerland's reporting standards for the public sector compatible with the International Public Sector Accounting Standards (IPSAS) which, in turn, are based on IFRS.

IFRS accounting standards The IFRS (International Financial Reporting Standards) are a central instrument in the global harmonization of corporate accounting. They are issued by the International Accounting Standards Committee (IASC), an international association established in London in 1973.

Impairment Impairment is the permanent loss in value on investments, assets or goodwill that is subsequently written off via the P&L statement.

Intangible assets Non-physical assets other than goodwill, such as patents, licenses, brands, trade names, business secrets (procedures), formulas, supply contracts and customer relationships.

Interest coverage This ratio shows adjusted EBITDA or EBIT to adjusted gross- or net interest charges.

Glossary of financial terms

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Net debt/GWh This ratio is used to measure the efficiency of an electrical utility by comparing the level of debt involved to the amount of electricity produced p.a., which is measured in GWh and serves as a proxy for generation capacity.

Net profit Net income attributable to shareholders, i.e. profit generated by the company less minority interests.

Primary operating balance This ratio is calculated as excess revenue plus interest expense. It indicates the success of the operating performance is in a single year.

Rating A rating is an independent opinion with regard to the ability and willingness of an issuer to repay debt and interest in full without delay.

Self-financing ratio Degree of self-financing divided by net investments. A self-financing ratio of 100% indicates that a canton was able to fully self-finance its net investments in one particular year. A ratio of < 100% indicates that a canton needs other internal or external financing sources.

Solvency Solvency refers to the ability of an insurer to service debt. Among other factors, this depends on an adequate level of underwriting reserves, internal funds and the extent of reinsurance activities.

Solvency margin Depending on the volume of business, the minimum amount of unused shareholders’ equity required by federal regulations. This serves to cover general business risks that the underwriting reserves do not cover or cover only partially.

Total revenue (public sector) Total revenues plus total cash inflows from divestments minus internal settlement minus cash inflows from special financing. This figure provides an indication for a sustainable operating revenue figure.

Total expenditure (public sector) Total costs plus total cash outflows from investments minus depreciation, minus internal settlements, minus cash outflows from special financing. This figure provides an indication for a sustainable operating costs figure.

US GAAP United States Generally Accepted Accounting Principles; these comprise Statements of Financial Accounting Standards (SFAS) issued by the Financial Accounting Standards Board (FASB).

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Risk warning Every investment involves risk, especially with regard to fluctuations in value and return. If an investment is denominated in a currency other than your base currency, changes in the rate of exchange may have an adverse effect on value, price or income. For a discussion of the risks of investing in the securities mentioned in this report, please refer to the following Internet link: https://research.credit-suisse.com/riskdisclosure This report may include information on investments that involve special risks. You should seek the advice of your independent financial advisor prior to taking any investment decisions based on this report or for any necessary explanation of its contents. Further information is also available in the infor-mation brochure “Special Risks in Securities Trading” available from the Swiss Bankers Association. The price, value of and income from any of the securities or financial instru-ments mentioned in this report can fall as well as rise. The value of securities and financial instruments is affected by changes in spot or forward interest and exchange rates, economic indicators, the financial standing of any issuer or reference issuer, etc., that may have a positive or adverse effect on the income from or price of such securities or financial instruments. By purchas-ing securities or financial instruments, you may incur a loss or a loss in excess of the principal as a result of fluctuations in market prices or other financial indices, etc. Investors in securities such as ADRs, the values of which are influenced by currency volatility, effectively assume this risk. Commission rates for brokerage transactions will be as per the rates agreed between CS and the investor. For transactions conducted on a principal-to-principal basis between CS and the investor, the purchase or sale price will be the total consideration. Transactions conducted on a principal-to-principal basis, including over-the-counter derivative transactions, will be quoted as a purchase/bid price or sell/offer price, in which case a difference or spread may exist. Charges in relation to transactions will be agreed upon prior to transactions, in line with relevant laws and regulations. Please read the pre-contract documentation, etc., carefully for an explanation of risks and com-missions, etc., of the relevant securities or financial instruments prior to purchase Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the product and consult with their own professional advisers as to the risks involved in making such a purchase. Some investments discussed in this report have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realized. Those losses may equal your original investment. Indeed, in the case of some investments the poten-tial losses may exceed the amount of initial investment, in such circumstanc-es you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realizable and it may be difficult to sell or realize those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. Please contact your Relationship Manager if you have any ques-tions. Past performance is not an indicator of future performance. Perfor-mance can be affected by commissions, fees or other charges as well as exchange rate fluctuations.

Sensitivities Sensitivity analysis is understood as the change in the market value (e.g. price) of a financial instrument for a given change in a risk factor and/or model assumption. Specifically, the market value of any financial instrument may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Financial market risks Historical returns and financial market scenarios are no guarantee of future performance. The price and value of investments mentioned and any income that might accrue could fall or rise or fluctuate. Past performance is not a guide to future performance. If an investment is denominated in a currency other than your base currency, changes in the rate of exchange may have an adverse effect on value, price or income. You should consult with such advisor(s) as you consider necessary to assist you in making these determi-nations. Investments may have no public market or only a restricted secondary mar-ket. Where a secondary market exists, it is not possible to predict the price at which investments will trade in the market or whether such market will be liquid or illiquid. Emerging markets Where this report relates to emerging markets, you should be aware that there are uncertainties and risks associated with investments and transac-tions in various types of investments of, or related or linked to, issuers and obligors incorporated, based or principally engaged in business in emerging markets countries. Investments related to emerging markets countries may be considered speculative, and their prices will be much more volatile than those in the more developed countries of the world. Investments in emerging markets investments should be made only by sophisticated investors or experienced professionals who have independent knowledge of the relevant markets, are able to consider and weigh the various risks presented by such investments, and have the financial resources necessary to bear the substan-tial risk of loss of investment in such investments. It is your responsibility to manage the risks which arise as a result of in-vesting in emerging markets investments and the allocation of assets in your portfolio. You should seek advice from your own advisers with regard to the various risks and factors to be considered when investing in an emerging markets investment. Alternative investments Hedge funds are not subject to the numerous investor protection regulations that apply to regulated authorized collective investments and hedge fund managers are largely unregulated. Hedge funds are not limited to any par-ticular investment discipline or trading strategy, and seek to profit in all kinds of markets by using leverage, derivatives, and complex speculative invest-ment strategies that may increase the risk of investment loss. Commodity transactions carry a high degree of risk and may not be suitable for many private investors. The extent of loss due to market movements can be substantial or even result in a total loss. Investors in real estate are exposed to liquidity, foreign currency and other risks, including cyclical risk, rental and local market risk as well as environ-mental risk, and changes to the legal situation. Interest rate and credit risks The retention of value of a bond is dependent on the creditworthiness of the Issuer and/or Guarantor (as applicable), which may change over the term of the bond. In the event of default by the Issuer and/or Guarantor of the bond, the bond or any income derived from it is not guaranteed and you may get back none of, or less than, what was originally invested.

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The information and opinions expressed in this report (other than article contributions by Investment Strategists) were produced by the Research department of the International Wealth Management division of CS as of the date of writing and are subject to change without notice. Views expressed in respect of a particular security in this report may be different from, or inconsistent with, the observations and views of the Credit Suisse Research department of Investment Banking division due to the differences in evaluation criteria. Article contributions by Investment Strategists are not research reports. Investment Strategists are not part of the CS Research department. CS has policies in place designed to ensure the independence of CS Research Department including policies relating to restrictions on trading of relevant securities prior to distribution of research reports. These policies do not apply to Investment Strategists. CS accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that liability arises under specific statutes or regulations applicable to CS. This report is not to be relied upon in substitution for the exercise of independent judgment. CS may have issued, and may in the future issue, a trading idea regarding this security. Trading ideas are short term trading opportunities based on market events and catalysts, while com-pany recommendations reflect investment recommendations based on expected total return over a 6 to 12-month period as defined in the disclosure section. Because trading ideas and company recommendations reflect different assumptions and analytical methods, trading ideas may differ from the company recommendations. In addition, CS may have issued, and may in the future issue, other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different assumptions, views and analytical methods of the analysts who prepared them and CS is under no obligation to ensure that such other reports are brought to the attention of any recipient of this report. Analyst certification The analysts identified in this report hereby certify that views about the companies and their securities discussed in this report accurately reflect their personal views about all of the subject companies and securities. The analysts also certify that no part of their compensation was, is, or will be directly or indirectly related to the specific recommen-dation(s) or view(s) in this report. Knowledge Process Outsourcing (KPO) Analysts mentioned in this report are em-ployed by Credit Suisse Business Analytics (India) Private Limited. Important disclosures CS policy is to publish and update research reports/recommendations with the fre-quency, as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. CS policy is only to publish investment research that is impar-tial, independent, clear, fair and not misleading. The Credit Suisse Code of Conduct to which all employees are obliged to adhere, is accessible via the website at: http://www.credit-suisse.com/governance/en/code_of_conduct.html For more detail, please refer to the information on independence of financial research, which can be found at: https://www.credit-suisse.com/legal/pb_research/independence_en.pdf The analyst(s) responsible for preparing this research report received compensation that is based upon various factors including CS’s total revenues, a portion of which is generated by Credit Suisse Investment Banking business. Extracts of this research have not been sent to (ABB Ltd, AFG Arbonia-Forster- Holding AG, Allreal Holding Ltd, ARYZTA AG, Baloise-Holding AG, Bucher Industries Ltd, Chocoladefabriken Lindt & Spruengli AG, Clariant AG, Flughafen Zuerich AG, Geberit AG, Georg Fischer Ltd, Givaudan AG, Glencore PLC, Helvetia Holding Ltd, LafargeHolcim Ltd, Lonza Group AG, Meyer Burger Technology AG, Mobimo Holding AG, Nestle SA, Novartis Inc, OC Oerlikon Corporation Inc., Pfaeffikon, PSP Swiss Property AG, Raiffeisen Bank International AG, Rieter Holding AG, Roche Holding Ltd, Schindler Holding Ltd, SGS Ltd, Sulzer AG, Swiss Life Holding AG, Swiss Re Ltd, Swisscom Ltd, UBS Group Inc., Valiant Holding AG, Valora Holding AG, Zurich Insurance Group AG) prior to publication for the purpose of verifying factual accuracy. The analyst(s) and/or a member of the analyst’s household hold a position in the securities of (Novartis Inc, Swiss Re Ltd).

CS holds >0.5% net long position of the total issued share capital of (Clariant AG, Lonza Group AG). CS holds >0.5% net short position of the total issued share capital of (Sulzer AG, Swisscom Ltd, Zurich Insurance Group AG). As at the end of the preceding month, CS beneficially owned 1% or more of a class of common equity securities of (ABB Ltd, AFG Arbonia-Forster-Holding AG, Allreal Holding Ltd, ARYZTA AG, Baloise-Holding AG, Bucher Industries Ltd, Clariant AG, Flughafen Zuerich AG, Geberit AG, Georg Fischer Ltd, Givaudan AG, Helvetia Holding Ltd, LafargeHolcim Ltd, Lonza Group AG, Meyer Burger Technology AG, Mobimo Holding AG, Nestle SA, Novartis Inc, PSP Swiss Property AG, Rieter Holding AG, SGS Ltd, Sulzer AG, Swiss Life Holding AG, Swiss Re Ltd, Swisscom Ltd, UBS Group Inc., Valiant Holding AG, Valora Holding AG, Zurich Insurance Group AG). The subject issuer (ABB Ltd, Allreal Holding Ltd, Chocoladefabriken Lindt & Spruengli AG, Clariant AG, Georg Fischer Ltd, Glencore PLC, Helvetia Holding Ltd, Lafarge-Holcim Ltd, Lonza Group AG, Nestle SA, Novartis Inc, OC Oerlikon Corporation Inc., Pfaeffikon, PSP Swiss Property AG, Raiffeisen Bank International AG, Rieter Holding AG, Schindler Holding Ltd, SGS Ltd, Sulzer AG, Swiss Life Holding AG, Valora Holding AG, Zurich Insurance Group AG) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of CS. CS provided investment banking services to the subject company (ABB Ltd, Allreal Holding Ltd, Chocoladefabriken Lindt & Spruengli AG, Clariant AG, Georg Fischer Ltd, Glencore PLC, Helvetia Holding Ltd, LafargeHolcim Ltd, Lonza Group AG, Nestle SA, Novartis Inc, OC Oerlikon Corporation Inc., Pfaeffikon, PSP Swiss Property AG, Raiffeisen Bank International AG, Rieter Holding AG, Schindler Holding Ltd, SGS Ltd, Sulzer AG, Swiss Life Holding AG, Valora Holding AG, Zurich Insurance Group AG) within the past 12 months. CS provided non-investment banking services, which may include Sales and Trading services, to the subject issuer (Chocoladefabriken Lindt & Spruengli AG, PSP Swiss Property AG, Rieter Holding AG) within the past 12 months. CS has managed or co-managed a public offering of securities for the subject issuer (Allreal Holding Ltd, ARYZTA AG, Baloise-Holding AG, Chocoladefabriken Lindt & Spruengli AG, Clariant AG, Georg Fischer Ltd, Givaudan AG, Glencore PLC, Helvetia Holding Ltd, Lafarge-Holcim Ltd, Lonza Group AG, Meyer Burger Technology AG, Nestle SA, Novartis Inc, OC Oerlikon Corporation Inc., Pfaeffikon, PSP Swiss Property AG, Rieter Holding AG, Schindler Holding Ltd, SGS Ltd, Sulzer AG, Swiss Life Holding AG, Swiss Re Ltd, Swisscom Ltd) within the past three years. CS has managed or co-managed a public offering of securities for the subject issuer (Allreal Holding Ltd, Georg Fischer Ltd, Glencore PLC, Helvetia Holding Ltd, LafargeHolcim Ltd, Lonza Group AG, Nestle SA, Novartis Inc, PSP Swiss Property AG, Schindler Holding Ltd, Sulzer AG, Swiss Life Holding AG, Zurich Insurance Group AG) within the past 12 months. CS has received investment banking related compensation from the subject issuer (Allreal Holding Ltd, Georg Fischer Ltd, Glencore PLC, Helvetia Holding Ltd, LafargeHolcim Ltd, Lonza Group AG, Nestle SA, Novartis Inc, PSP Swiss Property AG, Schindler Holding Ltd, Sulzer AG, Swiss Life Holding AG, Zurich Insurance Group AG) within the past 12 months. CS has received compensation for products and services other than investment banking services from the subject issuer (Chocoladefabriken Lindt & Spruengli AG, Rieter Holding AG) within the past 12 months. CS expects to receive or intends to seek investment banking related compensation from the subject issuer (ABB Ltd, Allreal Holding Ltd, Chocoladefabriken Lindt & Spruengli AG, Clariant AG, Georg Fischer Ltd, Glencore PLC, Helvetia Holding Ltd, LafargeHolcim Ltd, Lonza Group AG, Nestle SA, Novartis Inc, OC Oerlikon Corpora-tion Inc., Pfaeffikon, PSP Swiss Property AG, Raiffeisen Bank International AG, Rieter Holding AG, Schindler Holding Ltd, SGS Ltd, Sulzer AG, Swiss Life Holding AG, Valora Holding AG, Zurich Insurance Group AG) within the next three months.

Disclosures

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Additional disclosures United Kingdom: For fixed income disclosure information for clients of Credit Suisse (UK) Limited and Credit Suisse Securities (Europe) Limited, please call +41 44 333 33 99. India: Please visit http://www.credit-suisse.com/in/researchdisclosure for additional disclosures mandated vide Securities And Exchange Board of India (Research Ana-lysts) Regulations, 2014.

Credit Suisse may have an interest in the companies mentioned in this report. CS research reports are also available on: https://investment.credit-suisse.com/ For information regarding disclosure information on Credit Suisse Investment Banking rated companies mentioned in this report, please refer to the Investment Banking division disclosure site at: https://rave.credit-suisse.com/disclosures For further information, including disclosures with respect to any other issuers, please refer to the Private Banking & Wealth Management Division Disclosure site at: https://www.credit-suisse.com/disclosure

Guide to analysis Corporate bond recommendations The recommendations are based fundamentally on forecasts for total returns versus the respective benchmark on a 3–6 month horizon and are defined as follows: BUY: Expectation that the bond issue will be a top performer relative to

its sector and rating class HOLD: Expectation that the bond issue will be a average performer

relative to its sector and rating class SELL: Expectation that the bond issue will be a poor performer relative

to its sector and rating class RESTRICTED: In certain circumstances, internal and external regulations

exclude certain types of communications, including e.g. an investment recommendation during the course of Credit Suisse engagement in an investment banking transaction.

Credit ratings definition The Swiss Institutional Credit Research of Private Banking division at Credit Suisse assigns ratings to investment-grade and sub-investment-grade issuers. Ratings are based on our assessment of a company’s creditworthiness and are not recommenda-tions to buy or sell a bond. The ratings scale (AAA, AA, A, BBB, BB and below) is dependent on our assessment of an issuer’s ability and willingness to meet its financial commitments on a timely manner and in full. AAA: Best credit quality and lowest expectation of credit risks, including an

exceptionally high capacity level with respect to debt servicing. This capacity is unlikely to be adversely affected by foreseeable events.

AA: Obligor’s capacity to meet its financial commitments is very strong A: Obligor’s capacity to meet its financial commitments is strong BBB: Obligor’s capacity to meet its financial commitments is adequate, but

adverse economic / operating / financial circumstances are more likely to impact the capacity to meet its obligations

BB and below:

Interest and debt obligations have speculative characteristics and are subject to substantial credit risk due to adverse economic / operating / financial circumstances resulting in inadequate capacity to service its obligations

For the AA, A, BBB, BB and below categories, creditworthiness is further detailed with a scale of High, Mid, or Low, with High being the strongest sub-category rating. An Outlook indicates the direction a rating is likely to move over a twelve to eighteen month period. Outlooks may be "positive", "stable" or "negative". A positive or negative Rating Outlook does not imply a rating change is inevitable. Similarly, ratings for which outlooks are stable could be upgraded or downgraded before an outlook moves to positive or negative if circumstances warrant such an action. A rating may also be "under review", indicating a potential rating action.

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