Bonds Daily. ABGSC Daily Report - Bonds. Credit Research - 25 February :27 CET

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1 Credit Research - 25 February :27 CET Bonds Daily ABGSC Daily Report - Bonds Norlandia: Soft figures in Q4 Revenues came in at NOK 1,220m, 1.9% below our NOK 1244m estimate. EBITDA came in at NOK -12.4m, a landslide below our NOK 47.5m estimate. Note that the figures we refer to strip out the irregular contribution from the Real Estate segment (NOK 28.5m this quarter) in order to identify the true underlying operational EBITDA in the company. A NOK 17m in one off related to new pension legislation is recognised (under the Preschool segment) and adjusting for this gives NOK 4.6m in group EBITDA, still significant below our NOK 47.5m estimate. Preschools, the most important segment - overall contributing to about 75% of group EBITDA p.a., should generate close to NOK 50m in the quarter. Adjusting for the NOK 17m one off gives NOK 24.3m in EBITDA, about 50% below our NOK 49.6m estimate. This is worrying, but explained by extraordinary start-up costs in Sweden, low occupancy in Sweden and a slight regulatory tweak in how municipal grants are awarded in Q4. The first two seems ok, but the latter is a bit surprising and looking at Q4 17, Norlandia delivered NOK 42.3m in EBITDA and 8.3% in EBITDA margin which makes the explanation even more unclear. Care (overall contributing to about 20% of group EBITDA) delivers NOK 4.1m in EBITDA and 1% in EBITDA margin, which seems strong in relation to Q4 17 (0.2% EBITDA margin) and our estimate of NOK 0.9m and 0.2% in EBITDA margin. Nevertheless, Norlandia state that it expects to see a <10% drop in revenues and profitability in this segment on the back of contract expirations in Sweden. We have already anticipated such a development in our estimates, although we are slightly more aggressive with a 20% YoY drop. Integration services and Individual & Family are still struggling, this quarter contributing with NOK -6.7m and NOK -7.6m at the EBITDA level respectively even lower than our estimates at NOK -2.2m and - 0.8m. Interestingly, Norlandia announce it enters into a JV with its owner Hospitality Invest named NH Europe AS. This JV has signed a credit facility with DNB in order to finance selected preschool acquisitions in Europe. We are surprised by this move as Norlandia clearly does not have any capacity to raise debt on its own (incurrence test is 3.25x). It therefore enters a JV structure with Hospitality in order to continue its aggressive growth path within preschools. In our opinion, it is a slight step back for bondholders as the reorganisation in Q4 16 (and the accompanying bond issue) clearly was made to streamline Adolfsen s operations and organisational structure. Overall, it seems as a messy quarter from Norlandia, with figures well below our estimates. Bond prices should react down on this. We will revert with more flavour and a full credit comment during the day Tulip Oil annual report We await more information about production Issuer TONO and guarantors released annual reports on Friday (and hence H2 18 financial results). Tulip has already announced first gas, and that the project is on budget (and obviously ahead of the initial May 19 start-up schedule). Please refer to important disclosures at the end of this report Stock market Today 1D 1M 3M YTD OSE % 2% 2% 8% OMX 1, % 7% 6% 13% SBX 1, % 7% 8% 13% OSX % 3% -10% 16% VIX % -31% -29% -42% High Yield Indices (Spread) Itraxx Xover 5Y 292-1bp -40bp -37bp -69bp HYG US 404-3bp -35bp -29bp -126bp BUHYEN 396 1bp -40bp -28bp -134bp ABG HY index 488-2bp 51bp n.a. n.a. Interest Rates Basis points NIBOR 3M bp 2.0bp 6.0bp 2.0bp NIBOR 3Y SWAP bp -4.7bp -6.5bp 3.0bp NIBOR 5Y SWAP bp -8.0bp -15.5bp 3.0bp STIBOR 3M bp 0.5bp 34.1bp 5.5bp STIBOR 3Y SWAP bp -5.0bp -2.5bp 0.2bp STIBOR 5Y SWAP bp -10.3bp -15.2bp -5.0bp US L3M bp -12.4bp -6.1bp -14.8bp US LIBOR 3Y SWAP bp -13.5bp -48.1bp -2.1bp US LIBOR 5Y SWAP bp -12.6bp -49.6bp 0.0bp Currencies USD/NOK % 1% 0% -1% EUR/NOK % 0% 0% -1% SEK/NOK % -3% -2% -5% Commodities Oil - Brent (USD/bl) % 10% 11% 22% Shipping Rates Baltic Dry Bulk 634 1% -50% -48% -51% Baltic Tank (Dirty) 823-1% -34% -32% -18% Baltic Tank (Clean) 595 0% -27% -51% -11% Source: Bloomberg Source: ABG Sundal Collier ABGSC Credit Research ABGSC HY Index Alexander Jost alexander.jost@abgsc.no Haakon Amundsen haakon.amundsen@abgsc.no Rikard M. Braaten rikard.braaten@abgsc.no Andreas Johannessen andreas.johannessen@abgsc.no Eric Wahlström eric.w ahlstrom@abgsc.se

2 We note that the YE 18 cash position is EUR 36m vs our model of 46m, but we expect that the difference is driven mostly by the acceleration of the schedule as capex in 18 was EUR 32m vs our estimates of EUR 24m. Tulip appears to expect to have completed development drilling by October 19, which could suggest that that plateau production is somewhat ahead of our current estimates, which we consider positive. Tulip states that it is currently reprocessing 1600km2 of legacy 3D seismic data which could be followed up with exploration drilling later in the year if deemed attractive. We have not identified more information about the reservoir performance (other than the previous comments that the start-up is deemed successful). Our initial take is the H2 18 results appear relatively neutral for the credit, and we await more granularity on the initial production and reservoir performance as more important drivers for pricing of the bond. Floatel Q4 slightly ahead of guidance, but limited visibility into H2 19 Floatel International has release its Q4 report this morning and will host a conference call at 1430 CET today. Q4 EBITDA was USD 60m vs USD ~55m implied by the guidance it provided in connection with its refinancing in September 18.The cash position ended at USD 77m with USD 82m in undrawn super-senior RCF (USD 159m available liquidity) vs the USD 154m guided. Floatel ended the year with USD 774m in NIBD including the USD 239m Keppel subordinated debt. Superior has been extended to end November 19 with 6-month option thereafter. Victory has contract to May 19 (+2-month options), Reliance is idle, Endurance is undergoing SPS/maintenance instead of executing the Clair Ridge contract and Triumph has been extended to March (from January). Triumph will then transit from Australia to South-East Asia. Floatel only has one of 5 units with fixed contract after H1 19. We find the report in itself to be quite neutral for the credits, but we note that our USD ~93m 19 EBITDA estimate is dependent on Floatel securing work for all units in H2 19 and this looks demanding currently, but likely a key topic for today s call. Seadrill: 40% of your SDRL holdings at 107 SDRL launched a bond amendment and a buy-back tender offer. The amendments revolve around making it easier to redeem bonds going forward, while the buy-back opens up for SDRL to spend the current USD 340m of cash held as security for the bonds to redeem them at 107% plus accrued. On our calculations (net of accrued), this equates to ~40% of the bonds being redeemed. This is a rather enticing offer for bondholders, as SDRL 2025 s traded at 95/96 prior to the announcement. The proposal, which also includes a 25bp amendment fee, has been supported by bondholders owning more than 53%. The main proposed amendments relates to a) Permitting the use of the asset sale proceeds remaining after a mandatory asset sale repurchase offer for open market purchases of the notes (instead of redeeming notes at 106%) b) Allow the use of the USD 340m currently held as security for the notes to launch a buy-back c) allow for the minimum outstanding bond amount following asset redemption to be USD 150m or zero d) Permit the use of unrestricted cash that is not security for the notes to redeem the notes (this would require amendments to the secured bank facilities which SDRL is not currently contemplating), e) Remove the requirement for a public rating on the notes f) Waive the Limitation on Transaction with Affiliates clause to Hemen Holding Limited. Read the full report here Diana Shipping: TC contract for M/V Houston at low rates The company announced Friday afternoon that the 2009-built Capesize vessel M/V Houston has been awarded a time charter contract with Koch Shipping at USD 9.619pd (net of fees). The charter commenced February 17, will run for minimum 14 to maximum 17 months, and add roughly USD 4.25m of gross revenue backlog at the minimum period. The daily charter rate is low compared to Diana s other Capesize vessels, and more in line with fixtures on Panamaxes, arguably as a result of the market turmoil this year following issues in Brazil. The Baltic Dry Index has dropped close to 100% YTD. Shipping market news Cape average earnings reached USD 2.6kpd, their lowest level since April 2016, whilst 1yr Cape TCs continued their downward path to USD 11.9kpd, down 42% y-o-y and 19% YTD. We expect the negative rate development to further support scrapping, with the 19yr old Cape Star Aurora acting an example. The US-China negotiations could prove to be a catalyst for the entire shipping space. A breaking of tension could see the removal of a 25% on US LPG exports, the resumption of substantial US grain exports, and the potential agreement to buy significant amounts of crude oil. Such developments could help to substantially lift demand for 25 February 2019 ABG Sundal Collier 2

3 the aforementioned commodities in effectively the longest haul route possible, possibly helping to drive tonnemile demand and consequently rates. US rig count down 4 to 1,047 since last week Baker Hughes US rig count out on Friday afternoon, total rig count down 4 to 1,047 Oil rigs down 4 to 853 Oil rig count is up 7% Y-o-Y The horizontal rig count up 1 to 916 Gas rigs flat at 194 Rigs categorized as miscellaneous flat at 0 Onshore rig count down 2 to 1,028 Offshore rig count down 2 to 19 The Q1 19 average rig count is down 1.5% since Q4 18 Reported corporate HY bonds traded in Oslo at Friday 22 February 2019 Issuer Ticker Volume 21/02/2019 Credit spread maturity Yield change Digiplex Norw ay AS 15/19 FRN C DIPNO01 2.0m % -0.1% Exmar Netherlands BV 14/17 FRN EXMAR01 4.0m , % 0.0% Læringsverkstedet AS 17/22 FRN C LVER01 PRO 6.0m % 1.0% Nova Austral S.A. 17/21 8,25% USD C NOVA01 3.6m % 0.2% Ocean Yield ASA 15/20 FRN C OCY03 5.0m % 1.1% Okea AS 18/23 FRN USD C OKEA02 4.0m % 0.2% Chembulk Holding LLC 18/23 8,00% USD C CHHO01 4.0m % -1.3% Source: ABG Sundal Collier, company data Price Time to 25 February 2019 ABG Sundal Collier 3

4 ssss Analyst certification I/We, Alexander Jost, Andreas Johannessen, Eric Wahlström, Haakon Amundsen, Rikard Magnus Braaten, the author(s) of this report, certify that not withstanding the existence of any such potential conflicts of interests referred to below, the views expressed in this report accurately reflect my/our personal view about the companies and securities covered in this report. I/We further certify that I/We have not been, nor am/are or will be, receiving direct or indirect compensation related to the specific recommendations or views contained in this report. Analyst valuation methods When evaluating the credit risk of the issuer, we look at credit ratios, management and corporate strategy, business risk, industry risk and management risk appetite. Further, we look at dividend and financial policies. 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5 ABGSC Research Department Joint Global Head of Research Christer Linde Strategy Christer Linde, Quant/Technical Capital Goods Anders Idborg Olof Cederholm Karl Bokvist Chemicals Construction & Real Estate Tobias Kaj Philip Hallberg Laurits Louis Kjaergaard Consumer Goods Ludvig Kapanen Credit Research Alexander Jost Rikard Magnus Braaten Andreas Johannessen Haakon Amundsen Eric Wahlström Financials Magnus Andersson Mads Thinggaard Patrik Brattelius Jan Erik Gjerland Jonas Bru Lien Food & Beverages Healthcare Sten Gustafsson Christopher W. Uhde Ole Henrik Bang-Andreasen lnvestment Companies IT André Thormann Simon Granath Metals & Mining Oil & Gas Karl Fredrik Schjøtt-Pedersen Oil Service Haakon Amundsen Lukas Daul Karl Fredrik Schjøtt-Pedersen Online Gaming Erik Moberg Stefan Knutsson Pulp & Paper Øystein Elton Lodgaard Renewable Energy Casper Blom Retail Ludvig Kapanen Seafood Martin Kaland Services Victor Forssell Shipping & Transport Dennis Anghelopoulos Casper Blom Lukas Daul Telecom Operators Peter Kurt Nielsen Utilities Small Caps Johan Nilsson Wall Laurits Louis Kjaergaard Media Norway Sweden Denmark United Kingdom USA Germany Singapore Pb Vika Box 7269 Forbindelsesvej 12, 10 Paternoster Row, 5th fl 850 Third Avenue, Suite 9-C Schillerstrasse 2, 5. OG 10 Collyer Quay NO-0115 OSLO Norway SE STOCKHOLM Sweden DK-2100 COPENHAGEN Denmark LONDON EC4M 7EJ UK NEW YORK, NY USA DE FRANKFURT Germany Ocean Financial Center #40-07, Singapore Tel: Tel: Tel: Tel: Tel Tel Tel Fax: Fax: Fax: Fax: Fax Fax February 2019 ABG Sundal Collier 5