Moody's downgrades Navios Holdings
Global rating agency Moody's today downgraded the corporate family rating (CFR) and probability of default rating (PDR) of Navios Maritime Holdings, Inc. (Navios Holdings) to B2 from B1. Concurrently, Moody's has also downgraded the rating on Navios Holdings' $488 million of senior secured notes (due in 2017) to B1 (LGD3, 33%) from Ba3, and the rating on the company's $350 million of senior unsecured notes (due in 2019) to Caa1 (LGD5, 87%) from B3. The outlook on the ratings is stable.
"Today's rating action reflects our view that, over the next 12-18 months, Navios Holding is unlikely to achieve a consolidated financial profile that would be commensurate with the guidance previously outlined for maintaining a B1 rating," says Marco Vetulli, a Moody's Vice President - Senior Credit Officer and lead analyst for the company.
Moody's had previously indicated that for Navios Holdings to retain its B1 rating, it would need to maintain its operating profile and improve its credit metrics on a sustainable basis by demonstrating a combination of any of the following metrics: (1) debt/EBITDA of less than 6.0x; and/or (2) EBIT/interest coverage above 1.5x; and/or (3) improved free cash flow (FCF) generation approaching 3% of the company's total debt. However, the dry-bulk shipping market is currently under pressure, with freight rates fluctuating at levels approaching historical lows since the start of Q2 2012, and Moody's expects that market conditions will remain challenging well into 2013.
To date, Navios Holdings has not been significantly affected by the aforementioned conditions thanks to its portfolio of long-term contracts that were concluded when freight rates were higher, and which currently confer some protection from the low freight-rate environment.
However, Moody's says that the degree of protection conferred to Navios Holdings is likely to diminish over time as the existing freight contracts expire, and the company will come under pressure to offer lower freight rates.
Moreover, giving the challenging condition of the dry bulk market, it has also increased the risk that some of current charterers may ask for a renegotiation of the current contracts. Moody's therefore expects that Navios Holdings' credit metrics will deteriorate at the end of the current year to a level commensurate with a B2 rating.