Moody's Places Ultrapetrol (ULTR) on Review for Downgrade Following Cut to Petrobras' (PBR) Ratings
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Moody's Investors Service placed the ratings of Ultrapetrol (Bahamas) Limited (Nasdaq: ULTR) under review for downgrade. The review was prompted by Moody's recent downgrade of Petrobras' ratings given the significant exposure of Ultrapetrol's offshore supply business to Petrobras, as well as recent weaker-than-anticipated operating performance in Ultrapetrol's river segment. In a related action, Ultrapetrol's speculative grade liquidity rating was lowered to SGL-3 denoting an adequate liquidity profile.
Moody's has taken the following rating actions:
On Review for Downgrade:
Corporate Family Rating, Placed on Review for Downgrade, currently B3
$200 million Ship Mortgage Notes due 2021, Placed on Review for Downgrade, currently B3
$25 million Sr Secured Notes due 2021, Placed on Review for Downgrade, currently B3
Ratings Lowered:
Speculative Grade Liquidity rating to SGL-3 from SGL-2
Outlook Actions:
Outlook, Changed To Rating Under Review from Stable
RATINGS RATIONALE
Moody's views the concentration of business in Ultrapetrol's offshore supply segment with Petrobras as a credit risk. Concerns about corruption investigations and liquidity pressures at Petrobras that might result from delays in delivering audited financial statements led to Moody's recent downgrade of Petrobras' senior unsecured debt rating to Baa3 from Baa2 (with ratings remaining under review for further downgrade). Moody's is concerned about the risk that payments from Petrobras to Ultrapetrol could be delayed or reduced. The offshore supply business generates well over half of Ultrapetrol's EBITDA.
Lower than expected earnings generated in the company's River business, including higher than expected maintenance costs and lower third party barge sales, resulted in a decline in consolidated operating performance during the quarter ended September 30, 2014. Uncertainty surrounding the degree to which the current drought in part of the Hidrovia region of South America could negatively impact the company's business is also a ratings consideration. Weaker operating performance has increased debt/EBITDA (including Moody's standard adjustments) to above 7.0x for the last twelve months ended September 30, 2014 from 5.5x for the same period ended June 30, 2014, and interest coverage has fallen well below 1.0x.
In its review of Ultrapetrol's ratings Moody's will assess the company's fourth quarter 2014 and full year results as well as management's operating plan for 2015 through 2016. Moody's will also continue to monitor developments at Petrobras including whether the company is able to resolve issues surrounding the corruption investigation, timely delivery of audited financials and any liquidity-related concerns.
Moody's lowered Ultrapetrol's speculative grade liquidity rating to SGL-3 from SGL-2 primarily due to lower than expected free cash flow generation and decreasing availability under the company's $40 million reducing revolver that expires in May 2016. The largest component of the company's debt, its $225 million notes, do not mature until 2021. The company has $32.3 million of short-term debt maturities but is likely to have sufficient sources to address these maturities over the next year. Of note, although the last twelve month period free cash flow totaled negative $125 million, approximately $100 million was attributable to the acquisition of three PSVs (the UP Agate, UP Coral, and UP Opal) that were added to the company's Offshore Supply fleet. The company is expected to have adequate room under its financial covenants over the next twelve to eighteen months. Ultrapetrol possesses alternate sources of liquidity via a meaningful amount of unencumbered assets, primarily in its River Business.
The principal methodology used in these ratings was Global Shipping Industry published in February 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
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