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11 Jan 2011
$250 million second lien notes rated B3
New York, January 11, 2011 -- Moody's Investors Service affirmed its debt ratings of Marquette Transportation
Company, LLC ("Marquette"); Corporate Family and
Probability of Default each of B2; senior secured second lien notes
of B3. The outlook is negative.
The change in outlook to negative reflects the potential for still weak
towing rates for inland river barge transportation in 2011 to result in
credit metrics that are weaker than the cross-industry medians
for the B2 rating category and that trail those Moody's anticipated
when it assigned the ratings in January 2010. Moody's had
anticipated modestly stronger towing rates and a conservative investment
strategy by the company in 2010. However, Marquette invested
in its fleet for growth significantly more than it guided coming into
2010, leading to higher debt and compounding the effect of lower
towing rates on earnings. Moody's anticipates that Marquette
could sustain the higher investment level in 2011, which could further
erode credit metrics if towing rates do not improve.
The B2 corporate family rating ("CFR") considers Marquette's
leading market position and long operating history as an independent provider
of horsepower to inland river barge freight companies. Moody's
believes that as a provider of power to barge freight operators,
Marquette's operating model is less risky than that of the broader
river barge freight transportation sector, which is more competitive
and has more volatile pricing. Long-term relationships with
major blue-chip customers and somewhat high barriers to entry help
mitigate, but not entirely offset, significant customer concentration.
While a significant component of revenues is sourced from ton-mile
contracts, Moody's understands that these agreements do not
contain minimum usage levels, such that revenues remain exposed
to fluctuating demand over economic cycles.
The ratings could be downgraded should one of Marquette's five largest
customers cease its relationship with it or if it was to unexpectedly
execute an acquisitive growth strategy. Further expansion of the
fleet that increases debt (whether funded or by operating leases) and
delays the de-levering of the capital structure could also lead
to a downgrade as could Debt to EBITDA sustained above 5.75 times,
FFO + Interest to Interest that remains below 2.3 times or
Retained Cash Flow to Net Debt that is sustained below ten percent.
The outlook could be stabilized if Marquette is able to organically grow
its revenue base to above $400 million while maintaining its EBITDA
margin above 25%. Debt to EBITDA sustained below 4.75
times and FFO + Interest to Interest sustained above 3.0 times
could also lead to a positive rating action as could Retained Cash Flow
to Net Debt of above 15%.
The principal methodologies used in this rating were Global Shipping Industry
published in December 2009, and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009.
The last rating action for Marquette was on January 6, 2010 when
Moody's assigned initial corporate family and probability of default
ratings, each of B2. Moody's also assigned a rating of B3
to the senior secured second lien notes.
Marquette Transportation Company, LLC, headquartered in Paducah,
Kentucky, is a leading provider of outsourced power to the inland
and offshore barge freight shipping sectors.
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's affirms B2 CFR of Marquette Transportation; outlook negative
250 Greenwich Street
New York, NY 10007
No Related Data.
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