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Global Credit Research - 21 Sep 2010
Approximately US$474 million of debt affected.
Hong Kong, September 21, 2010 -- Moody's Investor Services has affirmed BW Group's Ba1 corporate
family rating and senior unsecured debt rating with a stable outlook.
This affirmation follows the announcement by its 67%-owned
subsidiary, BW Offshore Limited ("BW Offshore"),
that it has made an offer to acquire the remaining 70% ownership
in its associate Prosafe Production Public Limited ("Prosafe").
Additionally, BW Offshore has entered into an agreement to dispose
of APL Plc to National Oilwell Varco.
To fund the acquisition cost of around US$480 million, BW
Offshore expects to issue around 202 million in new shares to Prosafe's
existing shareholders and pay cash of around US$ 145 million.
It also expects to receive around US$500 million from the disposal
of APL -- subject to the usual final adjustments for deviations
from agreed working capital accounts -- to part fund the
acquisition and future capital expenditures of BW Offshore.
Both transactions are targeted to complete before the end of 2010,
subject to customary regulatory and shareholder approvals.
"The acquisition, which is -- as indicated --
funded by an equity-share swap, and cash from the disposal
of APL, will have no material impact on BW Group's financial
profile," says Peter Choy, a Moody's Vice President
and Senior Credit Office, adding, "The combination of
Prosafe will further enhance the global market position of BW Offshore
in the Floating Production Storage Offloading ("FPSO") business."
"The completion of sale of APL -- which will more
than fund the cash payment for the Prosafe acquisition --
will further enhance the liquidity profile of BW Offshore, which
had cash-on-hand of about USD 81 million as of 30 June 2010,
and an undrawn credit facility of about US$ 500 million from the
BW Group," says Choy.
While BW Group's current ownership in BW Offshore will be diluted
to 47% from 67% upon completion of these transactions,
Moody's continues to assess BW Group's financial profile with
full consolidation of BW Offshore.
This is based on the expectation that BW Offshore will continue to rely
in the near term upon the US$ 1.5 billion credit facility
from BW Group for funding support.
This approach will continue until BW Offshore can demonstrate a strengthening
in its financial position and an ability to raise financing comfortably
on its own merits.
BW Group's Ba1 rating continues to reflect its good level of business
diversity with a fair amount of fixed-contract coverage,
its prudent operating and financial management track record, its
consistently strong liquidity, and weak near-term credit
metrics for its rating.
BW Group's stable rating outlook reflects Moody's view that it will
maintain its strong liquidity position and gradually reduce its leverage
in the next two years by using free cash flow arising from moderate improvements
in profitability (based on some improvement in freight rates) and lower
capital expenditures, such that adjusted Debt/EBITDA will fall to
around 5.0x and EBIT/interest will rise above 2.0x in the
A rating upgrade is unlikely in the next 12 months, given BW Group's
relatively weak credit metrics.
Downward rating pressure could emerge upon further deterioration in the
group's financial profile due to a material adverse change in market conditions,
or debt-funded acquisitions which result in a worsening of BW Group's
credit metrics, with adjusted debt/EBITDA exceeding 5.5x-6.0x
, or EBIT/interest falling below 1.25x for a prolonged period.
The last rating action was on 2 December, 2009 when BW Group's issuer
and debt ratings were downgraded to Ba1 stable.
The principal methodologies used in rating BW Group was Moody's Rating
Methodology on "Global Shipping Industry," published in December
2009. Other methodologies and factors that may have been considered
in the process of rating this issuer can also be found on Moody's website.
BW Group, domiciled in Bermuda, is a diversified shipping
group with operations in five key segments -- tankers,
liquefied petroleum gas (LPG), liquefied natural gas (LNG),
floating, production, storage and offloading vessels (FPSO),
and offshore technology. It operates a fleet of 95 vessels.
BW is a privately held holding company, 93%-owned
by the Sohmen family and 7% by HSBC.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Moody's Investors Service Hong Kong Ltd.
Moody's affirms BW Group's ratings after acquisition news
24/F One Pacific Place
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