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Announcement:

Moody's affirms Baa3 issuer rating of Kirby Corp; outlook stable

Global Credit Research - 14 Mar 2011

No rated debt outstanding

New York, March 14, 2011 -- Moody's Investors Service affirmed its Baa3 senior unsecured issuer rating of Kirby Corporation ("Kirby") upon the March 13, 2011 announcement by Kirby that it has reached an agreement to acquire K-Sea Transportation Partners L.P. ("K-Sea", not rated) for approximately $600 million including the assumption of K-Sea's outstanding indebtedness of about $260 million. The outlook is stable.

The acquisition of K-Sea has negative near-term credit implications because of an about doubling of funded debt. Nonetheless, we believe that the acquisition will enhance Kirby's freight transportation franchise and should result in only modest erosion of financial metrics over the near term. We expect the strong cash flow generation that the company's consolidated operations have demonstrated to continue. With flexibility over capital spending on its barge fleet, we expect Kirby to sustain positive free cash flow generation, which it will apply to the reduction of funded debt as it maintains its conservative financial policy.

The addition of K-Sea should allow it to deepen relationships with existing customers and gain some new customers, as well as build scale in the marine bunkering business, which it expanded in January 2011 with the acquisition of Enterprise Marine Services, LLC. The acquisition is being made with the expectation of more favorable fundamentals in the coastwise trades because of upcoming regulatory disposals of older tonnage, a small orderbook and increases in refinery output in the Delaware Bay and the Gulf Coast.

The Baa3 rating reflects Kirby's steady operating performance and maintenance of a solid credit profile over the course of the economic cycle and its conservative financial policies. Moody's expects near term credit metrics pro forma for the acquisition to remain at levels indicative of the Baa3 rating. A meaningful variable cost component, the flexible nature of capital spending and an ongoing focus on cost reductions help mitigate pressure on operating cash flows during periods of weak demand. This allowed Kirby to maintain credit metrics supportive of the Baa rating category during the 2009 recession and to quickly approach or exceed historical levels as market conditions strengthened. The Baa3 rating also recognizes Kirby's leading position in the inland tank barge sector, its favorable cash flow generating profile, and the diversification of earnings from the diesel services segment, albeit also a cyclical business. The recently announced acquisition of United Engine Holdings, LLC which focuses on on-shore equipment including in the oil and gas sector diversifies the offerings of the diesel engine services segment, which further supports the Baa3 rating.

The stable outlook reflects Moody's expectation that Kirby will maintain good liquidity and prioritize debt repayment to return its credit metrics to pre-acquisition levels. There will be little upwards pressure on the ratings until Kirby restores its credit metrics profile. However, the prospect of further acquisitive growth would constrain the extent of any upwards rating pressure. The ratings could be upgraded if Kirby was to maintain Debt to EBITDA below 2.5 times, EBIT to Interest above 4.5 times and EBIT margins of at least the current level of about 21% through the next down cycle or while executing additional acquisitions. The ratings could be lowered if Debt to EBITDA was sustained above 3.3 times or if EBIT to Interest was sustained below 3.5 times. Downward rating pressure could also result from a sustained decline in EBIT margin to below 15%, or a significant decline in revenue from weaker than expected market conditions or loss of one or more major customers.

The last rating action on Kirby Corporation was on November 25, 2008 when Moody's assigned the Baa3 issuer rating.

The principal methodology used in rating Kirby Corporation is Global Shipping, published in December 2009.

Kirby, based in Houston, Texas, operates inland tank barges and towing vessels, transporting petrochemicals, black oil products, refined petroleum products and agricultural chemicals throughout the United States inland waterway system. Through the diesel engine services segment, Kirby provides after-market service for medium-speed and high-speed diesel engines and reduction gears used in marine, power generation and railroad applications.

K-Sea Transportation Partners L.P., headquartered in East Brunswick, N.J., is one of the largest coastwise tank barge operators in the United States.

New York
Jonathan Root
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms Baa3 issuer rating of Kirby Corp; outlook stable
No Related Data.
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