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Rating Action:

Moody's assigns (P)B1 to NSAL's proposed term loan, downgrades senior unsecured notes

23 Oct 2017

London, 23 October 2017 -- Moody's Investors service today affirmed the corporate family rating (CFR) of Navios South American Logistics Inc. (NSAL) at B3, assigned a probability of default rating (PDR) of B3-PD and a new instrument rating of (P)B1 to the proposed senior secured term loan. Moody's also downgraded the rating of NSAL's senior unsecured notes due 2022 to Caa1 from B3.

The rating outlook on all ratings is stable.

"The proposed term loan will be a secured piece of capital structure; therefore, we rated it two notches above the corporate family rating," says Maria Maslovsky, Moody's Vice President -- Senior Analyst and the lead analyst for Navios South American Logistics Inc. "The introduction of a new secured class of debt subordinates the existing senior unsecured notes," adds Maslovsky.

This rating action follows the announcement by Navios South American Logistics Inc. that it has launched an offering of a $100 million senior secured term loan due 2021. The loan will be guaranteed by the operating subsidiaries, similar to the senior unsecured notes, but will benefit from the security package including the pledge of the Vale S.A. (Ba1 stable) contract receivable and the liens on five tanker vessels. The use of proceeds will be for general corporate purposes including a substantial dividend payment.

Moody's issues provisional ratings in advance of the final sale of securities, and these ratings represent only Moody's preliminary opinion on the transaction. Upon a conclusive review of the transaction and associated documentation, Moody's will endeavor to assign a definitive rating to the securities. A definitive rating may differ from a provisional rating.

RATINGS RATIONALE

The (P)B1 rating for the proposed secured term loan reflects its security with respect to certain assets (Vale contract receivable and tanker vessels) while the downgrade of the senior unsecured notes reflects the reduced asset protection following the introduction of a new secured debt class ahead of the notes.

The corporate family rating of B3 continues to reflect (1) diversity of the company's services with port terminal, barge and cabotage operations (2) the recent change in outlook of NSAL's parent company, Navios Maritime Holdings, Inc., to positive from negative; (3) the affirmation of the 20-year contract with Vale by the London arbitration tribunal in December 2016; (4) a strong management team with a successful track record of operations in the region; (5) the company's limited size with geographical and customer concentration; (6) risks related to operating in relatively politically unstable countries; (7) its exposure to cyclical markets and to adverse weather conditions such as drought or floods that impact agricultural production and affect river navigability. Moody's views the issuance of the new term loan to finance a dividend payment as aggressive and perceives NSAL as weaker positioned within the rating category following this transaction.

The addition of $100 million of debt weakens the rating positioning of the corporate family rating with leverage increasing to 10.9x pro forma for the offering from 8.9x for the twelve months ending 30 June 2017. However, pro forma for the Vale contract which commences in the second half of 2017, NSAL's leverage for the twelve months ending 30 June 2017 would have been 5.3x and with the addition of the proposed term loan it would have increased to 6.4x. Moody's views this metric as more representative of NSAL's leverage going forward. Although increased as a result of the rise in debt, NSAL's leverage remains within Moody's previously established rating guidance of below 7.0x.

Navios Logistics' liquidity is adequate with cash of approximately $63 mm at 30 June 2017 and Moody's expected FFO of $36 mm in 2017. NSAL's largest debt maturity is in 2022 when its senior unsecured bonds are due; its other financings are amortizing. The proposed senior secured term loan will carry a 1% amortization per annum and mature in 2021.

The stable rating outlook reflects Moody's expectations that the company's financial profile will improve following the commencement of the Vale contract in the next 12-18 months; in particular, Moody's anticipates Navios Logistics to maintain adequate liquidity and moderately reduce leverage.

Positive rating movement would be likely if the rating of Navios Holdings is upgraded and, at the same time, NSAL maintains debt/EBITDA below 5.5x and (funds from operations + interest)/interest above 2.5x, together with an adequate liquidity profile.

Negative rating pressure could arise if (1) NSAL's liquidity profile weakens materially; (2) its leverage deteriorates further from year-end 2016 level of 7.0x debt/EBITDA; or (3) if the rating of Navios Holdings is downgraded.

The principal methodology used in these ratings was Global Shipping Industry published in February 2014. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Navios South American Logistics Inc. is one of the principal logistics companies operating in the Hidrovia Region river system, which flows through Argentina, Brazil, Bolivia, Paraguay and Uruguay. The company's operations comprise waterborne transportation services for liquid and dry cargoes, as well as port, storage and related services. In 2016, NSAL generated revenues of $220 million and EBITDA of $68 million (as reported by the company).

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Maria Maslovsky
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Mario Santangelo
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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