First-time ratings; approximately USD500 million of debt rated
Milan, September 23, 2010 -- Moody's Investors Service has today assigned a provisional (P)B1
corporate family rating (CFR) and probability of default rating (PDR)
to Albert Ballin Holding Gmbh & Co. KG (AB GMBH, and
holding company for Hapag-Lloyd Group, HL). Concurrently,
Moody's has also assigned a provisional (P)B3 senior unsecured rating
to the proposed USD500 million senior unsecured notes to be issued by
Hapag Llyods AG (HL AG) and guaranteed by its parent company, AB
GMBH, with maturities from 5 year to 7 years. The rating
outlook is stable.
The following ratings were assigned today:
- Provisional CFR of (P) B1 to AB GMBH
- Provisional PDR of (P) B1 to AB GMBH
- Provisional senior Unsecured rating on the proposed USD500 million
notes issuance of (P)B3, LGD-5, 85% to be Issued
"Moody's rating is based on its expectation that the extremely
weak financial results and credit metrics that HL recorded in 2009 will
improve going forward," says Marco Vetulli, a Moody's
Vice President and lead analyst for Hapag-Lloyd Group. The
rating is predicated on the group's refinancing being successfully
achieved according to plan and the company being able to follow a disciplined
capital investment policy thereafter.
In addition, Moody's says that the rating is constrained by HL's
currently complex (and evolving) capital structure. While Moody's
expects a strong financial performance in the current year, helped
by a significant industry recovery, there is also the likelihood
that the company's performance in 2011 may slightly weaken.
Moreover, as a general factor that affects the industry, Moody's
has taken into account the reliance of container shipping operators on
short-term contracts, which imply a greater exposure to cyclical
trends compared with other types of shipping companies. This represents
a negative factor for the ratings of container shipping companies,
given their high operating leverage and, therefore, high sensitivity
to revenue shifts.
However, on the positive side, the CFR also reflects HL's
(i) relatively good market position, given that the company is one
of the largest container operators in the world (ranking fourth behind
the much larger Maersk, MSC and CMA); (ii) its strong diversification
in terms of customers and trade lines; and (iii) its relatively low
capex programme (HL has one of the smallest order books in the industry),
which will help the company to reduce leverage with positive free cash
flow and also (iv) the support received from shareholders, the German
government and the City of Hamburg during the economic crisis, which
negatively impacted the company's performance during 2009.
In addition, Moody's believes that HL's strong liquidity
profile post bond issuance and closing of new USD360 million syndicated
revolving credit facility should allow the company to more comfortably
weather any potential additional crises in the industry. Moreover,
the current value of the fleet (approximately twice the level of the group's
debt) also supports the current rating in light of the potentially high
recovery rate. The rating agency has also taken into account the
positive upturn experienced by container shipping market in 2010.
The assigned ratings are provisional because of the existing standstill
agreement with regard to HL's debt. Moody's understands
that the company intends to use part of the proceeds of the planned bond
issue to repay the amounts due under the standstill agreement in order
to cancel it. In addition, the provisional ratings reflect
(i) the uncertainties related to the complexity of the proposed transaction;
(ii) that the group is expected to avoid in a timely manner any potential
breach of covenants following the cancellation of the standstill agreement;
and (iii) that Moody's issues provisional ratings in advance of
the final sale of securities and these ratings reflect the rating agency's
preliminary credit opinion regarding the proposed bond issue. Moody's
endeavours to assign a definitive CFR and rating on the notes.
A definitive rating may differ from a provisional rating.
The proposed USD500 million senior unsecured will be issued by Hapag-Llyods
AG and will be guaranteed by its parent company, AB GMBH.
The (P)B3 rating and LGD5 - 85% assessment on notes is two
notches lower than AB GMBH's CFR and PDR of (P)B1. This differential
reflects (i) that the notes will be contractually subordinated to approximately
EUR 1.3 billion of existing secured debt; and (ii) the proposed
USD360 million revolving credit facility, which the company intends
to sign as part of the transaction. The provisional rating on the
notes differs from the simple application of the LGD model in light of
(i) the significant amount of secured debt that will rank ahead of the
bond; and (ii) the fact that unencumbered assets are relatively low,
despite the current fleet valuation being well in excess of AB GMBH's
total indebtedness, which would suggest a relatively high recovery
All existing secured facilities are secured on either vessels or containers
and will include Korean Export Insurance Corporation (K Sure) facilities,
which are expected to be available to the company as part of the bond
issue transaction. Moody's understands that the new USD360
million facility will be secured on AB GMBH's 25% stake in
CTA and benefit from a second lien claim on the assets of the group.
For further details on the proposed transaction, please refer to
the Credit Opinion available on v3.moodys.com.
The stable rating outlook reflects Moody's view that HL's
strengthened capital structure and liquidity profile should support the
company's ability to withstand potential further crises in the industry.
The outlook (and the rating) also reflects the rating agency's expectation
that AB GMBH will maintain: (i) financial leverage below 5x (as
adjusted by Moody's for operating leases and pension items);
(ii) a retained cash flow (RCF)/net debt ratio above 10%;
and (iii) positive free cash flow going forward.
A rating downgrade could potentially result from deteriorating market
conditions leading to financial leverage increasing towards 6x and/or
EBIT interest cover falling below 1.5x, together with prolonged
negative free cash flow and deterioration in HL's liquidity profile.
Given that HL's immediate target will be to demonstrate its ability
to maintain an adequate financial profile (as described in the "Outlook"
section, above), Moody's considers it unlikely that
there will be any upward pressure exerted on the company's rating
in the short term. However, upward pressure could materialise
over time as a result of a reduction in the company's leverage below
4x and an increase in its interest coverage, which is currently
weak for the rating category.
The principal methodologies used in rating Albert Ballin Holding Gmbh
& Co. KG and Hapag Llyods AG were Global Shipping Industry
published in December 2009, Revisions to Moody's Hybrid Tool Kit
published in July 2010, and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 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.
Headquartered in Hamburg, Germany, AB GMBH is the fourth-largest
container shipping company in the world (measured in 20-foot equivalent
units, or "TEU"). The company generated revenues
of around EUR3.3 billion for the last nine months of the year ending
on 31 December 2009. HL is its main operating Company.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
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on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
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VP - Senior Credit Officer
Corporate Finance Group
Moody's Italia S.r.l
Paloma San Valentin
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
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Moody's assigns provisional (P)B1/B3 ratings to Hapag-Lloyd Group ; outlook stable
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