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Rating Action:

Moody's changes the outlook on Hapag-Lloyd to negative from stable

31 Mar 2020

Stockholm, March 31, 2020 -- Moody's Investors Service, ("Moody's") has today change the outlook on the B1 corporate family rating ("CFR") of Hapag-Lloyd AG (Hapag-Lloyd) to negative from stable. Concurrently, Moody's affirmed the B1 CFR, its B1-PD probability of default rating (PDR) its B3 senior unsecured bond ratings.

A full list of debt can be found in the end of the press release.

RATINGS RATIONALE

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The shipping sector in general and container shipping sector in particular are dependent on world trade and activity demand for goods from industrial companies as well as consumers. Given the rapid development in terms of countries shutting down production and putting populations in quarantine, it is inevitable that the demand for container shipping will see contracting volumes from end of April/beginning of May. Ultimately, the effect on the credit ratios of European Container Liners will be dependent on (1) The ability of the container shipping industry to meet lower volume with cancelled (blanked) sailings, thus saving around 50%-70% in operating costs per blanked sailing; (2) time until demand picks up again, and least but most importantly (3) the impact on contracted as well as spot freight rates.

The rating affirmation also reflects that Hapag Lloyd is confronted to this crisis, at its starting point, with very solid credit metrics for the B1 category.

RATING OUTLOOK

The negative outlook balances Hapag Lloyd's solid business profile, combined with a good track record of management through volatile industry environments with an adequate liquidity -- $574 million in cash and $585 million in unused credit lines -- with the challenges the industry will face during at least Q2 and Q3 2020, when the effects of the crisis are likely to impact operating performance and credit metrics. The negative effects could be mitigated with very tight capacity as a result of a high number of blanked sailings, thus acting as a stabilizer for freight rates.

ESG CONSIDERATIONS

We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Today's action reflects the impact on the companies of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Shipping Industry published in December 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1100802. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Factors that would lead to an upgrade or downgrade of the ratings:

At this point in time, a stabilization of the outlook requires higher visibility regarding the impact on credit ratios from the coronavirus outbreak, such as forward booking, freight rates and realized volumes combined with offsetting operational and financial measures implemented by the company.

Nevertheless, further positive ratings pressure could start to build if:

- Moody's-adjusted debt/EBITDA declining below 4x on a sustained basis

- Achievement of greater profitability, as measured by its consistently positive EBIT margin

- Funds from operations (FFO) + interest expense/interest expense rising above 4x on a sustained basis

- Good liquidity at all times

Negative ratings pressure could arise if:

- Leverage remaining above 5x debt/EBITDA for a prolonged period

- FFO + interest expense/interest expense falling below 3x

- Deterioration in the business environment for container shipping and in particular a longer impact of the coronavirus crisis than currently considered in our base case scenarios

- Negative free cash flow generation and pressure on the company's liquidity profile

LIST OF AFFECTED RATINGS:

Affirmations:

..Issuer: Hapag-Lloyd AG

.... LT Corporate Family Rating, Affirmed B1

.... Probability of Default Rating, Affirmed B1-PD

....Senior Unsecured Regular Bond/Debenture , Affirmed B3

Outlook Actions:

..Issuer: Hapag-Lloyd AG

....Outlook, Changed To Negative From Stable

Hapag-Lloyd AG (Hapag-Lloyd), headquartered in Hamburg, Germany, is the fifth-largest container liner globally based on market share by volume. As of December 2019, it operated a fleet comprising 239 ships, including 112 owned/leased and 127 chartered-in vessels. For 2019, the company reported revenue of USD14.1 billion and EBIT of USD908 million. Hapag-Lloyd was established in 1970 as a result of the merger of Hapag (1847) and North German Lloyd (1857).

On 2 December 2014, Hapag-Lloyd merged with the Chilean shipping company Compania Sud Americana de Vapores (CSAV). On 24 May 2017, HapagLloyd completed a business combination with United Arab Shipping Company (UASC), whereby the merger of the two entities was accomplished via an in-kind contribution.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating outcome announced and described above.

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.

Daniel Harlid
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service (Nordics) AB
Norrlandsgatan 20
Stockholm 111 43
Sweden
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Christian Hendker, CFA
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service (Nordics) AB
Norrlandsgatan 20
Stockholm 111 43
Sweden
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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