New York, September 22, 2015 -- Moody's Investors Service confirmed its ratings assigned to Overseas Shipholding
Group, Inc. ("OSG"): Corporate Family Rating
(CFR) of B2, Probability of Default Rating (PDR) of B2-PD,
first lien senior secured of B1, LGD3, first lien super priority
senior secured of Ba2, LGD1 and senior unsecured of Caa1,
LGD6. Moody's also changed the Speculative Grade Liquidity
rating to SGL-2 from SGL-3. The outlook is positive.
This action resolves the review for upgrade initiated on 16 June 2015
when Moody's changed its approach for standard adjustments for operating
leases.
RATINGS RATIONALE
The positive outlook reflects the potential for OSG to further strengthen
credit metrics into 2016. Higher than expected operating cash flow
from stronger market freight rates for international tankers in 2015 enhances
the existing pool of cash of $646 million at the company's
disposal at 30 June 2015. The current forward curve for Brent retains
a modest positive slope, leading to a barrel price of still below
$60 in December 2017. These price levels imply that demand
for crude and refined products can be sustained over this period,
which should lessen significant downwards pressure on freight rates for
international tankers. While OSG has yet to articulate how it will
deploy its cash hoard, Moody's continues to believe that OSG
will use some of this cash to add vessels to the international fleet.
Moody's believes that there is at least $200 million of cash
at the parent company following the $200 million dividend from
OSG International that occurred this past June, following the amendment
of the company's credit agreements. This cash at the parent
is freely available for returns to shareholders, should the board
choose to do so. Given the distribution of cash across the holding
company and the intermediate holding companies that are the primary borrowers
under their respective credit agreements, Moody's believes
that funded debt could increase should the company grow the fleet as Moody's
anticipates. Vessel purchase prices and related earnings will determine
the effect on credit metrics and influence the momentum of any ratings
upgrade.
The adoption in June 2015 of a three times multiple when capitalizing
operating leases for shipping companies supports Moody's expectation
of sustained stronger credit metrics. Moody's reduced its
debt adjustment for OSG to $465 million from about $1.2
billion, providing a more than 1.5 turn decrease in projected
Debt to EBITDA to about 4.3 times and an increase in estimated
FFO + Interest to Interest to about 2.6 times from about 2.4
times at 31 December 2015.
The B2 Corporate Family rating considers OSG's leading position in the
U.S. Jones Act and international crude and refined petroleum
products transportation markets. Freight rates for the company's
international tankers continue to exceed Moody's estimates at the
time the company exited bankruptcy, leading to better margins and
operating cash flow, which will help strengthen credit metrics within
the single-B rating category.
Favorable fundamentals of the U.S. Jones Act market and
that this subsidiary's fleet is mostly contracted out further support
the ratings. The flexibility gained from the amendments to the
credit agreements in June 2015 and room under the Debt to EBITDA covenants
that limit indebtedness set the stage for acquisitive growth, which
could be debt-funded, in either segment. Moody's
believes that the good fundamentals in the Jones Act trades will continue,
even when newly-built Jones Act product tankers begin to enter
the market in 2016 and as incremental barge capacity (articulated tug
barges or ATBs) enters the fleet in upcoming years. Moody's
expects continuing demand for movement of shale oil and refined products
to and from the Louisiana Gulf Coast refineries, as well as across
the other U.S. coastal trades. Moody's assumption
of steady demand, the contracted nature of the Jones Act operations
and the attractiveness to customers of the relatively young product tanker
fleet should support earnings and cash flow generation for years to come.
A Speculative Grade Liquidity Rating of SGL-2 signifies good liquidity.
The large cash balances at each borrowing or debt issuing entity,
expectations of positive free cash flow of more than $100 million
before any investments in fleet growth, sufficient room under incurrence
covenants and the mostly interest-only debt service burden in advance
of the next maturity of unsecured notes in 2018 support the change in
the SGL rating.
The ratings could be upgraded if OSG deploys its cash in a manner that
does not weaken its credit metrics relative to Moody's expectation
at year-end 2015. Using more of the cash for fleet investments
rather than returns to shareholders would limit potential increases in
debt and could be supportive of an upgrade. Clarity on the company's
fleet plan and financial policy will identify the extent to which funded
debt might increase and the related effect on credit metrics. FFO
+ Interest to Interest that approaches 3.0 times, Retained
Cash Flow to Net Debt sustained in excess of 15% and Debt to EBITDA
that is sustained below 4.5 times could support an upgrade.
Repayments of debt, whether voluntary or pursuant to the excess
cash flow sweeps in the respective credit agreements will be important
to sustaining stronger credit metrics.
The ratings could be downgraded if unrestricted cash is sustained below
$100 million or the company becomes reliant on at least one of
the revolvers to meet working capital needs. Debt to EBITDA sustained
above 6.5 times, FFO + Interest to Interest that approaches
2.0 times, a decline in the EBIT margin to the 12%
range, Retained Cash Flow to Net Debt that approaches 8%
or sustained negative free cash flow generation could pressure the ratings.
Overseas Shipholding Group, Inc. ("OSG"), a Delaware
Corporation headquartered in New York, New York, is one of
the larger players in the ocean transportation of crude oil and petroleum
products. The company operates separate fleets of internationally-flagged
tankers trading in international markets through its intermediate holding
company subsidiary OSG International, Inc. ("OIN") and US
Jones Act qualified vessels trading mainly in US coastal markets through
its intermediate holding company subsidiary OSG Bulk Ships, Inc.
("OBS"). These two subsidiaries are the respective primary obligors
of the rated credit facilities, which OSG and their respective operating
subsidiaries guaranty.
Raised Ratings:
..Issuer: Overseas Shipholding Group, Inc.
.... Speculative Grade Liquidity Rating,
Raised to SGL-2 from SGL-3
Outlook Actions:
..Issuer: OSG Bulk Ships, Inc.
....Outlook, Changed To Positive From
Rating Under Review
..Issuer: OSG International, Inc.
....Outlook, Changed To Positive From
Rating Under Review
..Issuer: Overseas Shipholding Group, Inc.
....Outlook, Changed To Positive From
Rating Under Review
Confirmations:
..Issuer: OSG Bulk Ships, Inc.
....Senior Secured Bank Credit Facility,
Confirmed at B1 (LGD3)
..Issuer: OSG International, Inc.
....Senior Secured Bank Credit Facility,
Confirmed at B1 (LGD3)
....Senior Secured Bank Credit Facility,
Confirmed at Ba2 (LGD1)
..Issuer: Overseas Shipholding Group, Inc.
.... Probability of Default Rating,
Confirmed at B2-PD
.... Corporate Family Rating, Confirmed
at B2
....Senior Unsecured Regular Bond/Debenture,
Confirmed at Caa1 (LGD6)
The principal methodology used in these ratings was Global Shipping Industry
published in February 2014. Please see the Credit Policy page on
www.moodys.com for a copy of this methodology.
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 rating action on the support provider and in relation to each particular
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 rating action, and
whose ratings may change as a result of this 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.
Jonathan Root
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Robert Jankowitz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's confirms B2 CFR of Overseas Shipholding Group; outlook to positive
