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Rating Action:

Moody's downgrades Maersk to Baa2; outlook negative

20 Dec 2016

London, 20 December 2016 -- Moody's Investors Service, ("Moody's") has today downgraded the issuer rating and senior unsecured rating of Denmark-based shipping and oil company A.P. Møller-Mærsk A/S (Maersk) to Baa2 from Baa1. Moody's also downgraded Maersk's medium-term note (MTN) program rating to (P)Baa2 from (P)Baa1. All ratings were placed on negative outlook. This rating action concludes the review of Maersk's ratings initiated in September 2016.

"The downgrade reflects our expectation of reduced diversification following the results of the strategic review, as well as the deterioration in Maersk's credit profile amidst weak market conditions particularly in container shipping and drilling, which we do not anticipate to be reversed shortly" said Maria Maslovsky, Moody's Vice President -- Senior Analyst and the lead analyst for Maersk. "In addition, significant uncertainties associated with the execution of the strategy of separating the energy businesses, especially the final capital structure of the transportation and logistics business, are encapsulated in the negative outlook. "

A full list of affected ratings can be found at the end of this Press Release.

RATINGS RATIONALE

The downgrade reflects Moody's expectation that Maersk will become much less diverse with the separation of its energy businesses as anticipated in the results of its strategic review and discussed at the recent capital markets day. The company expects to focus on its transportation and logistics division incorporating Maersk Line, the global leader in container shipping which will grow with the Hamburg Sud acquisition, APM Terminals, a top five terminal operator, Damco, a logistics provider with a growth potential, as well as Svitzer and Maersk Container Industry. Maersk's strategy is to capitalize on the synergies between these businesses which have previously been operated as independent profit centers to create a global leader in the transportation and logistics space. While Moody's acknowledges the strong position and growth potential of the transportation and logistics business, Moody's also recognizes that with the separation of the energy division the company's operations will be less diverse and potentially less protected from a downturn in its end markets.

The downgrade further reflects Maersk's deteriorating credit profile with leverage measured as debt/EBITDA climbing to 2.5x for the last twelve months to September 2016, above Moody's downgrade benchmark of 2.25x. Moody's further expects this metric to weaken in 2017 as the contract coverage declines in the drilling segment, our expectation that container freight rates may take some time to recover and incremental leverage from the potential acquisition of Hamburg Sud. Maersk's coverage measured as FFO+Interest/Interest is also likely to decline below Moody's downgrade benchmark of 10.0x.

The negative outlook incorporates significant uncertainty associated both with the process of separating the energy businesses in terms of specific transactions and their timing, as well as with the resulting capital structure of the remaining transportation and logistics division. Moody's anticipates the final credit profile of the transportation and logistics business will depend on the application of proceeds from the separation of the energy assets and may take two years or more to take shape. Moody's acknowledges, however, that the energy businesses encompass considerable value specifically two large projects within Maersk Oil, Johan Sverdrup and Culzean, that carry meaningful growth opportunities.

Moody's positively notes Maersk's publicly stated commitment to maintaining an investment grade rating, as well as its willingness to consider divestments and other cash flow enhancing measures (including dividends) aimed at fulfilling this objective.

Given the negative outlook and the future focus on the cyclical shipping industry, an upgrade is unlikely at this stage. Moody's would consider stabilizing the rating outlook once the uncertainty associated with the separation of the energy businesses is reduced such that a standalone credit profile for the transportation and logistics division can be reasonably evaluated. Moody's expects to utilize its Global Shipping Methodology to assess the transportation and logistics business.

Further negative pressure on the rating would likely occur should the credit profile of the combined entity deteriorate such that its debt/EBITDA is over 3.5x and its FFO+Interest/Interest expense falls below 8.0x.

List of affected ratings:

Downgrades:

..Issuer: A.P. Moller-Maersk A/S

....LT Issuer Rating, Downgraded to Baa2 from Baa1

....Senior Unsecured Medium-Term Note Program, Downgraded to (P)Baa2 from (P)Baa1

....Senior Unsecured Regular Bond/Debenture, Downgraded to Baa2 from Baa1

Outlook Actions:

..Issuer: A.P. Moller-Maersk A/S

....Outlook, Changed To Negative From Rating Under Review

The principal methodology used in these ratings was "Investment Holding Companies and Conglomerates" published in December 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Copenhagen, Denmark, A.P. Møller-Mærsk A/S is a diversified conglomerate whose main business areas encompass container shipping, oil and gas, drilling, port terminals and other shipping-related activities. The group generated revenues of $26.6 billion and EBITDA (before impairment losses) of $5.3 billion in the first nine months of 2016.

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
SUBSCRIBERS: 44 20 7772 5454

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

No Related Data.
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