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Rating Action:

Moody's downgrades Navios Midstream's term loan to B3; affirms Navios Acquisition at B3; outlook negative

16 Jan 2019

London, 16 January 2019 -- Moody's Investors Service today downgraded the rating of the term loan B due 2020 issued by Navios Maritime Midstream L.P. (NAP) to B3 from B2 and withdrew NAP's B2 corporate family and B2-PD probability of default ratings. This rating action concludes the review of NAP's ratings. Moody's further affirmed the corporate family rating of Navios Maritime Acquisition Corporation (NNA) at B3, its probability of default rating at B3-PD and the rating on its $670 million senior secured notes due 2021 at B3. The outlook is negative.

The rating action follows the announcement on 14 December 2018 that the acquisition of the publicly held units of Navios Maritime Midstream not already owned by NNA has been completed by NNA in a stock for units exchange as earlier contemplated with NAP becoming a wholly owned subsidiary of NNA.

The downgrade of the Term Loan B rating reflects NAP's position as a wholly owned subsidiary of a larger entity and the resulting increase in the combined pro forma leverage to close to 12x from below 4.0x for NAP before the merger as a result of NNA's higher leverage. Although the Term loan B has access to stronger cash flows from NAP, its instrument rating also reflects interdependence between NAP and the rest of the group, and the fact that as a wholly-owned entity NAP is more likely to provide financial support to NNA. The downgrade also incorporates charter expirations for four out of six vessels owned by NAP in the first half of 2019 and the need to re-charter those ships in a potentially weak market.

The affirmation of NNA's ratings reflects the company's elevated leverage of close to 12x on a pro forma basis which is still a reduction from almost 18x for the last twelve months ending 30 September 2018. The affirmation further reflects Moody's expectations that the leverage of the combined entity will decline to below 8.0x in 2019 as a result of gradual market improvement and two long term charters at NAP operating at higher historical rates. The transaction further increases and diversifies NNA's fleet to 43 vessels from 37 previously.

RATINGS RATIONALE

Navios Maritime Acquisition Corporation's B3 corporate family rating (CFR) reflects (1) diverse and modern fleet with a mix of crude oil and product tankers (2) low operating costs as a result of the low average age of its fleet and the fleet management contract signed with the technical management arm of NNA's main shareholder and sponsor, Navios Maritime Holdings, Inc. (B2 stable); (3) the company's leveraged capital structure with debt/EBITDA at close to 18x for the twelve months ending 30 September 2018 and expected to be close to 12x pro forma for the merger; (4) continuing uncertainty regarding tanker charter rates although recent trends have been positive.

The combined entity will have somewhat weak liquidity supported by $68.7 combined cash balances at NNA and NAP as of 30 September 2018. Still, the company will face substantial maturities in 2020 and 2021 when the $195 million TLB and $670 million notes mature, respectively. We expect these maturities to be refinanced on a secured basis.

The negative rating outlook reflects continuing uncertainty with respect to the tanker market recovery as well as the combined entity's exposure to market rates.

The rating outlook would likely be stabilized if Debt/EBITDA is sustained closer to 8.0x, the company generates positive free cash flow (after capex and dividends) and maintains adequate liquidity.

The rating could be upgraded if debt/EBITDA ratio is maintained below 6.0x over several quarters and (Funds From Operations (FFO) + interest)/interest expense ratio rises above 2.5x on a sustainable basis. Sustained positive free cash flow and adequate liquidity would also be needed.

Negative rating pressure would occur if (FFO + interest)/interest expense ratio falls below 1.5x for a prolonged period of time or from any liquidity challenges including covenant breaches.

The principal methodology used in these ratings was Shipping Industry published in December 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Navios Maritime Acquisition Corporation (NYSE:NNA) is an owner and operator of tanker vessels focusing on the transportation of petroleum products (clean and dirty) and bulk liquid chemicals. In 2017, NNA reported revenues and adjusted EBITDA of $227 million and $108 million, respectively.

Withdrawals:

..Issuer: Navios Maritime Midstream Partners LP

.... Probability of Default Rating, Withdrawn , previously rated B2-PD

.... Corporate Family Rating, Withdrawn , previously rated B2

Downgrades:

..Issuer: Navios Maritime Midstream Partners LP

....Senior Secured Bank Credit Facility, Downgraded to B3 from B2

Affirmations:

..Issuer: Navios Maritime Acquisition Corporation

.... Probability of Default Rating, Affirmed B3-PD

.... Corporate Family Rating, Affirmed B3

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

Outlook Actions:

..Issuer: Navios Maritime Acquisition Corporation

....Outlook, Remains Negative

..Issuer: Navios Maritime Midstream Partners LP

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

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

Anke Rindermann
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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