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Rating Action:

Moody's revises outlooks on Navios Holdings and Navios Logistics to negative

21 May 2020

London, 21 May 2020 -- Moody's Investors Service, ("Moody's") today affirmed the Caa1 corporate family rating (CFR) of Navios Maritime Holdings, Inc. ("Navios Holdings," "NM") and its probability of default rating (PDR) at Caa1-PD. Moody's simultaneously affirmed the rating of Navios Holdings' $650 million senior secured first preferred ship mortgage notes due 2022 at Caa1 and the rating of the $305 million senior secured notes due 2022 at Caa2. The rating outlook was revised to negative from stable.

Further, Moody's today affirmed the CFR of Navios South American Logistics Inc. ("Navios Logistics," "NSAL") at B3, its PDR at B3-PD, its $100 million senior secured term loan due 2021 at B1 and its $375 million senior unsecured notes due 2022 at Caa1. NSAL's rating outlook was also revised to negative from stable.

RATINGS RATIONALE

Today's action with respect to Navios Holdings reflects primarily Moody's expectation of increased uncertainty with respect to demand for dry bulk shipments in the wake of coronavirus and related global economic slowdown. In particular, the expected slowdown in GDP growth in China, by far the largest importer of dry bulk goods, is a concern. Moody's estimates that Chinese GDP will grow by 1% in 2020, down sharply from 6.1% in 2019. The action also reflects Navios Holdings' weak liquidity.

Further, the action with respect to Navios Logistics reflects the close ties between these entities including Navios Holdings 63.8% equity ownership of Navios Logistics, as well as Navios Logistics' support of Navios Holdings through extending a $70 million loan to Navios Holdings

More positively, both Navios Holdings and Navios Logistics demonstrated good performance in 2019. Navios Holdings was able to increase its charter coverage and to reduce its leverage to 5.3x in 2019 from 7.4x in 2018. Navios Logistics benefitted from a lucrative long-term contract it signed with Vale S.A. (Ba1 stable) to utilize its iron ore transshipment port, as well as improved performance in its barge and cabotage segments. NSAL's leverage reduced to 5.1x in 2019 from 7.1x in 2018. Still, Moody's anticipates both Navios Holdings and Navios Logistics to increase their leverage metrics as a result of market weakness in 2020.

Navios Holdings' Caa1 corporate family rating continues to reflect (1) the company's large and diverse dry bulk fleet that is younger than the industry average; (2) some indirect diversification in the logistics business through Navios Logistics and stakes in various affiliated companies present in the dry bulk, tanker and container shipping segments; (3) its efficient operations as a result of the economies of scale because of the overall size of the Navios Group incorporating over 200 vessels; (4) its experienced management team; and (5) its reduced leverage. Counterbalancing these strengths the rating also reflects (1) the potentially unsustainable capital structure, also potentially evidenced by substantial debt buybacks at a significant discount to par value leading to a risk of distressed exchange; (2) the company's material exposure to the dry bulk market; (3) the ongoing volatility in the Baltic Dry Index (BDI), a key dry bulk benchmark; (4) limited revenue visibility into and earnings volatility endemic to the commodity-based dry bulk market; (5) downside risks from the overall slowdown in the global macroeconomic environment, and (6) weak liquidity.

Navios Logistics CFR of B3 continues to reflect (1) the diversity of the company's services, with port terminal, barge and cabotage operations; (2) the 20-year contract with Vale S.A. and recently increased use of NSAL's port by Vale; (3) a strong management team with a successful track record of operations in the region; (4) the company's declining leverage; (5) its geographic and customer concentration; (6) the company's close ties with its controlling shareholder, Navios Holdings; (7) risks related to operating in relatively politically unstable countries; (8) the company's exposure to cyclical markets and to adverse weather conditions, such as droughts or floods, which affect agricultural production and river navigability.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS

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 industry, where Navios Holdings and Navios Logistics operate, is significantly affected by the shock. More specifically, the existing weaknesses in Navios Holdings' and Navios Logistics 's credit profiles have left them vulnerable to shifts in market sentiment in these unprecedented operating conditions and the companies remains vulnerable to the outbreak continuing to spread. Moody's regards the coronavirus outbreak as a social risk under the ESG framework, given the substantial implications for public health and safety. Today's action reflects the impact on Navios Holdings and Navios Logistics of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.

LIQUIDITY

Navios Holdings' liquidity is weak owing to reduced expected charter rates and cash flows in the wake of coronavirus. The company had $32.4 million of stand-alone cash at 31 December 2019. Navios Holdings is also facing $850 million of maturities in 2022 (excluding NSAL), $305 million of which may be brought forward to October 2021 under certain conditions.

Navios Logistics' liquidity is adequate with $45.6 million of cash at 31 December 2019 and consistent cash flows underpinned by the Vale contract. However, the company is facing a $100 million term loan maturity in November 2021 and a $375 million bond maturity in May 2022.

STRUCTURAL CONSIDERATIONS

The Caa1 rating on Navios Holdings' ship mortgage notes due 2022 is in line with the CFR of Caa1 reflecting the potential for additional buybacks of these notes resulting in a distressed exchange. The Caa2 rating assigned to the senior secured notes due 2022 is notched down from Navios Holdings' CFR to reflect the notes' junior most ranking behind significant bank debt and ship mortgage notes.

Navios Logistics' senior secured term loan due 2021 is rated B1, two notches above NSAL's B3 CFR, reflecting a strong security package. NSAL's senior notes due 2022 are rated Caa1, one notch below the CFR, reflecting their junior position in the capital structure.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Although not expected in the near term, positive rating pressure could occur if Navios Holdings successfully refinances its 7.375% notes due 2022 and maintains leverage below 7.0x, while generating positive free cash flow and improving its liquidity.

Negative rating pressure could result from a downturn in the dry bulk market or a deterioration in the financial performance or value of its investment holdings such that Navios Holdings' leverage increases and is sustained beyond 8.0x debt/EBITDA. Any liquidity challenges would also be a concern as would further material bond buybacks at a deep discount, which could be classified as a distressed exchange and a default under our definition.

Positive rating movement for NSAL would be likely if the rating of Navios Holdings is upgraded and, at the same time, NSAL maintains debt/ EBITDA below 5.5x and (funds from operations + interest)/interest above 2.5x, together with an adequate liquidity profile.

Negative rating pressure could arise if (1) NSAL's liquidity profile weakens materially, (2) its leverage deteriorates beyond 7.5x, or (3) the rating of Navios Holdings is downgraded.

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.

Navios Maritime Holdings, Inc. is a global vertically integrated seaborne shipping and logistics company focused on the transport and transhipment of dry bulk commodities, including iron ore, coal and grain. In 2019, Navios Holdings generated revenue of $482 million and adjusted EBITDA of $304 million, as reported by the company.

Navios South American Logistics Inc. is one of the principal logistics companies operating in the Hidrovia region river system in South America providing waterborne transportation services for liquid and dry cargoes, as well as port, storage and related services. In 2019, Navios Logistics generated revenue of $228 million and EBITDA of $104 million. Navios Holdings owns 63.8% of NSAL, the remainder being held by the Argentinean Lopez family through Peers Business Inc.

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 action(s) 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.

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

Peter Firth
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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