Moody's Investors Service downgraded its rating for the senior notes of Enterprises Shipholding Corp. to B2 from Ba3. The downgrade reflects Moody's expectation that the pressure on freight rates will continue to build beyond the normal level of seasonality, especially in the light of substantial excess capacities in the reefer industry.
In addition, management faces the challenge of allocating operating cash flow and balance sheet liquidity between operating requirements, debt service and advance/progress payments for newbuilts.
Furthermore, the current market value of the underlying assets is unlikely to recover to a level that provides meaningful asset collateral for the rated debt in the near term.
Moody's expects the depressed situation in the reefer industry to remain the key determinant of Enterprises Shipholding's ability to service its debt in the short/medium term.
Given the severity of the current market downturn, the seasonal increase of freight rates typically seen during the first half of the year is expected to be less pronounced during the first few months of 2000. Hence, Moody's believes that the operating performance of Enterprise Shipholding Corp.
and its resulting ability to service debt will continue to remain under pressure.
Should freight rates fail to show marked improvement, further rating downgrades will be considered. If - contrary to expectation - rates returned to historic levels near term, this would also be considered in the rating.
The outlook for the B2 rating is negative. Enterprise Shipholding Corp. (headquartered in Athens, Greece) is one of the leading independent owners and operators of refrigerated cargo vessels ("reefers"). The company has a long-standing presence in the industry and a significant, diversified customer base.