Moody's Assigns a B2 CFR to Hapag-Lloyd AG

Tuesday, September 17, 2013

Moody's Investors Service assigned to Hapag-Lloyd AG. (Hapag-Lloyd) a B2 corporate family rating and the B2-PD probability of default rating.

 

At the same time, the rating agency has withdrawn the B2 corporate family rating (CFR) and  the B2-PD probability of default rating (PDR) of Hapag-Lloyd Holding  AG for reorganization reasons. The withdrawals follow the downstream merger of Hapag-Lloyd Holding AG into Hapag-Lloyd AG. The outlook on the ratings is negative.

 
Ratings Rationale


"The rating assignment is prompted by the downstream merger of  Hapag-Lloyd Holding AG into Hapag-Lloyd AG that now are one single  entity, whereas the B2 CFR reflects the good operating performance in the first half of 2013, but also takes into account our expectation  that the freight rate environment will remain constrained over the  next 12 months," says Marco Vetulli, a Moody's Vice President - Senior  Credit Officer and lead analyst for Hapag-Lloyd.
 


Despite the weak operating environment, characterised by decreasing freight rates since August 2012, Hapag-Lloyd recorded an adequate operating performance in the first half of 2013. This was a result of some efficiency gains in terms of costs that have enabled the company to become one of the most efficient operators in the industry and achieve improvements in terms of profitability.
 


Nonetheless, Hapag-Lloyd's B2 CFR is constrained by two main factors.
 


Firstly, the environment in which the company operates, characterised by (1) high competition, which limits the operators' ability to recover operating costs; and (2) the overreliance of this shipping segment on short-term contracts, which limits market visibility. These market characteristics have credit-negative implications for container shipping companies' ratings, on account of their high operating leverage and sensitivity to operating cash-flow shifts.

 

Secondly, the company has high adjusted debt. We would expect this to be very weak for the rating category at the end of the current year, with Moody's forecast of debt/EBITDA ratio exceeding 7.0x on adjusted basis.Hapag-Lloyd was affected in the past couple of years by the combined effect of low freight rates, which constrained the company's profitability, and capital expenditure, which increased its debt level.Moody's expects the company to improve its credit profile by continuing to reduce costs through its cost-saving programme and record further progress in its operating performance, and hence to improve its credit metrics, though this is premised on freight rates remaining supportive with bunker costs not increasing materially.
 

However, the rating remains supported by (1) the company's good business profile, which is due to its leading market position as a  result of its successful commercial operations; (2) the flexibility of  its fleet (due to the high amount of chartered vessels that could be redelivered in the next 12 months); (3) Hapag-Lloyd's stable financial position, given not only its adequate liquidity, but also the acceptable headroom under the company's bank covenants.

 

The senior unsecured Caa1 rating assigned to the USD 250 million and EUR 480 million senior unsecured notes is two notches lower than Hapag-Lloyd's CFR and PDR of B2 and remains unchanged. This reflects the contractual subordination of the notes to Hapag-Lloyd's secured debt.

 

Rationale for Negative Outlook

The negative rating outlook reflects our negative appraisal of the  global container shipping market over the next 12 months, in combination with Hapag-Lloyd's relatively weak credit metrics for the rating category. Any progress Hapag-Lloyd makes in strengthening of  its credit metrics will depend on the future evolution of the  container market and the global level of demand, especially in Europe.  Freight rates in the next few quarters dipping sustainably below  current levels and/or bunker costs increasing beyond 2013 levels would put additional pressure on the ratings.

 

What could change the rating up/down

Moody's considers it unlikely that any upward pressure could be  exerted on Hapag-Lloyd's rating in the short term. However, longer term, positive rating pressure could arise if the company were to demonstrate progress towards (1) a reduction in financial leverage approaching 6.0x on a sustainable basis; and (2) an increase in its (funds from operations (FFO) + interest expense)/interest expense of above 2.5x on sustainable basis.

The ratings presently incorporate Moody's expectation that  Hapag-Lloyd's currently weak credit metrics for the rating category will recover in 2014. Moody's could downgrade the rating if  Hapag-Lloyd is unable to demonstrate a path to a stronger credit  metrics profile during 2014. 

Headquartered in Hamburg, Germany, Hapag-Lloyd AG is the largest  container liner shipping company in Germany and one of the biggest  worldwide based on global market coverage. As of June 2013,  Hapag-Lloyd operated a fleet comprising 154 ships including 63 owned, 84 chartered-in and seven leased vessels, and recorded a turnover of  EUR 6.8 billion on a last-12-months basis.

Hapag-Lloyd Group was established in 1970 as a result of the merger of Hapag (1847) and North German Lloyd (1857). Hamburgische Seefahrtsbeteiligung "Albert Ballin" GmbH & Co. KG is the company's largest shareholder, with a 78% stake.

 

www.moodys.com

Maritime Reporter May 2015 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

People & Company News

LNG Vessel with Wartsila Integrated Solutions Delivered to Evergas

The first in a series of 27,500 cbm 'Dragon' class vessels ordered by Evergas, a world renowned owner and operator of seaborne petrochemical and liquid gas transport vessels,

Executive Changes at Transocean

Transocean Ltd. today announced that, as mutually agreed with the company, Esa Ikaheimonen is stepping down as Executive Vice President and Chief Financial Officer effective immediately.

BMT, Endeavour Energy Win Africa’s LNG Import Terminal Contract

BMT Asia Pacific (BMT), a subsidiary of BMT Group Ltd, has been appointed Owners Engineer and lead design consultant by Endeavour Energy for the development

Finance

WTO Launches Dedicated Website for new TFA Facility

The TFAF was created at the request of developing country and least-developed country (LDC) members to help ensure that they receive the assistance needed to

Aegean Marine Profit Beats Estimates

Greece-based Aegean Marine Petroleum Network Inc. (ANW) reported first-quarter earnings of $12.2 million or $0.25 per share compared with $5.1 million or $0.11 per share last year.

Shreyas Shipping Turns Around

Shreyas Shipping and Logistics swung to a net profit of Rs. 61.75 crore (about $9.6 million) in the fiscal year ended March 31, a big turnaround from its loss of Rs.

News

LNG Vessel with Wartsila Integrated Solutions Delivered to Evergas

The first in a series of 27,500 cbm 'Dragon' class vessels ordered by Evergas, a world renowned owner and operator of seaborne petrochemical and liquid gas transport vessels,

Executive Changes at Transocean

Transocean Ltd. today announced that, as mutually agreed with the company, Esa Ikaheimonen is stepping down as Executive Vice President and Chief Financial Officer effective immediately.

BMT, Endeavour Energy Win Africa’s LNG Import Terminal Contract

BMT Asia Pacific (BMT), a subsidiary of BMT Group Ltd, has been appointed Owners Engineer and lead design consultant by Endeavour Energy for the development

 
 
Maritime Careers / Shipboard Positions Maritime Standards Naval Architecture Navigation Offshore Oil Ship Electronics Ship Repair Ship Simulators Sonar Winch
rss | archive | history | articles | privacy | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.9828 sec (1 req/sec)