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At the same time, the rating agency has withdrawn the B2 corporate family rating (CFR) and  the B2-PD probability of default rating (PDR) of Hapag-Lloyd Holding  AG for reorganization reasons.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


People & Company News

MN100: Klüber Lubrication NA LP

The Company: Klüber Lubrication is one of the world’s leading manufacturers of specialty lubricants, offering high-end tribological solutions to virtually all industries and markets worldwide.

Grand Bahama Shipyard Adds Four Executives

Grand Bahama Shipyard Limited (GBSL), a Caribbean shipyard providing retrofit, refurbishment and revitalization to cruise and commercial vessels, has added four

MN100: Voith Turbo

The Company: Voith Turbo specializes in the design, manufacture and servicing of high performance driveline equipment. From drive components to electronic drive systems,

Finance

Singapore's SembMarine to Take Full Control of PPL Shipyard

Singaporean rig builder Sembcorp Marine Ltd said it had agreed to buy the 15 percent of PPL Shipyard Pte Ltd it did not already own for about $115 million from

Pressure Mounting on VLGCs Rates - Drewry

A wave of cargo cancellations from the US is putting additional pressure on VLGC rates, according to the latest edition of the LPG Forecaster, published by global shipping consultancy Drewry.

Investors to Acquire $1.5 bln Shipping Portfolio from NORD/LB

NORD/LB Norddeutsche Landesbank and KKR Credit have reached an agreement by which, subject to completion of certain conditions precedents, KKR Credit, together

News

Big Tankers' Need for Retrofit Slows Use of New Panama Canal

The promise that some oil traders and brokers saw for an expanded Panama Canal to become a new route for large tankers will take longer to realize than expected

Tough Twins: New Fireboats for Port of Long Beach

Canada based naval architect and marine engineering firm Robert Allan Ltd. is a leading designer of high-performance response vessels of many types and in particular,

USCG Evaluates Comms Equipment in Alaska

Coast Guard Research and Development Center evaluates state-of-the-art communications equipment and Next Generation Incident Command System in Alaska   At nearly 663,

 
 
Maritime Careers / Shipboard Positions Maritime Contracts Maritime Security Maritime Standards Navigation Offshore Oil Pod Propulsion Port Authority Ship Electronics Sonar
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: 0.1212 sec (8 req/sec)