Fitch Affirms SEACOR Holdings' IDR at 'BBB-'; Outlook Stable
Fitch Ratings has affirmed SEACOR Holdings (CKH)' () Issuer Default Rating (IDR) and debt ratings as follows:
--IDR at 'BBB-';
--Senior unsecured credit facility at 'BBB-';
--Senior unsecured notes at 'BBB-'.
The Rating Outlook is Stable. Approximately $700 million in total debt is outstanding at SEACOR.
SEACOR's ratings are supported by the company's historically stable credit profile, diversity of operations, and the size, diversity and quality of the company's fleet of offshore vessels. The company's conservative credit profile is further supported by management's willingness to maintain large cash and securities balances throughout industry cycles, which have resulted in the company typically maintaining very low (and often negative) leverage levels as measured on a net debt basis.
In addition, management retains significant flexibility to reduce capital expenditure levels during industry downturns. This was last witnessed during 2009, and SEACOR continues to set spending levels such that it is able to generate positive free cash flows used to reduce debt balances as well as finance share repurchases.
Less positive factors for the rating include the potential for declining credit metrics following the increased EBITDA and cash flows generated in 2010 related to the BP-operated Macondo oil well's cleanup operations. Fitch believes the company will continue to benefit from the diversity of its operations (both operationally and geographically), from its large cash balances, and from high oil prices driving continued robust drilling activity globally. Additionally, the return to drilling in the U.S. Gulf of Mexico (GoM) should result in modest improvements in the company's Offshore Marine Services business. That said, declining market conditions remain a risk in the intermediate term as upstream companies work to sort through any new rules and regulations for offshore drilling following the end of the U.S. GoM deepwater drilling moratorium. Longer term, the vessel and service industries could benefit from increased drilling regulations, as offshore drilling is likely to be more vessel and service industry intensive. Additional risks include the potential for increased acquisition activity in all sectors that SEACOR participates in combined with increased commodity trading activity at SEACOR.
For the quarter ending June 30, 2011, SEACOR generated latest-12-months (LTM) EBITDA of $438.2 million and finished the period with debt of $717.3 million. As a result, debt-to-EBITDA is currently estimated at 1.64 times (x), and interest coverage is currently 10.1x. SEACOR generated negative free cash flow (FCF) during the LTM period ending March 31, 2011, driven by the payment of the large special dividend during the fourth quarter of 2010. The special dividend is not expected to be recurring and was financed from the excess cash generated in the Environmental Services businesses which benefited from the Macondo oil spill clean-up activities.
Fitch expects SEACOR to generate positive FCF in 2011 despite expectations of increased capital expenditures, which should allow the company flexibility to continue to reduce debt levels, repurchase shares or finance growth opportunities via higher levels of capital expenditures.
Fitch will continue to monitor SEACOR's performance and industry conditions going forward for catalysts which could result in rating or Outlook changes. Negative rating action would likely be considered if the company experiences a more severe decline in EBITDA levels than currently expected due to the loss of earnings/cash flows from the Environmental Services business. Additionally, if the company became more aggressive with share repurchases (particularly in the face of weaker market conditions), or if debt levels were to rise significantly above current levels (given the existing asset base), negative rating action could be considered. Pursuing a large, debt-funded acquisition and/or large, debt-fund aggressive capital expenditures also could result in negative rating action. In order to maintain an investment grade credit rating, Fitch would expect the company to generally maintain a debt/EBITDA level below 3.0x. Exceeding this level without definitive plans to reduce leverage levels could pressure the rating. Finally, significant growth of the company's trading operations and/or a move toward more speculative trading activities could be a catalyst for a negative rating action.
SEACOR maintains liquidity from cash and equivalents ($800.1 million at June 30, 2011, which is composed of $366.8 million of cash and equivalents, $13 million of restricted cash, $105.6 million of marketable securities and $314.7 million of Construction Reserve and Title XI Reserve Funds, its $450 million credit facility due November 2013 ($125 million of borrowings outstanding on the facility at June 30, 2011) and operating cash flows. SEACOR's next maturity is in 2012 when the company's remaining 5.875% senior unsecured notes mature (approximately $180 million).