Moody's Investors Services downgraded Millenium Seacarriers, Inc.'s $100 million 12% First Priority Ship Mortgage Notes due 2005 to Ca from Caa2. The senior implied rating was similarly lowered to Ca from Caa2 and the issuer rating was lowered to C from Caa3. The rating outlook remains negative.
The rating downgrade reflects the company's track record of continued losses, weak cash flow and the current decreased market value of the fleet securing the Notes. Market conditions and charter rates for the drybulk shipping sector have deteriorated over the last several quarters, and are not expected to improve near term. A net loss of $14.0 million was reported for the first nine-month period of 2001 on revenue of $26.0 million compared to a loss of $8.1 million on revenue of $26.3 million in 2000. These results included losses on sale of vessels of $6.7 million in 2001 and $0.3 million in 2000. Since Millenium's commencement of operation in mid-1998 through September 30, 2001, the company has accumulated losses of approximately $52 million, resulting in shareholder's deficit of $28 million.
The security for the Notes, consisting of the company's fleet, book valued at $69.5 million, and of $6.1 million of restricted cash, largely resulting from vessel sales, Moody's (MCO)
believes has a market valued
significantly less than the $100 million face value of the Notes. Evidence of the deflated value of the vessels is provided by results of the company's recent vessel sales experience. The company's sale of seven
vessels during the nine-month period ended September 30, 2001, for an aggregate price of $18.6 million, resulted in losses on the sales of $4 million; and further, subsequent to September 30, the company incurred a loss of $2.7 million on the sale of a vessel for $4.05 million. (Provision for the latter loss was provided in the third quarter financials.) The sales proceeds were used to acquire four vessels in the third quarter at a purchase price of $12.8 million and a fifth vessel for $4.2 million subsequent to September 30.
This action is reflective of the company's revised plan that includes the strategic sale of certain of its younger vessels, with proceeds used to purchase older vessels which managment believes it can operate profitably over their remaining useful lives. Moody's believes that it is unlikely that sufficient free cash flow will be generated to service debt requirements, and further, that a financial restructuring is probable
resulting in a loss of principal. Interest coverage has been inadequate with coverage less than 1x. EBITDA adjusted for impairment write-downs and loss on sale/disposal of vessels for the nine-month period ended
September 30, 2001was $7.1 million against cash interest expense of $7.8 million while adjusted EBITDA for the year-2000 nine-month period was $6.5 million against cash interest expense of $7.8 million.