Moody's Investors Service
has downgraded the rating of Navigator Gas Transport's first priority ship mortgage notes due 2007 to Caa2 from Caa1, and the second priority notes due 2007 from Ca to C. The senior implied rating was reduced to Caa2 from the previous B3. The rating outlook is negative.
The rating downgrade primarily reflects the reduction in earnings capacity of the ships due to the continued weak rate environment of the transport market for petrochemical gasses, the concurrent decline in the market value of the ships under construction (collateral for the notes), the fragility of the company's balance sheet due to the high leverage, and increasing expectations that restructuring options will likely be explored and effected with the bondholders. Current freight rates are estimated to be at about $500,000 per month compared with a market rate of approximately $750,000 at the time of the August 1997 offering and the $1.3 million then projected for year 2001. The impact of the significantly lower freight rates has increased the likelihood of reliance on the letter of credit structure covering interest shortfalls on the first mortgage notes of up to two years from initial delivery ($40 million) and working capital ($5 million) during start-up operations. Up to two years of interest payments on the second priority notes can be deferred. Drawings under the letter of credit are secured by a super priority lien on the vessels effectively subordinating both the first and second mortgage notes.
The rating downgrades also consider the delays in delivery of the five petrochemical carriers. The first vessel is about to go on sea-trials, with delivery, barring discrepancies, now expected to be in late March, versus the originally scheduled August 1, 1999 date. The fifth, and final vessel, is expected to be delivered in February 2001, versus the original September 1, 2000 schedule. The company believes that a minimum of three vessels is necessary in order to execute its business strategy of providing regularly scheduled global sailings and ports-of-call for the delivery of industrial gasses. To date, the company has identified no firm employment for the vessels and cannot commit to short-term charters until vessel availability is certain.