Moody's Investors Service
has confirmed the debt ratings of General Maritime Corporation
("General Maritime"), completing a review for possible downgrade that was initiated on March 29, 2004. The confirmed ratings include: $250 million senior unsecured notes due 2013, rated B1 Senior Implied rating of Ba3 Senior Unsecured Issuer rating of B1 The rating outlook is stable. General Maritime's ratings had been placed on review for possible downgrade following the announcement by the company of its proposed purchase of Soponata SA for approximately $415 million. At the time of the announcement, Moody's was concerned about the increased levels of debt associated with this acquisition and its effect on near term liquidity, the timing and levels of shipyard payments related to the acquired newbuilding commitments and General Maritime's integration plans relating to this acquisition. Since then, Moody's has reviewed details of the proposed acquisition and related financing.
As the result, Moody's believes that the cash flows that the acquired assets will contribute to General Maritime's consolidated performance should be adequate to maintain the company's credit fundamentals over the near term, especially considering the continued strong tanker charter rate environment. The ratings have a stable outlook, reflecting Moody's expectations of a smooth integration of Soponata's vessels and its technical management staff into General Maritime's operations. This acquisition involves assets of a similar technical and commercial nature to that of General Maritime's existing medium-size crude oil tanker business. Considering the company's history of successful integration of tanker fleets acquired in prior transactions, Moody's believes that the number and class of vessels acquired poses little integration risk. Moody's notes that this is the first time the company has taken on newbuilding commitments, that inherently carry higher risk due to long lead times to delivery. Ratings or their outlook may be subject to downward revision if the company were to undertake additional large, levered acquisitions, or if charter rates were to fall below $18,000/day (on average, fleet-wide) for a protracted period, such that the company's ability to rapidly reduce debt incurred with this acquisition were impaired. The acquisition is expected to close in July 2004. At close, the company will pay $248 million for the five existing vessels and newbuilding contracts and will assume an additional $166 million of newbuilding commitments, the bulk of which will be paid in 2006 and 2007. The purchase price will be funded through use of General Maritime's cash balance which Moody's estimates will be approximately $170 million pre closing, as well as drawings on the new $825 million senior secured bank facilities. While cash will decrease as a result of this transaction, overall liquidity (cash and available revolver) will remain relatively strong at $380. Net debt will increase by about $155M.
Although incremental debt will come at a higher multiple to the added EBITDA as compared to General Maritime's LTM 03/04 Debt/EBITDA ratio of 2.1x, total pro forma leverage of the company will remain below 3x. Moody's notes that these ratios reflect the benefits of the cyclically high tanker market of the past 18 months, which have supported strong EBITDA levels, and that any erosion of tanker rates could weaken operating performance and leverage metrics. Nevertheless, even with rates equal to about one-half of current market rates, debt/EBITDA would not exceed 4x in the near term. The company has taken advantage of the prolonged strong tanker markets to repay a considerable amount of debt. Since the closing of Metrostar acquisition in May 2003 General Maritime's net debt decreased by $195.1 million, which helps in making the new debt associated with the current acquisition more manageable.
The ratings continue to reflect the company's historical record of free cash generation and debt reduction, potential positive effects of the acquisition of five vessels and newbuilding contracts, and an increasing market position that General Maritime will hold in the medium-size crude oil tanker sector
. The latest acquisition further increases General Maritime's asset base, which pro-forma the transaction will be about $1.45B, suggesting substantial coverage to all debt, including the notes. The ratings also reflect the high leverage due to the recent and prior acquisitions, uncertainty regarding potential future acquisitions by the Company, and the historically volatile nature of earnings experienced in the crude oil tanker sector. General Maritime Corporation, a Marshall Island corporation headquartered in New York, NY, is one of the largest owner/operators of medium-size crude oil tankers in the shipping industry. After giving effect to the proposed acquisition, the company would have a fleet of 51 tankers consisting of 26 Aframax and 25 Suezmax tankers, including commitments for four vessels on order, totaling 6.2 million DWT with an average age of approximately 10 years. The company's vessels primarily transport crude oil to the United States from oil producing regions in the Atlantic basin (Caribbean, West Africa, North Sea, and South America).
The company also operates in the Black Sea and other regions. Soponata SA, based in Portugal and founded in 1947, owns and operates a fleet consisting of nine vessels, including three double-hull Aframax tankers, two double-sided Suezmax tankers and four newbuilding Suezmax tankers of which two are scheduled for delivery in 2006 and two in 2007.