TEXT-Fitch revises SEACOR Holdings outlook
May 24 - Fitch Ratings has affirmed SEACOR Holdings' (SEACOR; NYSE: 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 has been revised from Stable to Negative. Approximately $1.0 billion in total debt is outstanding. SEACOR's ratings are supported by the company's diversity of operations across different business lines, and the size, diversity and quality of the company's fleet of offshore vessels. The company's credit profile is further supported by management's willingness to maintain large cash and securities balances throughout industry cycles, which have resulted in lower leverage levels as measured on a net debt basis. However, as evidenced by the $319 million special dividend in the fourth quarter of 2010, cash balances are not necessarily earmarked to support debt balances. The Negative Outlook is driven by a number of factors. The offshore services segment is beginning to rebound from the oil price collapse in late 2008 and the drilling moratorium in the U.S. Gulf of Mexico. However this rebound has been slower than previously anticipated and performance remains weak relative to pre-2008 levels. This situation combined with increased capital spending drove negative free cash flow over the latest-12-month (LTM) period ended March 31, 2012 of $(259) million. Further, SEACOR's wholly owned aviation services subsidiary, Era Group Inc., closed a $350 million senior secured revolving credit facility in December 2011. ERA has also filed an S-1 indicating SEACOR's interest in issuing new equity at the ERA level. Structural subordination of debt at the SEACOR level is a concern, especially because aviation services had some of the most stable operating performance through the downturn, and it has been the fastest growing business line. Additional risks include the potential for increased acquisition activity in all sectors that SEACOR participates in, combined with increased commodity trading activity at SEACOR. 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 continued struggles to rebound in offshore services. 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 well below 3.0x through the cycle. The company is currently at 3.9x as of March 31, 2012. However, Fitch expects this to decrease as operations improve and the $171 million note maturity due Oct. 01, 2012 approaches. For the quarter ending March 31, 2012, SEACOR generated LTM EBITDA of $258.9 million and finished the period with debt of $1,004.1 million. As a result, debt-to-EBITDA is currently 3.9x, and interest coverage is currently 5.2x. SEACOR generated negative free cash flow (FCF) during the LTM period driven by the increased capital spending. Management retains significant flexibility to reduce capital expenditure levels, but appears to be committed to growing its business lines in anticipation of a strong rebound in the Gulf of Mexico. Accordingly Fitch expects SEACOR to be modestly free cash flow negative in 2012. SEACOR maintains liquidity from cash and equivalents of $282.0 million at March 31, 2012, $26.0 million of restricted cash, $68.6 million of marketable securities and $259.9 million of Construction Reserve and Title XI Reserve Funds, its revolving credit facility due November 2013, and cash flow from operations. Commitments under the company's $405 million credit facility will shrink to $360 million in November 2012. $125 million of borrowings were outstanding on the facility at March 31, 2012. SEACOR's next maturity is October 1, 2012 when the company's remaining 5.875% senior unsecured notes mature (approximately $171 million). The remaining $234 million of SEACOR notes will mature in 2019. Key covenants are primarily associated with the company's senior unsecured credit facility and include minimum interest coverage (3.0x covenant level), maximum secured debt to total capitalization (25% covenant level) and maximum funded debt to total capitalization (50% covenant level). SEACOR currently maintains an adequate cushion to covenant levels and is not anticipated to violate any covenants.
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