TEXT-Fitch cuts SEACOR Holdings to 'BB+' from 'BBB-'
Oct 17 - Fitch Ratings has downgraded SEACOR Holdings' (SEACOR; NYSE: CKH) Issuer Default Rating (IDR) and debt ratings as follows: --IDR to 'BB+' from 'BBB-'; --Senior unsecured credit facility to 'BB+' from 'BBB-'; --Senior unsecured notes to 'BB+' from 'BBB-'. The Rating Outlook remains Negative. Approximately $500 million in rated debt is affected. The downgrade is driven by a number of factors. Disappointing operational results in the second quarter, particularly in the core offshore services segment, deviated from the trend and have tempered Fitch's expectations for growth in cash flow generation over the next 12 to 18 months. Latest-12-months (LTM) EBITDA remains significantly weaker than prerecession levels ($246 million as of June 30, 2012 vs $380 million in 2007). Additionally, the company's announcement that the board has determined to pursue a tax free spin-off of the aviation services business via distribution of all the outstanding shares of Era Group Inc. is a change from previous plans to hold an IPO of the subsidiary. This indicates continuing uncertainty about the ultimate business profile and capital structure of SEACOR as management continues to evaluate options. The distribution of this business to equity holders is a concern for creditors as it reduces the firm's size and cash flows, especially because aviation services has had some of the most stable operating performance through the downturn, and it has been the fastest growing business line. According to Fitch calculations, for the quarter ending June 30, 2012, SEACOR generated LTM EBITDA of $246.2 million and finished the period with debt of $970.3 million. As a result, debt-to-EBITDA is currently 4.0x, and interest coverage is currently 4.7x. SEACOR generated negative free cash flow (FCF) of ($270.9) million during the LTM period driven by robust capital spending. Capital expenditures, the acquisition of 18 liftboats in Q'1, and the recent repayment of the $170 million of senior notes due Oct. 1, 2012 have reduced the company's overall level of liquidity. Management retains significant flexibility to reduce capital expenditure levels, but appears to be committed to growing its business lines in anticipation of a rebound in the Gulf of Mexico and continued global growth in offshore drilling activity. Accordingly Fitch expects SEACOR to be modestly free cash flow negative in 2013. SEACOR maintains liquidity from cash and equivalents of $301.0 million at June 30, 2012, $18.3 million of restricted cash, $32.8 million of marketable securities and $192.4 million of Construction Reserve and Title XI Reserve Funds. Commitments under the company's credit facility due November 2013 were automatically reduced to $405 million in 2011, and are set to shrink again to $360 million in November 2012. ($125 million of borrowings were outstanding on the facility at June 30, 2012). Some combination of cash flow from operations, balance sheet cash on hand, and revolver borrowings was used to repay the $170 million of notes that came due Oct. 1, 2012. SEACOR's remaining $233.5 million in outstanding senior unsecured notes are due 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. SEACOR's ratings are supported by the company's diversity of operations across different business lines, and the diversity and quality of the company's fleet of offshore vessels. What Could Trigger a Rating Action Fitch will continue to monitor SEACOR's operating performance, industry conditions, and business line or capital structure reorganization going forward for catalysts which could result in rating or outlook changes. Future developments that may, individually or collectively, lead to a negative rating action include: --If the company continues to struggles to rebound in offshore services. Or 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). Also, pursuing a large, debt-funded acquisition and/or aggressive capital expenditures could result in negative rating action. 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. In order to maintain a 'BB+' rating, Fitch would expect the company to generally maintain a debt/EBITDA level at or below 3.0x through the cycle. The company is currently at 4.0x as of June 30, 2012. However, Fitch expects this to decrease as operations improve. A return to a Stable Outlook could result from operational improvement in the company's core offshore services segment, and ultimate resolution of business reorganization and capital structure concerns along with improved liquidity. Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable Criteria and Relevant Research: --'Corporate Rating Methodology' (Aug. 08, 2012). Applicable Criteria and Related Research: Corporate Rating Methodology
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