October 17, 2012 / 6:40 PM / 5 years ago

TEXT-Fitch cuts SEACOR Holdings to 'BB+' from 'BBB-'

6 Min Read

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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