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
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.