BRIEF-Nissan says likely it will not be able to be reimbursed for past, future recalls after Takata bankruptcy filing
* Nissan Motor Co says likely it will not be able to be reimbursed for past, future recalls after Takata Corp bankruptcy filing
Overview -- U.S.-based cruise operator NCL Corp. Ltd. has announced the completion of the IPO of its parent company's common stock. -- The IPO, not including the underwriters' overallotment, will generate $447 million in gross proceeds, which will be used for debt repayment and IPO expenses. -- We are raising our corporate credit rating on NCL to 'BB-' from 'B+'. -- The stable outlook reflects our belief that NCL will sustain credit measures that are in line with the current rating over the intermediate term. Rating Action On Jan. 18, 2013, Standard & Poor's Ratings Services raised its corporate credit rating on Miami, Fla.-based cruise operator NCL Corp. Ltd. to 'BB-' from 'B+'. We removed the ratings from CreditWatch, where they were placed with positive implications on Jan. 9, 2013. The outlook is stable. At the same time, we raised the issue-level rating on the first-lien senior secured notes due 2016 one notch to 'BB+' from 'BB'. The recovery rating on this debt remains '1', indicating our expectation for very high (90% to 100%) recovery for noteholders in the event of default. We also raised the issue-level rating on the senior notes due 2018 one notch to 'BB-' from 'B+' and revised the recovery rating on this debt to '3' (50% to 70% recovery expectation) from '4' (30% to 50% recovery expectation). Recovery prospects for the 2018 notes have improved enough to warrant an upward revision in the recovery rating following anticipated debt repayment from the IPO proceeds. Rationale The action follows the completion of the company's IPO of common stock, which generated $447 million in gross proceeds not including the underwriters' overallotment, which will be used for debt repayment. This will result in a significant reduction in debt and a moderate decrease in interest expense, and an improved financial risk assessment on the company. Following the IPO, our expectation for lease and port commitment-adjusted debt to EBITDA in 2013 will improve to the high-4x area from the high-5x area previously, and our expectation for funds from operation (FFO) to total adjusted debt will improve to around 16% in 2013 from the low-teens percentage area previously. In addition, we believe that EBITDA coverage of interest expense will improve to about 4x in 2013. These leverage and coverage measures would be in line with an "aggressive" financial risk assessment, in our view, compared with a "highly leveraged" financial risk assessment previously. Additionally, anticipated leverage measures in 2013 after debt repayment from IPO proceeds would represent a good cushion compared with the 5.5x threshold for debt to EBITDA and the 15% threshold for FFO to total debt that we believe are in line with the 'BB-' rating on NCL. The 'BB-' corporate credit rating on Miami, Fla.-based NCL Corp. Ltd. reflects Standard & Poor's Ratings Services' assessment of the company's financial risk profile as "aggressive" and our assessment of its business risk profile as "fair," according to our criteria. Our assessment of NCL's business risk profile as fair is based on its position as the third largest cruise operator in the North American market (behind Carnival Corp. and Royal Caribbean Cruises Ltd.), significant capital requirements to fund new ship building, an inability to pull back spending once a ship order is committed, and the cruise industry's sensitivity to the economic cycle. Management's success in executing operating improvements over the past few years partly offsets these risk factors. We believe the cruise sector has, to a large extent, recovered from the impact of the Costa Concordia grounding and should experience low-single-digit net yield growth in 2013. We believe NCL's future bookings pertaining to 2013 itineraries are pricing better compared with the prior-year period. For 2013, we have incorporated into the ratings an expectation of a low-single-digit increase in net revenue yield and a low-teen percentage EBITDA increase factoring in capacity growth due to the scheduled April 2013 delivery of Norwegian Breakaway. Downside risks to our performance expectation for NCL stem primarily from slowing economic growth and sovereign debt issues in Europe. In the first nine months of fiscal 2012, EBITDA increased about 8% as capacity and net yield increased 1.5% and 1.4%, respectively, and net cruise costs per capacity day decreased 1.3%. As of Sept. 30, 2012, our measure of NCL's total lease and port commitment adjusted debt to EBITDA was 6x and EBITDA interest coverage was in the mid-2x area. Based on our current operating expectations, we believe total lease and port commitment adjusted debt to EBITDA was just under 6x at the end of 2012. Liquidity Based on its likely sources and uses of cash over the next 12 to 18 months and incorporating our performance expectations, NCL has a "strong" liquidity profile, according to our criteria. Our assessment of NCL's liquidity profile incorporates the following expectations and assumptions: -- We expect sources of liquidity (including cash and facility availability) over the next 12 to 18 months to equal or exceed uses by 1.5x. -- We expect net sources to be positive, even if EBITDA performance is 30% below expectations over the next 12 months. -- There are several covenants NCL must maintain. The debt service coverage covenant includes high debt amortization payments and requires a level greater than 1.25x, or the company must maintain free liquidity defined as cash balances plus available revolver capacity of greater than $100 million. NCL also must maintain net funded debt to total capitalization under 70% and net funded debt to total assets under 70%. We expect NCL to sustain a good cushion relative to covenant levels over the intermediate term. -- NCL has sound relationships with its banks, in our assessment, and a satisfactory standing in credit markets. NCL's liquidity sources include cash balances of $69 million as of Sept. 30, 2012, and availability of $604 million under its revolving credit facilities. Beginning Oct. 28, 2010, revolver commitments are reduced by $47 million on a semiannual basis. We expect that NCL will generate more than $500 million in operating cash flow in 2013 and 2014. In addition, the company will use the $447 million in gross IPO proceeds to prepay an aggregate of $55.6 million under its various credit facilities, pay $79.7 million to Genting Hong Kong Ltd. as part of the Norwegian Sky purchase agreement, redeem $122.5 million in aggregate principal of the company's $350 million senior notes due 2018, and repay other debt balances and expenses related to the IPO. We currently expect high amortization payments (related to various loans and credit facilities) totaling more than $600 million in the aggregate in 2013 and 2014 to be met with internal cash flow and revolver borrowings. NCL expects capital expenditures to be $830 million in 2013 and $712 million in 2014, mostly for new ship deliveries. NCL has committed export financing arrangements in place to fund the company's ship deliveries in 2013 and 2014. Recovery analysis We plan to publish a full recovery report on NCL as soon as practical following this release. Outlook The stable outlook reflects our expectation that lease and port commitment-adjusted debt to EBITDA in 2013 will improve to the high-4x area and funds from operation (FFO) to total adjusted debt will improve to around 16% in 2013, which are good compared with thresholds for debt to EBITDA of 5.5x and FFO to total debt of 15% that we believe are in line with the current 'BB-' rating. A one notch upgrade in the corporate credit rating on NCL could occur if we become confident that the company can successfully absorb additional capacity in the fleet over the next few years and sustain debt to EBITDA in the low-4x area and FFO to total debt around 20%. We could lower ratings if we believe NCL will maintain debt to EBITDA above 5.5x and FFO to debt below 15%. Related Criteria And Research -- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012 -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011 -- Criteria Guidelines For Recovery Ratings, Aug. 10, 2009 -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 -- 2008 Corporate Criteria: Rating Each Issue, April 15, 2008 -- 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008 Ratings List Upgraded; Recovery Rating Revision To From NCL Corporation Ltd. Corporate Credit Rating BB-/Stable/-- B+/Watch Pos/-- Senior Secured BB+ BB/Watch Pos Recovery Rating 1 1 Senior Unsecured BB- B+/Watch Pos Recovery Rating 3 4
TOKYO, June 26 Asian shares edged up on Monday on optimism about global growth, while the dollar was on the defensive as a subdued U.S. inflation outlook capped U.S. bond yields and raised questions about the Federal Reserve's plans to tighten policy.