Moody’s assigns B3 to Navios Maritime Partners’ proposed term loan; outlook stable
Moody’s Investors Service affirmed the B3 corporate family rating of Navios Maritime Partners L.P. (“Navios” or “NMM”) and assigned a B3 rating to the proposed $400 million term loan B due 2022 currently being marketed. Moody’s has also changed the outlook for all ratings to stable from negative.
This rating action follows Navios Maritime Partners’ announcement of a refinancing of its senior secured term loan due 2018 with a new term loan due 2022. The terms of the new facility are expected to be similar to the existing instrument with the exception of an increase in amortization to 2.5% for the first two years and 5% thereafter; the current facility provides for amortization of 1% per annum. The transaction was launched with a margin of LIBOR + 450 bps.
“The refinancing is credit positive for Navios Maritime Partners because it addresses its largest near-term maturity,” says Maria Maslovsky, a Moody’s Vice President and lead analyst for the issuer. “Following debt reduction of approximately $180 million in 2016 and early 2017, Navios’ only other maturity beside the term loan is an approximately $42 million secured bank facility coming due in November 2017. NMM expects to refinance it on a secured basis using the existing collateral; in combination with the proposed term loan, the company will thus address all of its maturities and strengthen its liquidity,” adds Maslovsky.
A list of all affected ratings can be found at the end of this press release.
The rating affirmation reflects Navios’ success in reducing its leverage and extending maturities. NMM has meaningfully de-leveraged over the past year by prudently suspending its dividends in the first quarter of 2016 at the trough of the dry bulk market; it also benefited from the sale of its largest container ship, MSC Christina. The combination of these approaches allowed Navios to achieve moderate leverage for the rating category at approximately 4.4x for 2016 and below 4.0x pro forma for the sale of MSC Christina and debt paydown in January 2017. Positively, NMM’s coverage measured as funds from operations (FFO)+Interest Expense/Interest Expense is strong relative to similarly rated peers at 3.7x for 2016.
Navios Maritime Partners’ B3 corporate family rating (CFR) reflects (1) the company’s relatively small size with significant customer concentration; (2) the contagion risks from its parent which has shown weakness in its financial and liquidity profile; (3) the significant proportion of charters coming up for renewal in 2017 in a challenged market environment. More positively, the rating is supported by (1) Navios Maritime Partners’ fairly low financial leverage relative to its peers; (2) its charter policy which is based largely on long-term contracts and therefore provides good revenue visibility; and (3) its low operating costs, resulting from the fleet-management contract signed with Navios Holdings.
The dry bulk segment where the majority of Navios’ fleet is deployed has strengthened from its multi-year low in the first quarter of 2016 as demonstrated by the recovery in the BDI (Baltic Dry Index); however, Moody’s expects the volatility to continue in 2017. This could pose a challenge for Navios which will need to re-charter 16 out of its 24 dry bulk ships in 2017. Positively, its container shipping fleet has longer charters with the earliest coming up for renewal in the second half of 2018.
Pro forma for the refinancing of the term loan B, Navios Maritime Partners’ liquidity is adequate with the only maturity other than the new term loan occurring in November 2017 when a $32 million secured facility comes due ($10 million of amortization payments are due throughout the year). Still, Moody’s notes that NMM has no external liquidity sources and no unencumbered assets. Positively, the company generated free cash flow of $63 million in 2016. Presently, Navios Maritime Partners is in compliance with the covenants under its various credit facilities, although the headroom is tight in some cases and the company had to make prepayments and add collateral to its facilities to remain in compliance over the past year. This is expected to be addressed with the proposed transaction as the collateral value for the new term loan will be based on vessel valuations with charters as opposed to charter-free values in the existing term loan.
The proposed term loan B is rated at the same level as the corporate family rating (CFR); it comprises the majority of the debt. The loan has a loan to value covenant set at 0.8:1 with an approximately 15% headroom at the outset.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects the successful debt reduction accomplished by Navios Maritime Partners’ in 2016 and early 2017 and our expectation that leverage will stay within the range set for the rating, as well as the extension of its debt maturity profile (pro forma for the new term loan).
WHAT COULD CHANGE THE RATING UP/DOWN
Navios Maritime Partners’ ratings could be upgraded if the company were to comfortably sustain through the cycle and assuming the resumption of dividends its (1) debt/EBITDA ratio below 5.5x and (2) funds from operations (FFO) interest coverage (i.e., FFO + interest expense/interest expense) above 3.5x.
Navios Maritime Partners’ ratings could be downgraded if the company’s liquidity profile deteriorates. A debt/EBITDA ratio above 6.5x and (2) FFO interest coverage below 2.5x for a prolonged period of time could also be triggers for a downgrade.