Moody’s Investors Service has today changed to stable from positive the outlook on the Baa1 issuer rating and Baa1 senior unsecured ratings of Denmark-based shipping and oil company A.P. Møller-Mærsk A/S (Maersk). Concurrently, Moody’s has affirmed Maersk’s Baa1 issuer rating, its Baa1 senior unsecured ratings and the (P)Baa1 rating assigned to its medium-term note (MTN) programme.
“Our decision to change the outlook to stable from positive primarily reflects the challenging market conditions affecting most of Maersk’s business units, particularly its two largest, Maersk Line and Maersk Oil. It also factors in further anticipated deterioration in the group’s performance and financial profile in 2016, which will weakly position the company in its rating category,” says Marie Fischer-Sabatie, a Moody’s Senior Vice President and lead analyst for the issuer.
RATINGS RATIONALE
Today’s outlook change to stable from positive reflects the challenging market conditions affecting most of Maersk’s business units and Moody’s expectations that the group’s performance and financial profile will further deteriorate in 2016, positioning the company weakly in its rating category.
Maersk owns the world’s largest container shipping company, Maersk Line, which has been affected in the second half of 2015 by sharply declining freight rates (Maersk Line’s average freight rate declined by 16% between 2014 and 2015). This resulted in a revenue drop of 13%, which was only partly offset by lower costs (in particular, lower fuel cost), pushing Maersk Line’s EBITDA down by 21%. Container shipping rates have been pressured by the ongoing oversupply of vessels, with supply growth having again outpaced demand growth in 2015.
Maersk is also present in oil and gas through Maersk Oil, which has reported a sharp decline in its profits (EBITDA before impairment losses dropped to $2.7 billion in 2015 from $5.1 billion in 2014) on the back of the lower oil price, which averaged $52 per barrel for Maersk Oil in 2015 compared to $99 per barrel in 2014.
While Maersk’s 2015 performance and credit ratios continued to position the group comfortably within its rating category with leverage (i.e., debt/EBITDA) at around 1.8x, Moody’s anticipates that the group’s financial profile will weaken in 2016. The rating agency bases this forecast on its projection of average oil prices of around $33 per barrel in 2016, a continued decline in freight rates for container shipping and low single-digit volume growth in percentage terms. The rating agency projects that Maersk’s credit ratios will be weak for its rating category in 2016, but will gradually recover in the following 12-18 months to levels in line with its current Baa1 rating.
Maersk has a strong liquidity profile underpinned by (1) a cash balance of $4.0 billion at end-2015; (2) cash flow generation from operations, which Moody’s expects to be $5 billion-$6 billion in the next 12 months; and (3) available committed credit facilities of approximately $9 billion. These liquidity sources adequately cover Maersk’s financing needs for the next 12 months, which are spread between capital expenditures of $7 billion, dividend payment of $1 billion, share repurchases (approximately $500 million left under the group’s $1 billion programme) and $1.3 billion of due debt repayments.
WHAT COULD CHANGE THE RATING UP/DOWN
Upward pressure could arise if (1) Maersk sustainably reduces its debt/EBITDA ratio below 1.75x and increases its funds from operations (FFO) interest coverage above 12x; and (2) Maersk Oil stabilises and increases its oil reserves and production levels over time.
Downward pressure on the rating could result if Maersk’s debt/EBITDA ratio increases above 2.25x and FFO interest coverage decreases to below 10x over a prolonged period of time. In addition, negative pressure on the issuer rating could develop in the event of (1) any material increase in debt-financed acquisitions; (2) any significant change in the group structure that over time would result in less favourable access to cash flow and assets for the unsecured creditors.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Investment Holding Companies and Conglomerates published in December 2015. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.
Headquartered in Copenhagen, Denmark, A.P. Møller-Mærsk A/S is a diversified conglomerate which main business areas encompass container shipping, oil and gas, drilling, port terminals and other shipping-related activities. The group generated revenues of $40.3 billion and EBITDA (before impairment losses) of $9.1 billion in 2015.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Marie Fischer-Sabatie
Senior Vice President
Corporate Finance Group
Moody’s France SAS
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Paris 75008
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Marina Albo
MD – Corporate Finance
Corporate Finance Group
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Source: Moody’s
Source: Moody’s