Moody’s Lowers Teekay’s Rating Again

Bermuda-headquartered shipping company Teekay Corporation has seen its corporate family rating downgraded for the second time this year from B2 to B3 due to financial concerns, according to Moody’s rating agency.

Furthermore, Moody’s said that it downgraded Teekay’s senior unsecured debt rating from B3 to Caa1, adding that the ratings are under review for further downgrade.

“The rating downgrades reflect unaddressed upcoming debt maturities at the parent and refinancing needs at the operating subsidiaries (including two master limited partnerships, MLPs) in an environment of tightening access to the capital markets, which could continue for some time,” Moody’s said.

The downgrades also reflect Moody’s expectation of a weaker liquidity profile at Teekay, underpinned by the lower-than-anticipated cash flows to the company, due to the impact of depressed underlying energy markets and capex funding needs, and reducing revolvers at the company’s operating subsidiaries.

“The prospects of the near-term recoveries of market values to restore asset coverage of parent-level debt closer to historical levels is unlikely,” Moody’s added.

Based on the rating, more modest cash balances are anticipated at the company and the limited availability under its revolving facility and its near-term refinancing risks are considered.

Moody’s estimates that the company’s cash balance has declined since the year-end 2015 level of approximately USD 200 million but should cover the nearest debt maturity of about USD 70 million in May 2016, if it is not refinanced prior to its maturity.

However, the rating agency said that doing so would further tighten Teekay’s liquidity position and diminish its ability to cover its G&A expenses and debt service requirements.

Moody’s added that Teekay’s asset disposal strategy reduced its debt so that Debt to EBITDA approaches 4.0 times, and, coupled with an increase in the MLP distributions to a level that would enable Teekay to cover its G&A and debt obligations, could provide positive ratings momentum.

However, Moody’s said that it does not foresee an upwards pressure on the ratings near term.

Teekay Corporation’s corporate family rating was downgraded from B1 to B2, while its senior unsecured debt rating was lowered from B2 to B3, in February this year, due to the company’s decision to reduce the MLP subsidiaries’ dividend.

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