Greek dry bulk shipping company Navios Maritime Holdings’ corporate family rating has been downgraded as the Brazilian mining giant Vale pulled out of a service contract for the iron ore port facility currently under construction in Nueva Palmira, Uruguay.
The company’s rating was downgraded to Caa3 from Caa1, and its probability of default rating to Caa3-PD from Caa1-PD, according to Moody’s rating agency.
Furthermore, Moody’s downgraded the rating on Navios Holdings’ USD 650 million senior secured first preferred ship mortgage notes to Caa2 from B3 and the rating on its USD 350 million senior unsecured notes to Ca from Caa3, while the outlook on all Navios Holdings’ ratings is negative.
“Our downgrade of Navios Holdings’ ratings reflects its weak liquidity profile, as market conditions in dry bulk remain very difficult and the company’s free cash flow generation remains negative, increasing the risk of a distressed exchange or default in its interest payment obligations,” said Marie Fischer-Sabatie, a Moody’s Senior Vice President and lead analyst for the issuer.
“The downgrade also takes into account its client Vale’s decision not to perform its largest contract with one of the group’s subsidiaries, which could result in reduced cash inflows from 2017 onwards,” Fischer-Sabatie added.
Namely, at the end of March Vale International informed that it will not be performing the 20-year service contract entered into with Navios South American Logistics Inc. (NSAL), a subsidiary of Navios Holdings, in September, 2013.
NSAL believes that Vale’s position is without merit and the company intends on taking legal action if Vale were to fail to perform the contract.
In mid-April, Navios Holdings terminated a USD 50 million loan that had been granted by its affiliate Navios Maritime Acquisition Corporation in March, after a lawsuit had been launched by one of Navios Acquisition’s shareholders.
This has reduced Navios Holdings’ sources of liquidity and the company does not have any other credit line at its disposal, Moody’s said.
The rating agency expects that Navios Holdings’ liquidity profile will weaken during the course of 2016, as its cash balance will be consumed owing to negative free cash flow.