Product tanker owner and operator Eletson Holdings has had its corporate family rating downgraded by Moody’s Investors Service from B3 to Caa1 amid weak liquidity, the rating agency said.
The move is in line with the negative outlook Moody’s set back in August when the company’s rating was downgraded from B3 from B2.
“Our downgrade of Eletson’s ratings reflects its weak liquidity profile, as market conditions in tankers and LPG/LEG 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,” says Maria Maslovsky, a Moody’s Vice President and lead analyst for the issuer.
“The downgrade also takes into account Eletson’s material obligations with respect to its newbuilding programme,” adds Maslovsky.
The company’ probability of default rating has been downgraded to Caa1-PD from B3-PD and the rating on its USD 300 million first preferred ship mortgage notes due in 2022 to Caa1 from B3.
The outlook on all ratings remains negative, Moody’s added, as the rating agency expects Eletson’s liquidity profile to continue weakening.
The downgrade comes on the back of numerous financial hurdles faced by Eletson.
As disclosed in its third-quarter report, the company breached a number of its bank covenants and was working with the relevant financial institutions to receive waivers.
Furthermore, the company’s weak liquidity is further pressured by a continued drop in spot rates, which have been the primary driver of Eletson’s operating cash flows.
On a positive note, in September 2017, the company refinanced a final maturity of a term loan from Citibank totaling approximately USD 83 million.
In addition, Eletson is in discussions with Shanghai Waigaoqiao Shipbuilding and Offshore (SWS) to postpone the payments for its Aframax newbuildings for which the company still has to contribute almost USD 23 million of equity.
Moody’s said that Eletson’s rating could be upgraded if market conditions in tankers and/or LPG/LEG improve, resulting in the company returning to positive free cash flow generation and if its liquidity profile improves.
Eletson’s rating could be downgraded further if its liquidity profile further weakens including failure to receive waivers for covenant breaches or inability to postpone payments for its Aframaxes; or if the company engages in debt buyback which would be classified as a distressed exchange by Moody’s.
Eletson’s fleet is composed of 21 product tankers and 11 LPG carriers.