The corporate family rating (CFR) of German shipping major Hapag-Lloyd has been upgraded to B1 from B2, according to ratings agency Moody’s.
Additionally, Moody’s upgraded the company’s probability of default rating (PDR) to B1-PD from B2-PD and its senior unsecured bond ratings to B3 from Caa1, with a stable outlook.
“Our rating action reflects Hapag-Lloyd’s progress in integrating UASC following the merger while reducing leverage and generating positive free cash flow on the back of tight cost management and increased efficiencies,” said Maria Maslovsky, a Moody’s Vice President – Senior Analyst and lead analyst for Hapag-Lloyd.
The upgrade of Hapag-Lloyd’s ratings reflects the company’s achievement of close to 90% of targeted USD 435 million of synergies from the UASC merger as of September 30, 2018 and the expected realization of full synergies in 2019 as originally outlined.
These synergies helped to partially offset cost increases incurred by Hapag-Lloyd in the first half of 2018 on the back of sharp fuel cost increases in line with rising in oil prices. Additionally, Hapag-Lloyd has reduced leverage to 5.2x for the twelve months ending September 30, 2018 from 5.4x in 2017 and Moody’s anticipates the company to continue its deleveraging path in line with its 2023 strategy.
Furthermore, Hapag-Lloyd has been able to generate positive free cash flow starting in 2017 and Moody’s expects it to remain cash generative going forward with proceeds at least partly applied to further debt reduction.
The stable outlook reflects Moody’s expectations of steady performance owing to the company’s strong market position and experienced management team despite likely cost increases combined with a volatile freight rate environment.