June 10, 2004
S&P takes two tanker operators off CreditWatch
Standard & Poor's Ratings Services said today that it had affirmed its 'BB' corporate credit and its other ratings on OMI Corporation and removed all the ratings from CreditWatch, where they were placed on May 28, 2004.
In a separate announcement , Standard & Poor's Ratings Services said today that it affirmed its 'BB' corporate credit rating and its other ratings on General Maritime Corp. and removed all the ratings from CreditWatch, where they were placed on March 26, 2004.
OMI OUTLOOK IS "STABLE"
The removal of OMI from CreditWatch followed OMI's announcement that it had withdrawn its offer to acquire unrated Stelmar Shipping Ltd.
Standard & Poors says the outlook for OMI is stable. Stamford, Conn.-based OMI has $613 million in lease-adjusted debt.
"The improved tanker market, even if it weakens somewhat, should enable the company to maintain its credit profile," said Standard & Poor's credit analyst Kenneth Farer. "However, ratings upside potential is limited because of the ongoing fleet renewal program and participation in the competitive and cyclical tanker market."
OMI is engaged primarily in ocean transportation of crude oil and refined petroleum products. Since 1998, the company has been an internationally focused owner and operator of oil tankers.
Standard & Poor's expects that internally generated cash and the company's credit facilities will be sufficient to meet operating and capital spending needs and debt maturities over the intermediate term.
OMI has a $245 million revolving credit facility, which matures on March 14, 2010, and a $348 million revolving credit facility, which matures on July 27, 2007. The amortizing credit facilities allow for up to $396 million in borrowing capacity.
General Maritime's ratings were placed on CreditWatch after the company's March 26, 2004, announcement that it had agreed to purchase unrated Soponata S.A., a Portugal-based operator of medium-size oil tankers, for $247 million, plus the assumption of $168 million of future vessel commitments.
Standard & Poors says that pro forma for the acquisition, New York, N.Y.-based General Maritime will have $766 million of lease-adjusted debt, with debt to capital of 52%.
"General Maritime should be able to reduce its acquisition-related debt, given the current strong tanker market, restoring related credit measures," said Ken Farer. "However, significant improvements are unlikely as other debt-financed acquisitions are expected."
After all the Soponata vessels are integrated into General Maritime's fleet, General Maritime will operate 47 oceangoing vessels (26 Aframax tankers and 21 Suezmax vessels), with four vessels on order, notes Standard & Poors. The company's fleet size is substantial, and its fleet is approximately the same average age as the global fleet. The company has expanded mainly through acquiring vessels, rather than ordering new ships.
Because of management's aggressive growth strategy, says Standard & Poors, forecasts of the fleet size and balance sheet are "subject to more-than-usual uncertainty."
"We expect tanker rates to remain above average in 2004, with continued premiums paid for double-hulled tankers because of heightened environmental concerns and the acceleration of the phase-out of single-hull vessels, carrying heavy grades of oil, by the International Maritime Organization (IMO)," Farer said.
As a result of the IMO accelerated single hull phase out, General Maritime took an $18.8 million non-cash charge in the fourth quarter of 2003 for five of its nine single-hull vessels and will increase its depreciation expense by $2.1 million per quarter through 2009.
Over the intermediate term, the new regulations are not expected to materially affect General Maritime, as all of its non-double-hulled tankers are allowed to continue operating through 2010. Standard & Poor's expects internally generated cash and availability under credit facilities to meet operating and capital spending needs and debt maturities over the intermediate term.