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Marine Log

January 18, 2008

S&P lowers OSG's credit ratings

Standard & Poor's Ratings Services yesterday lowered its corporate credit rating on Overseas Shipholding Group Inc. (OSG) to 'BB' from 'BB+'.

At the same time, it lowered the senior unsecured debt ratings to 'BB', the same as the new corporate credit rating, from 'BB+'.

All ratings were removed from CreditWatch, where they were placed with negative implications on Oct. 31, 2007. S&P says the outlook is now stable.

"The downgrade reflects the company's weakened financial profile following acquisitions, share buybacks, higher dividends, and recently reduced earnings," said Standard & Poor's credit analyst Funmi Afonja. Positive credit factors include satisfactory liquidity and a well-established market position in the ocean transportation of crude oil and petroleum products.

The New York City-based shipping company had about $3.3 billion of lease-adjusted debt outstanding at Sept. 30, 2007. OSG's financial profile has deteriorated over the past year. Adjusted (for operating leases) Sept. 30, 2007, trailing 12-month EBITDA interest coverage weakened to 2.9x from 5.0x in the year-earlier period. At the same time, net (of $542 million in cash) debt to EBITDA weakened to about 5x from 3x in the prior-year period. The weakening credit metrics over the past year were the result of the company's financial choices, which resulted in material increases in debt. Its Sept. 30, 2007, net debt to capital increased to about 53% from 40% a year earlier. Ratings incorporate an expectation that leverage will likely stay at elevated levels, with some fluctuation, over the next couple of years, depending on the timing of significant capital outlays related to the new vessel deliveries.

OSG's well-established market position in the ocean transportation of crude oil and petroleum products should help the company maintain a credit profile consistent with the rating.

An outlook revision to negative, while not anticipated, is possible if tanker rates drop significantly and for a sustained period, resulting in meaningful deterioration in the company's cash generation and financial profile, or if the company adopts a more aggressive financial policy. S&P says "we consider an outlook revision to positive less likely.

Complete ratings information is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com.

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