November 25, 2008
Moody's assigns Kirby an investment grade rating
Moody's Investors Service has assigned a Baa3 senior unsecured issuer rating to Kirby Corporation (NYSE:KEX). Moody's will also withdraw the Baa3 rating on Kirby's $121 million medium-term notes shelf registration upon its expiration on November 28, 2008. The outlook is stable.
Kirby Corporation, headquartered in Houston, Texas, is the largest domestic operator of inland tank barges, serving mainly the petroleum and petrochemical sectors. Kirby's diesel engine service segment maintains and repairs large medium-speed and small high-speed diesel engines, and is the largest domestic EMD diesel services company.
Baa3 is an investment grade rating.
Moody's says the Baa3 rating reflects Kirby's steady operating performance and maintenance of a solid credit profile over the course of the business cycle. Operating margins, Debt to EBITDA and Retained Cash Flow to Net Debt have strengthened from beginning of year levels, notwithstanding significant weather-related service interruptions and the recent challenging economic conditions expected to worsen over the near term. September 30, 2008 metrics could be indicative of a higher rating; however, Moody's expects metrics to moderate in 2009, but remain consistent with a low investment grade rating.
The ratings recognize Kirby's leading position in the inland tank barge sector, the sector's favorable fundamentals that have, so far, provided a supportive rate environment and the diversification of earnings from the diesel services segment. Moody's says the ratings are "balanced by Kirby's relatively small size, modest liquidity as Kirby typically keeps little cash on hand and exposure of demand for inland tank barge services to macroeconomic fundamentals."
The stable outlook reflects Moody's expectation that Kirby's safety record and important position that it fills in its customers' supply chains will allow it to at least maintain its leading market share and a supportive level of operating cash flow during cyclical troughs in demand for inland tank barge service. There is presently little upwards pressure on the ratings due to the company's relatively modest size and the potential of the current strength of credit metrics relative to the Baa3 rating category to moderate as near-term demand weakens with economic activity. Additionally, an increase in debt and leverage would likely accompany acquisitive growth that Moody's anticipates could occur as the pending downturn in demand and current financial market conditions pressure bottom lines or liquidity of smaller industry players.
The ratings could be upgraded if Kirby was to maintain its current credit metrics through the down cycle or expand its asset base while sustaining Debt to EBITDA below 2.8 times, EBIT to Interest above 4.0 times and EBIT margins of at least the current level of about 21%. The ratings could be lowered if Debt to EBITDA approached 3.5 times or if EBIT to Interest was sustained below 3.0 times. Downward rating pressure could also result from a sustained decline in EBIT margin to below 15%, or a significant decline in revenue from weaker than expected market conditions or loss of one or more major customers.