Moody’s downs Navios

Moody’s Investors Service on Friday took a red pen to its outlook on the corporate family rating (CFR) of Navios Maritime Holdings (Navios) in response to ongoing concerns about the future of the dry-bulk market.

The agency changed its outlook to “negative” from “stable” but affirmed the Greek owner’s “B2” probability of default grade in addition to ratings tied to senior secured notes due in 2017 and senior unsecured notes maturing in 2019, which stood at “B1” and “Caa1” respectively.

"Today's rating action reflects our view that freight rates will remain weak in 2013,” said credit Marco Vetulli in reference to the downgrade of the CFR, which represents the agency’s opinion about a company's ability to honour all of its financial obligations.

While Moody’s admitted that Navios has been largely insulated from the downturn due to long-term charter contracts penned prior to the crisis it warned that the strength of the revenue shield has diminished over time.

“The company will likely come under pressure to offer low freight rates in order to contract-out a sizable amount of vessels in 2013 and 2014,” it said. “Moreover, the challenging conditions in the dry bulk market add risks of some current charterers asking to renegotiate current contracts.”

Despite the downgrade, the agency said Navios remains “one of the most competitive players in the shipping markets” due to a relatively low cost base, efficient fleet and a solid balance sheet.

Moody’s described the recent partnership with affiliate Navios Maritime Acquisition and HSH Nordbank of Germany as a “credit neutral” event for Navios but noted the transaction could have an impact on its credit profile down the road if the accounting treatment of the endeavor were to change.

Concerns about the Athens-based operator’s long-term charters have been on Wall Street’s radar for some time.

In the company’s most recent annual report, it said: “A number of our charters are at above-market rates, such that any loss of such charter may require us to recharter the vessel at significantly lower rates.

"Additionally, our charterers from time to time have sought to renegotiate their charter rates with us.”

Navios’ core fleet includes 30 owned vessels and 20 that are chartered-in, of which 11 have purchase options. In 2013 it said the average charter-in vessel cost for bulkers in the latter category will stand at around $13,381 per day.

Securities filings show the average contractual daily charter-out rate for the core fleet, excluding vessels used to fulfill contracts of affreightment, is $12,286 and $21,662 for 2013 and 2014, respectively.

Twenty-five fixtures are scheduled to expire this year. Six of these - which are tied to capes, panamaxes and handymaxes- boast day rates of $10,000 or more.

Today, brokers say capesize, panamax and handymax bulkers are earning roughly $5,700, $8,050 and $8,045 per day, respectively, in the spot market, but note levels are higher when taken on time charters.