Moodys Lowers Teekays Rating Again

Teekay Bermuda-headquartered shipping company Teekay Corporation has seen its corporate family rating downgraded for the second time this year from B2 to B3 due to financial concerns, according to Moody’s rating agency. Furthermore, Moodys said that it downgraded Teekays senior unsecured debt rating from B3 to Caa1, adding that the ratings are under review for further downgrade. The rating downgrades reflect unaddressed upcoming debt maturities at the parent and refinancing needs at the operating subsidiaries (including two master limited partnerships, MLPs) in an environment of tightening access to the capital markets, which could continue for some time, Moodys said. The downgrades also reflect Moodys expectation of a weaker liquidity profile at Teekay, underpinned by the lower-than-anticipated cash flows to the company, due to the impact of depressed underlying energy markets and capex funding needs, and reducing revolvers at the companys operating subsidiaries. The prospects of the near-term recoveries of market values to restore asset coverage of parent-level debt closer to historical levels is unlikely, Moodys added. The rating anticipates more modest cash balances at the company and considers the limited availability under its revolving facility and its near-term refinancing risks. Moodys estimates that the companys cash balance has declined since the year-end 2015 level of approximately USD 200 million but should cover the nearest debt maturity of about USD 70 million in May 2016, if it is not refinanced prior to its maturity. However, the rating agency said that doing so would further tighten Teekays liquidity position and diminish its ability to cover its G&A expenses and debt service requirements. Moodys added that Teekays asset disposal strategy reduced its debt so that Debt to EBITDA approaches 4.0 times, and, coupled with an increase in the MLP distributions to a level that would enable Teekay to cover its G&A and debt obligations, could provide positive ratings momentum. However, Moodys said that it does not foresee an upwards pressure on the ratings near term.