Credit rating agency Standard and Poor's (S&P) lowered
global energy transportation company
Overseas Shipholding Group Inc.
's
(
OSG
) corporate credit rating. S&P stated that downgraded rating
reflects the possibility of a liquidity crisis that the company
might face during the early part of next year.
OSG's long-term corporate credit rating has been reduced to
'CCC+' from 'B-'coupled with a negative outlook, as the rating firm
believes that the company will face cash constraints when its $1.5
billion revolving credit facility is replaced by a smaller facility
of $900 million.
Although the New York-based shipping company's senior unsecured
debts credit rating has also being lowered to 'CCC+' from 'BB-',
its recovery rating remains unchanged at '3', stating that in case
of any default the creditor will be able to recover at least 50-70%
of the outstanding amount.
As of March 31, 2012, OSG had a financial obligation of almost
$372.9 million, which included an additional amount of $256.1
million under the existing credit facility, an outstanding $63.6
million debenture and capital commitments of $53.2 million.
Furthermore, the company has a cash balance of $226.7 million and
has produced negative cash from operations of $62 million over the
last 12 months.
Currently, the company is facing certain serious problems, which
if not dealt with properly may lead to further downgrade in
ratings. The company does not generate enough cash from operations
to meet its debt and capital obligations. In addition, the
company's revenue is also exposed to spot market rates, which are
susceptible to macro-economic concerns, geo-political risks and
demand-supply mismatches.
We believe that a continuous rise in fuel demand in the
international market coupled with a profitable U.S. domestic
shipping business and improving spot market rates bode well for the
company. Moreover, if the company manages to raise funds through
asset sales or through additional borrowings, it would be in a
better position to improve its credibility. However, rivals
Frontline Ltd
(
FRO
) and
Teekay Corp
(
TK
) provide stiff competition to
OSG.
The current Zacks Consensus Estimate for Overseas Shipping Group
Inc. is pegged at ($1.09) for the second quarter, with a growth
rate estimate of 9.48%. For 2012 and 2013, the Zacks Consensus
Estimates stand at ($4.80) and ($2.80) with a growth rate of 23.44%
and 41.77%, respectively.
Recommendation
Currently, Overseas Shipping Group Inc. has a Zacks #2 Rank,
implying a short-term Buy rating on the stock.
FRONTLINE LTD (FRO): Free Stock Analysis Report
OVERSEAS SHIPHO (OSG): Free Stock Analysis
Report
TEEKAY CORP (TK): Free Stock Analysis Report
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