Moody’s Investors Service today downgraded the corporate ratings and probability of default of German ocean carrier Hapag-Lloyd to B2 from B1, citing the combined effect of overcapacity and lower freight rates, especially on Europe-Asia routes.
The ratings agency also downgraded to Caa1 from B3 the senior unsecured rating currently assigned to the 480 million euros and $250 million of senior unsecured loans maturing in 2015 and 2017 respectively.
Moody’s said the outlook on the ratings is negative.
Due largely to lower freight rates on the “backbone” Europe-Asia trade, Moody’s expects Hapag-Lloyd’s profitability at the end of 2012 will be materially lower than it previously anticipated.
While Hapag-Lloyd along with other carriers has cut capacity to avoid a further decline in freight rates, the industry faces a “challenging” supply adjustment process.
“This is not only because there is a sizable capacity due to come on stream in the industry in 2013; but also given the highly competitive structure of the industry- where an operator reducing its capacity may be seen by another operator as an opportunity to increase its market share,” said Marco Vetulli, Senior Credit Officer.
More positively, Moody’s said, Hapag-Lloyd’s B2 rating is supported by its good business profile due to its leading market share; the flexibility of its fleet due to the high number of chartered ships that could be redelivered over the next year; its stable financial position based on adequate liquidity and “acceptable headroom” under its bank covenants and the support it received from its shareholders, the German government and the City of Hamburg during the 2008-2009 financial crisis.