Saturday, December 3, 2011

Moody's Downgrades CMA CGM

Moody's has downgraded CMA CGM. Following is the report from Moody's.

They do not make any mention of the just announced cooperation with MSC.

I don't know if this action was taken before that announcement, or,
more likely, Moody's will just wait to see what the numbers show. Meaning,
what benefit to the bottom line CMA CGM demonstrates from this new cooperation.

Rating Action:
Moody's downgrades CMA CGM to B2 from B1; outlook negative
Global Credit Research - 02 Dec 2011
Approximately USD920 million of rated debt affected

Milan, December 02, 2011 -- Moody's Investors Service has today downgraded CMA CGM's corporate family rating (CFR) and probability of default rating (PDR) to B2 from B1. Concurrently, Moody's has downgraded to Caa1 from B3 CMA CGM's EUR325 million and USD475 million worth of senior unsecured notes maturing in 2019 and 2017, respectively. The outlook is negative.


The downgrade was triggered by CMA CGM's weak performance for the third quarter. As a result 2011 will be significantly weaker than estimated by Moody's last September translating into credit metrics that are likely to be very weak for the category at year end. This is linked to the poor performance of the industry during its peak season (between September and October) caused by the oversupply of vessels on the water that slashed freight rates to a very low level. The agency further commented that the rating still incorporates an assumption that industry conditions would not further worsen and that actually freight rates recover, at least modestly, in the last weeks of the year as well as in 2012, following the withdrawal of capacity currently underway on the main trade lanes.

These developments partly reflect the highly competitive structure of the industry and the concerns over increased capacity coming on stream. This has exerted pressure on operators to expand their market shares, which makes difficult for companies in the sector, including; CMA CGM to pass on the material cost increases acknowledged in the first 9 months of the year, despite good traffic volumes.

Fierce competition exists between the main players in the industry, which remains cyclical and over-reliant on short-term contracts (this, in turn, limits market-revenue visibility). These factors have credit-negative implications for the ratings of container shipping companies, because they have high operating leverage and are therefore highly sensitivity to operating cash-flow shifts.

However, Moody's continues to acknowledge that CMA CGM has a strong business profile with solid market shares globally, as well as a distinctive position in some secondary lanes that are more profitable. CMA-CGM also successfully strengthened its capital base early in 2011 and sold certain assets sold recently. This in particular boosted its liquidity. Moreover, all the major new deliveries of ships that are scheduled before end of 2012 are fully financed.

The negative outlook reflects Moody's concerns that the container market's operating conditions will remain difficult in 2012; CMA CGM's performance will therefore remain under pressure. The material slowdown in the recovery from the 2008-09 global financial crisis and recession has prompted Moody's to revise downwards its growth forecasts for most G-20 economies in November 2011. In addition, it now seems likely that traffic volumes in 2012 will be under pressure compared with both the current trend and Moody's previous expectations. Moody's notes that lower demand could exert both immediate and long-term pressure on CMA CGM and the industry as a whole, given the amount of new deliveries scheduled for the coming years. Moody's acknowledges that CMA CGM has recently obtained approval from its lender to waive the covenant test due at year-end 2011 but the next semi-annual periods could remain challenging if the current market conditions were not to improve substantially; the current B2 rating captures Moody's assumption that CMA CGM's lenders will continue to remain supportive of CMA CGM.


Downward pressure on the rating could result from lack of short term improvement in market conditions leading to financial leverage failing to decrease below 7x; or (ii) EBIT/interest expense coverage failing to increase materially above 1.0x, both by the end of 2012. Furthere downward pressure on the ratings could result from liquidity pressures and/or failure to restore headroom under covenants.

Conversely, upward pressure could materialise as a result of (i) a reduction in CMA CGM's financial leverage sustainably and materially below 6.x; and (ii) an increase in its EBIT/to interest coverage above 1.5x on sustainable basis.


The principal methodology used in rating CMA CGM S.A. was the Global Shipping Industry Methodology published in December 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June. Please see the Credit Policy page on for a copy of these methodologies.

Headquartered in Marseilles, France, CMA CGM is the third-largest container shipping company in the world (measured in twenty-foot equivalent units, or TEU). CMA CGM recorded last-12-months revenues of USD14.8 billion as of the end of June 2011, and employed approximately 17,500 employees worldwide. As of June 2011, CMA CGM's fleet amounted to 390 container ships (297 chartered-in and 93 owned), with a total capacity of 1.283 million TEU.


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Marco Vetulli
VP - Senior Credit Officer
Corporate Finance Group
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122

Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
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