Dec 1, 2010

BLTA rating remains on creditwatch

Standard & Poor's Ratings Services today kept its B- long-term corporate credit rating on Indonesia-based shipping company PT Berlian Laju Tanker Tbk (BLTA) on creditwatch, where it was placed with negative implications on August 26, 2010.
The CCC issue rating on the US$400 million senior unsecured notes due 2014 and on the US$125 million 5-year convertible bonds due 2012, both issued by wholly owned subsidiary Berlian Finance B.V., and guaranteed by Berlian, also remains on creditwatch with negative implications.
"We had placed Berlian on creditwatch based on our view that BLT's financial performance may not improve enough to avoid breaching its EBITDA-related debt covenants, given the prospects of softer margins during the second half of this year and Berlian's very tight headroom for covenant compliance," said Standard & Poor's credit analyst Manuel Guerena in a press statement today.
"Although the company remained close to breaching its debt covenants as of September 30, 2010, Berlian has told us that it is still in compliance. Despite the considerable likelihood of a breach by Dec. 31, 2010, Berlian is working on alternatives that may help alleviate this pressure and provide additional headroom," he added.
In our view, Berlian's liquidity is weak. Cash and short-term investments amounted to about US$161 million as at September 30, 2010, compared with debt due in one year of US$231 million.
The company is trying to manage the shortfall with new loans and debt refinancing. Aside from the company's debt covenant pressure, we believe Berlian's volatile funds from operations and high capital expenditures will keep its liquidity weak, Guerena said.
Resolution of the creditwatch will depend on how Berlian deals with covenant pressure. A failure to address the potential covenant breach could trigger a further downgrade.
However, if the company increases the headroom in its covenant compliance and it has no near-term refinancing difficulties, Standard & Poor's will remove the ratings from CreditWatch and revise the outlook to negative or stable, depending on BLT's credit profile and our outlook for the shipping industry.
Disclosure: No position at the stock mentioned above.
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