May 09 2012 |
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Fitch Affirms MB Holding Company at 'BB-'
Outlook StableFitch Ratings-London-09 May 2012: Fitch Ratings has affirmed MB Holding Company LLC's (MBHC) and its wholly owned subsidiary, MB Petroleum Services LLC's ( MBPS ) Long-term foreign currency Issuer Default Ratings (IDR) at 'BB-' with Stable Outlooks. The agency has also affirmed the senior unsecured debt rating assigned to the USD305m notes issued and outstanding by MB Finance Company LLC (MBFC) maturing in November 2015 at 'BB-'.
The affirmation follows publication of 2011 and Q112 financial results. Fitch has affirmed all ratings despite the relatively poor 2011 financial results reported by the group's oil field service subsidiary, MBPS . MBPS 's IDR and MBFC's senior unsecured debt rating are aligned with the IDR of the parent company, MBHC. Fitch views MBPS 's standalone credit profile as distressed and highly speculative grade, but the agency assesses the legal, operational and strategic ties between the two entities as being strong enough under the agency's Parent and Subsidiary Rating Linkage Methodology to align the two ratings.
MBPS 's 'BB-' IDR and MBFC's 'BB-' senior unsecured debt rating are based on Fitch's belief that the parent company has the ability to freely move cash between its other operating entities to support the structural enhancement of its parental guarantee. Other evidence of financial parental support from MBHC to MBPS includes an equity injection of USD25.5m in 2011, partly used for repurchasing USD15m of the MBFC Eurobond and new oil rig procurement financing on behalf of MBPS conducted by MBHC in 2012.
MBPS 's 2011 financial performance was less favourable. Revenue growth in this segment was just 4% due to operational difficulties in the Middle East and Europe that offset improvements at MB Century. Both EBITDA and EBITDA margins contracted due in part to rising employment cash costs in Oman and the demobilisation of two rigs where contracts were not renewed. MBPS reported LTM net debt to EBITDA at 7x and LTM EBITDA to interest cover at 1.3x as of Q112. Fitch anticipates MBPS will continue to rely on MBHC for financial support over the next year to meet financial obligations in a timely manner.
Fitch could take negative rating action if weak operational performance at MBPS persists, combined with slowing financial performance elsewhere within the group, perhaps because of lower commodity prices. Additionally, a lack in improvement in MBHC's liquidity situation would also be negative for the ratings. Rating upside is currently limited.
Fitch views MBHC's liquidity as weak. Cash plus available credit lines of USD222.4m are not enough to cover near-term debt maturities of USD245m as of Q112. Access to financing via local banks appears satisfactory and Fitch anticipates MBHC will refinance upcoming maturities with local banks. Fitch believes that MBHC could also make additional cash available through a reduction in capex or dividends, improving free cash flow that in 2011 was around negative USD45.4m.
The agency understands that the 2011 increase in cash dividend payout is unlikely to remain at elevated levels in 2012, while working capital may remain a drag on cash flows. Net related party receivables also increased by USD30.3m in 2011, reflecting cash outflow from the business. Additionally, MBHC invested USD44m into listed assets and USD16m in its own bonds in 2011. Fitch excludes these investment account balances from its liquidity analysis and notes that additional non-core investment may also be credit negative.
Contact:
Primary Analyst
Jeffrey Woodruff, CFA
Senior Director
+44 20 3530 1281
Fitch Ratings Limited
30 North Colonnade
London, E14 5GN
Secondary Analyst
Alex Stephansen
Analyst
+44 20 3530 1464
Committee Chairperson
Josef Pospisil, CFA
Senior Director
+44 20 3530 1287
Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com.
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