Credit rating agency Standard & Poor’s has lowered its assessment of a proposed term loan for Commercial Barge Line Co. (CBL) – the parent of American Commercial Lines (ACL, also known in the marketplace through the ACBL brand) – by one notch, from B+ to B.
CBL’s overall corporate credit rating remains at B, below investment grade on the ratings spectrum, but far better than the junk ratings that have bedeviled maritime companies trading in the beleaguered international markets. Investors buy chunks of corporate term loans (known as Term Loan B) and look closely at such ratings as they build portfolios of corporate debt instruments.
The new term loan is part of a refinancing in the wake of ACL’s announced acquisition of AEP River Operations from American Electric Power. The actual rating for the proposed five-year $1.15 billion first-lien senior secured term loan (with 5% annual amortization beginning June 30, 2016), is based on complicated algorithms which assess a borrower’s ability to repay debt in a timely manner.
In this case, Standard & Poor’s says that CBL's proposed capital structure will now include a $550 million revolving credit (with about $390 million utilized), along with the $1.15 billion proposed senior secured term loan, adding that the "company also has a modest amount of capital leases, operating leases and pension obligations.”
The proprietary credit assessments from Standard & Poor’s consider a panoply of factors including likely equipment values where repayments are secured by assets, which is the case here. The overall industry outlook is also considered by Standard & Poor’s who note that: “…CBL operates in a competitive market, where freight demand and barge supply imbalances have historically hurt industry pricing and profitability, particularly in the dry bulk segment, which tends to be more vulnerable to these pressures than the liquid segment.”
The ACL entity is on a strong growth trajectory. Though all financial figures are private, one might infer a balance sheet size on the order of $2 billion after the AEP acquisition. Five years ago in late 2010, when the present private equity owners purchased the company (which had been taken public by a previous set of investors), its enterprise value (debt plus market value of the equity) stood at approximately $777 million.
