Moody’s upgraded Hapag-Lloyd to B1 from B2, its probability of default rating (PDR) to B1-PD from B2-PD and its senior unsecured bond ratings to B3 from Caa1. It also stated that the company’s outlook looks stable.
As Moody’s stated, this rating reflects Hapag-Lloyd’s progress in integrating UASC after the merger, while also reducing leverage and generating positive free cash flow on the back of tight cost management and increased efficiencies.
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Namely, Hapag-Lloyd’s ratings reflects the company’s achievement of close to 90% of targeted $435 million of synergies from the UASC merger as of 30 September 2018 and the expected realization of full synergies in 2019. These synergies helped to balance cost increases incurred by Hapag-Lloyd in the first half of 2018.
In fact, the merger with UASC created a top five container liner with a capacity of 1.6 million twenty foot equivalent units (TEU). The combined entity benefits from a fleet that is on average younger and larger than the industry.
Moreover, Hapag-Lloyd generated free cash flow of about €200 million after capex and dividends in 2017 and €140 million in the twelve months to 30 September 2018. It also does not plan to order new vessels for the next few years thanks to UASC’s younger fleet and expects to pay dividends in the context of profit generation.
Finally, Moody’s noted that Hapag-Lloyd’s liquidity is enough with $694 million of cash and $470 million of revolving credit facility availability as of 30 September 2018. Its bullet bond maturities are not until 2022 and 2024, despite the fact that the company has $5.1 billion of bank debt which is typically refinanced on a secured basis with $800 million maturing in 2019.
