Moody’s changes outlook on A.P. Møller – Mærsk’s Baa1 rating to positive; affirms ratings

Moody’s Investors Service (“Moody’s”) has today changed to positive from stable the outlook on the Baa1 issuer rating and Baa1 senior unsecured ratings of A.P. Møller – Mærsk A/S (“APMM”). Concurrently, Moody’s has affirmed the ratings assigned to the company including its Baa1 issuer rating, Baa1 senior unsecured ratings and the (P)Baa1 MTN program rating.

The change in outlook to positive from stable reflects the reduction in adjusted debt due to changes in Moody’s approach for capitalizing operating leases. The updated approach for standard adjustments for operating leases is explained in the cross-sector rating methodology Financial Statement Adjustments in the Analysis of Non-Financial Corporations, published on June 15, 2015.

RATINGS RATIONALE

The positive outlook reflects the improvement in APMM’s financial metrics due to the material reduction in the debt adjustment related to operating leases. Indeed, based on 2014 financial statements, Moody’s debt adjustment related to operating leases declines to $9.0 billion from $23.9 billion (using a multiple of 3x instead of 8x), resulting in an improvement in leverage (i.e. debt/EBITDA) to 1.5x from 2.5x and an improvement in the group’s funds from operations (FFO) interest coverage to 14.1x from 7.7x.

At the same time, APMM’s operating performance is currently affected by the lower oil prices, which have substantially reduced Maersk Oil’s EBITDA, although this has been to an extent offset by increased profits at Maersk Line, helped by the lower bunker price and Maersk Line’s continuing cost-cutting efforts. Overall, we expect APMM’s leverage ratio to increase in 2015 to close to 2x, but other credit metrics to remain fairly stable compared to 2014, positioning the company strongly in its rating category.

WHAT COULD CHANGE THE RATING UP/DOWN

Upward pressure could arise if (1) APMM sustainably reduces its debt/EBITDA ratio below 1.75x and increases its funds from operations (FFO) interest coverage above 12x; and (2) Maersk Oil stabilises and increases its oil reserves and production levels over time.

Downward pressure on the rating could result if APMM’s debt/EBITDA ratio increases above 2.25x and FFO interest coverage decreases to below 10x over a prolonged period of time. In addition, any significant change in the group structure could put negative pressure on the issuer rating if over time this results in less favourable access to cash flow and assets for the unsecured creditors.

PRINCIPAL METHODOLOGIES

A.P. Møller – Mærsk A/S’s ratings were assigned by evaluating factors that Moody’s considers relevant to the credit profile of the issuer, such as the company’s (i) business risk and competitive position compared with others within the industry; (ii) capital structure and financial risk; (iii) projected performance over the near to intermediate term; and (iv) management’s track record and tolerance for risk. Moody’s compared these attributes against other issuers both within and outside A.P. Møller – Mærsk A/S’s core industry and believes A.P. Møller – Mærsk A/S’s ratings are comparable to those of other issuers with similar credit risk.

Headquartered in Copenhagen, Denmark, A.P. Møller – Mærsk A/S is a diversified conglomerate which main business areas encompass container shipping, oil and gas, drilling, port terminals and other shipping-related activities. APMM generated revenues of $47.6 billion in 2014.
Source: Moody’s