Moody's lowers Overseas Shipholding notes

Moody's Investors Service said it downgraded Overseas Shipholding Group, Inc.'s senior unsecured regular bonds to Ba3 (LGD5, 76%) from Ba2 (LGD4, 60%), assigned an SGL-2 speculative-grade liquidity rating to the company and affirmed its Ba2 corporate family and probability-of-default ratings.

The outlook was changed to negative from stable.

The agency said the affirmation of the corporate family and probability-of-default ratings looks through the weak credit metrics at year-end 2009 that resulted from the year's exceptionally low freight rates and considers the prospects for some improvement in metrics in coming periods. OSG has effectively managed its fleet and operations through the trough, Moody's said, and its leading market position, good liquidity and the high operating leverage of the very-large crude carrier fleet help to mitigate ratings pressure of credit metrics that have been indicative of lower-rated corporate families.

The change in outlook to negative considers that despite improving trends, OSG could be challenged to restore credit metrics to levels that the company had achieved in prior upturns, the agency said.

The downgrade of the senior unsecured rating results from Moody's application of its loss-given-default rating methodology and is a consequence of a shift in the composition of OSG's debt capital to one with a higher proportion of senior secured debt, the agency noted.

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