S&P cuts Overseas Shipholding notes

Standard & Poor's said it affirmed its B corporate credit rating on Overseas Shipholding Group Inc. (OSG).

The outlook is stable.

At the same time, the agency lowered its issue-level ratings on the company’s unsecured notes, which consist of $300 million of 8 1/8% senior unsecured notes due 2018 and $146 million of 7½% senior unsecured notes due 2021, to B- from B and revised the recovery ratings to 5 from 4. The 5 recovery rating indicates an expectation for modest recovery (10%-30%; upper half of the range) in the event of a payment default.

Additionally, S&P affirmed its BB- issue-level ratings on Overseas Shipholding’s credit and term loan facilities for each of its principal subsidiaries, including OSG Bulk Ships Inc.'s (OBS, the domestic business) $75 million asset-based lending facility and $603 million senior secured term loan due 2019, and OSG International Inc.’s $50 million revolving credit facility and $628 million senior secured term loan due 2019. The 1 recovery ratings remain unchanged, indicating an expectation for very high recovery (90%-100%) in the event of a payment default.

"Our rating on OSG reflects the company's high leverage, the competitive nature of the shipping industry, and its substantial revenue exposure to the volatile international tanker charter spot markets," S&P credit analyst Michael Durand said in a news release.

"These issues are somewhat offset by the currently strong demand and shipping rates in OSG's international crude oil and refined petroleum products shipping business, which accounts for approximately half of its revenues, and the company's high contract coverage in its U.S. domestic shipping business, which is also currently seeing strong demand."

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