Moody's affirms Atlantic Marine

Moody's Investors Service said it affirmed Atlantic Marine Holding Co.'s B1 corporate family and probability-of-default ratings and B1 (LGD3, 36%) senior secured credit facilities following the announcement that the company plans to increase the size of its term loan by $50 million to a total of $170 million and use the proceeds, along with cash balances, to finance the redemption of about $62 million of preferred stock and a $7 million dividend to common shareholders.

The outlook is stable.

While improved earnings over the past six months and a strong demand outlook for 2007 mitigate the increase in leverage sufficient to maintain the current rating, the agency said it is concerned that this transaction may be illustrative of an aggressive financial policy to be employed by equity sponsor J.F. Lehman and Co. which, if repeated, suggests an impediment to rapid debt reduction and higher financial risk.

The ratings continue to reflect Atlantic Marine's small revenue base, concentration of sales in one service business, with a large portion of that business derived from the U.S. government, and the volatility in sales levels, operating margins and cash flow generation inherent in the company's business, Moody's said.

The ratings positively consider the company's modest amount of debt relative to earnings levels and the positive demand characteristics in the U.S. government and commercial ship repair sector, the agency said.

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