Moody's rates Nico notes B3

Moody's Investors Service said it assigned a B2 corporate family rating and a B2-PD probability of default rating to Nico Middle East Ltd. and a provisional B3 rating to the proposed $350 million senior notes to be issued through Topaz Marine SA, a special-purpose financing vehicle. The outlook is stable.

Proceeds will be used to repay $120 million of existing secured vessel financing facilities, to acquire four vessels and to put $40 million of cash on the balance sheet.

The agency said the ratings take into account challenges that include the company's high exposure to a cyclical and fragmented industry where adverse market conditions could lead to volatile day rates and lower vessel utilization rates; its high leverage, which is anticipated to peak by the end of 2013 at about 6 times, and the small scale of its operations with geographic concentration risk in the Caspian and Middle East regions.

At the same time, the ratings reflect Nico's strengths, namely its leading market position in the Caspian Sea, which is supported by the high barriers to entry; its strong operational history with more than 20 years of experience in the Caspian and Middle East regions and its relatively modern fleet, which is a competitive advantage in the offshore support vessel industry, Moody's said.

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