Moody’s rates Sovcomflot bond Ba2

Moody's Investors Service said it assigned a provisional Ba2 rating to the new senior unsecured bond to be issued by SCF Capital Ltd. and guaranteed by Sovcomflot PAO (Ba1 corporate family rating, negative).

The outlook is negative, which is in line with the outlook on the Ba1 corporate family rating of Sovcomflot and the Ba1 sovereign bond rating of Russia.

Sovcomflot will apply the proceeds of the proposed new bond, which will total up to $750 million, toward: (a) partially refinancing its outstanding $800 million eurobond; and (b) other corporate purposes, including repayment of other existing debt.

The instrument will rank pari passu with Sovcomflot’s other unsecured and unsubordinated debts.

The transaction is credit positive as it will improve Sovcomflot’s liquidity profile and eliminate the refinancing risk associated with the company's $800 million eurobond maturity in 2017.

Moody’s said the action reflects its view that the proposed instrument will rank pari passu with Sovcomflot’s outstanding $800 million eurobond maturing in 2017.

The one-notch differential between the provisional Ba2 senior unsecured rating of the Sovcomflot-guaranteed bond and Sovcomflot’s corporate family rating of Ba1 reflects the fact that a large amount of Sovcomflot’s debt (about $1.9 billion as of end-March 2016, or 70% of total debt), is raised by the company's operating subsidiaries and is secured against its vessels, with a carrying value of roughly $3.9 billion, the agency said.

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