Fitch Ratings has affirmed and withdrawn the following ratings for Kirby
Corporation (KEX):
--Long-Term Issuer Default Rating (IDR) at 'BBB';
--Senior unsecured credit facility at 'BBB';
--Senior unsecured notes at 'BBB'.
The Rating Outlook is Stable.
Fitch has withdrawn Kirby's ratings for commercial reasons. Fitch
reserves the right in its sole discretion to withdraw or maintain any
rating at any time for any reason it deems sufficient.
KEY RATING DRIVERS
The ratings are supported by the company's strong free cash flow (FCF),
low leverage for the rating category, adequate financial flexibility,
and strong market share in the marine transportation segment. Ratings
also incorporate Fitch's expectation that Kirby will use FCF for capital
deployment actions including acquisitions, capital expenditures, and
share repurchases.
Kirby's credit profile benefits from considerable market share in the
inland tank barge market, as the company operates approximately 23% of
the industry's current capacity. The company has historically maintained
significant FCF margins, typically in the high single-digits, though
periodically depressed due to capex related to fleet deliveries. In
addition, KEX's high EBITDA margins, north of 27% in 2015, and
successful capacity management within the inland marine market, has
allowed the firm to maintain financial flexibility and adequately
mitigate the impact of cyclicality in the energy markets.
Fitch expects continued strategic acquisitions, largely funded through
debt given current liquidity levels. Offsetting the risks of on-going
acquisitions is KEX's track record of using FCF to repay
acquisition-related debt and utilizing equity as part of the
consideration offered in larger transactions.
Ratings concerns include the company's recent shift to
shareholder-friendly cash deployment strategies. In 2015, the company
repurchased $241 million of shares. KEX has authorization to repurchase
an additional 1.4 million shares as of December 2015. Fitch is also
concerned with the firm's limited cash balance and consistent use of its
revolver. Additional concerns include a potentially large debt-funded
acquisition or margin erosion due to pricing pressure in the inland
marine transportation market.
Pricing power has remained relatively strong in the inland tank barge
market as most of the rate reductions have come in the form of lower
fuel surcharges. Fitch expects further rate declines in 2016 despite
industry-wide capacity utilization rates at roughly 90%. Approximately
80% of the company's marine transport business is under term contract,
typically one year in duration, though these contracts are increasingly
being rolled over in a soft spot-rate market. Fitch notes that 47% of
KEX's marine transportation revenue actually comes from servicing the
petrochemical market and this proportion has been steady for several
years. In 2015 only 30% of marine transportation revenue came from Black
Oil deliveries, which includes among other products, crude oil, asphalt,
coker feedstock and bunker fuel. An additional 20% of marine
transportation revenue was generated from refined petroleum product
deliveries in 2015.
Fitch expects capex to be approximately $240 million in 2016, down
considerably from the $343 million deployed in 2015, which was higher
than anticipated due to progress payments on KEX's new coastal units
that were incurred in December, 2015, one month earlier than
anticipated. Fitch views the firm's frequent asset purchases as
interchangeable with its regular capex. Fitch expects KEX to continue
regular fleet asset purchases to maintain the size and quality of the
firm's fleet such as its recent $88 million purchase of assets from
Seacor in March, 2016. Fitch also expects KEX's FCF generation to remain
strong and likely north of $150 million in 2016 driven by high operating
margins and the company's lack of a dividend.
Kirby's adjusted leverage (Total Adjusted Debt/EBITDAR) at Dec. 31, 2015
was 2.8x, compared to 2.5x at year end 2014. Kirby typically maintains
adjusted leverage in the 3.5x-2.5x range. Kirby incurs a lease expense
for certain rented facilities, equipment, and towboats, which have
charters that include crew costs, thereby inflating the company's rent
expense. Fitch multiplies annual rent expense by 8x for its total
adjusted debt amount.
KEY ASSUMPTIONS
--Significant revenue decline in 2016 driven by lower charter rates;
--EBITDA margins of approximately 25% over the medium term;
--Capex remains at roughly 13% of revenue annually;
--Lack of a common dividend over the medium term;
--Total adjusted debt/EBITDAR at or below 3.5x.
RATING SENSITIVITIES
Rating sensitivities are no longer relevant given today's rating
withdrawals.
LIQUIDITY
Kirby has $336 million in total liquidity, primarily comprised of its
$550 million credit facility which matures in April of 2020 and $2
million in cash as of March 31, 2016. Maturities are modest with no
maturities prior to a 2.720% senior unsecured note that matures in
February of 2020. KEX's FCF was $176 million in 2015 and Fitch expects
it to be north of $200 million in 2016.
Summary of Financial Statement Adjustments - Fitch has made no material
adjustments that are not disclosed within the company's public filings.
Additional information is available at www.fitchratings.com
Applicable Criteria
Corporate Rating Methodology - Including Short-Term Ratings and Parent
and Subsidiary Linkage (pub. 17 Aug 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1008641
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1008641
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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