Page 27: of Maritime Logistics Professional Magazine (Q3 2013)

The Þ nance savings are compelling, outweighing a hefty pre- mium on an early call. HornbeckÕs rating, now BB- (S &P) / Ba3 (MoodyÕs) is consistent with that from four years ago, but the overall interest rate curve had dropped tremendously. Looking forward at the bigger picture, Harvey Gulf is in the midst of a hefty program of capital expenditures. Shane Guidry identiÞ ed key points buttressing the game-changing nature of its investments. He emphasized that Harvey Gulf seeks to maintain and grow relationships with operators by constructing state of the art vessels designed to stay ahead of future safety and environmental regulations while also meet- ing the current and future needs of its customers.Because Harvey GulfÕs equity has been supported by the PE investment from Jordan Company, the companyÕs further Þ -nancial future beyond the $1 billion debt program is a subject of conjecture. The near-term outlook is robust. MoodyÕs said, in its rating action, ÒCurrently, strong industry fundamentals in its primary geographic market are likely to keep demand high for HarveyÕs OSV services, and potentially allow for some margin expansion through day-rate increases as the con- tracts on vessels from GOL are negotiated.Ó The rating agency also throws down the gauntlet for stra- tegic initiatives that could catapult Harvey Gulf into the tier of world class companies, a leap not attainable with anoth- er Þ nancial burst down the road. MoodyÕs, speaking about the credit rating, says: ÒAt this time, an upgrade is unlikely mainly because of the companyÕs limited scale and revenue concentration. However, an increase in geographic diversiÞ -cation and asset base, a larger worldwide market share, and debt/ EBITDA Ð a Þ nancial measure of leverage compared to cash ß ow Ð sustained below 3.5x could result in an upgrade.Ó MoodyÕs says that the debt facility would likely contain a covenant limiting this ratio to 5.75x through June, 2015 Ð the timeframe when capital is needed to fund the new capacity. The rating report had noted a reliance on three un-named top customers (comprising over 60% of revenues) with a concen- tration of work in the Gulf of Mexico, as well as an exposure to the very cyclical E&P business. Bottom LineThe world class future that MoodyÕs hints at would require a Þ nancial turbocharger at a time that the PE investor would likely be ready for an Òexit.Ó Financial investors in shipping and offshore businesses typically ease out in three ways: the sale to another Þ nancial investor (another investment fund), the sale to a strategic investor (often, a competitor), or a public offering. MoodyÕs points to the unlikelihood of a debt reduc- tion in the next 12 Ð 18 months (due to the capex associated with the newbuilds). MP #3 18-33.indd 27MP #3 18-33.indd 279/10/2013 10:10:41 AM9/10/2013 10:10:41 AM