Navios Maritime Partners L.P. -- Moody's affirms Navios Partners' B2 CFR; changes outlook to stable

Rating Action: Moody's affirms Navios Partners' B2 CFR; changes outlook to stableGlobal Credit Research - 29 Mar 2021London, 29 March 2021 -- Moody's Investors Service ("Moody's") has today affirmed the corporate family rating (CFR) of B2 and probability of default rating (PDR) of B2-PD at Navios Maritime Partners L.P. (Navios Partners, company or NMM). Moody's has also changed the outlook to stable from negative.RATINGS RATIONALEThe affirmation and outlook stabilization reflects the credit positive merger of NMM with Navios Maritime Containers L.P. (NMCI), which increases scale, diversifies the business further into container shipping and enhances customer diversification while leverage increases only slightly by 0.4x, pro-forma for 2020. The rating action also reflects the currently good conditions in container and dry bulk shipping markets that result in high charter rates. Given NMM's focus on shorter term charters the company benefits from the good market environment and would achieve solid credit metrics, including a Moody's-adjusted debt/EBITDA of potentially below 3.0x if the environment persists over 2021.However, the rating and outlook also continue to balance that Moody's considers the market environment as currently strong in a historical context and given the significant market volatility and exposure of NMM, that credit metrics are likely to remain more volatile through the cycle.The merger with NMCI strengthens NMM's business profile, because it increases scale by 56% for 2020, adding 29 container vessels at slightly higher average age and significantly diversifying the customer base towards the traditional liner companies. Moody's estimates leverage pro-forma for 2020 weakens only slightly to 6.0x, from 5.6x on a stand-alone basis, while the EBITDA margin for NMCI is also slightly lower than for NMM.Container and dry bulk shipping markets have benefited from solid supply-demand characteristics in recent months and as a result charter rates have risen, especially in container shipping. While these conditions may continue, these markets have been inherently volatile with multi-year highs and lows in recent years and sometimes within a short time span. For example, vessel orderbooks in container shipping have been low and inactivity rates in dry bulk high but both may change given the high charter rates. Nevertheless if the environment broadly persists, NMM will show strong metrics for the rating category in 2021.However, Moody's also considers this inherent cyclicality that may also result in greater metrics volatility. For example, although an exceptional year, Moody's estimates 2020 Moody's-adjusted debt/EBITDA at 6.0x pro-forma for the merger. NMM and NMCI combined had 66% of 2021 days fixed with a higher share in the exceptionally strong container market, and with the rest unchartered or some exposure to market prices. While there are some longer dated charters many of NMM's charter are 12 months or less with the contracted rate for 2022, including fixed and indexed, dropping to 31.5% from 79.3% for 2021. Accordingly, Moody's considers that leverage through the cycle could be somewhat higher than what current charter rates suggest.Navios Partners benefits from being a publicly listed firm in terms of transparency. The rating also continues to consider the balanced relationship with other Navios Group entities, including cost-competitive services provided by the Navios ship manager but also the management overlap with other Navios entities and hence degree of influence on Navios Partners as well as key person risk.OUTLOOKThe stable outlook reflects the currently solid industry conditions for both the dry bulk and container shipping markets.LIQUIDITYMoody's considers NMM's liquidity profile as adequate although the company has some larger vessel financings that are due in the coming quarters, especially Q3 2021. The total amount of debt amortization and balloon payments on a combined basis due in 2021 is $236 million of which $132 million are final balloon payments. Moody's would expect Navios to address these financings in line with its track record, also considering the relatively low level of debt NMM overall has. In addition, the company had on a combined pro-forma basis $38 million of cash on the balance sheet and given current charter rates Moody's would expect significant free cash flow generation in 2021. The various financings are subject to a range of covenants including minimum liquidity, interest cover, capitalization and net worth covenants under which Moody's expects the company to maintain compliance.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSUpgrade pressure is constrained by the inherent volatility of end markets and the short-term nature of a large number of the company's contracts. Positive pressure would also require a sustained leverage, measured as debt/EBITDA, at below 4.0x and interest coverage, measured as funds from operations (FFO) interest coverage (that is, FFO + interest expense/interest expense), at above 4.0x, also considering the trough of the cycle. Good liquidity at all times would also be a requirement for positive pressure. Conversely, negative pressure could arise if free cash flow after maintenance capital spending and dividends turns negative and the company's liquidity deteriorates. Debt/EBITDA above 5.5x and FFO interest coverage below 3.5x for a prolonged period could also be triggers for a downgrade.PRINCIPAL METHODOLOGYThe principal methodology used in these ratings was Shipping Methodology published in December 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243200. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Navios Maritime Partners L.P. (NMM) is an international owner and operator of dry bulk and container vessels. It is a master limited partnership (MLP) formed in August 2007 under the laws of the Republic of the Marshall Islands by Navios Maritime Holdings, Inc. (Caa1 negative). Navios Partners is listed on the NYSE with a market capitalisation of around $275 million (as of 24 March 2021). In 2020, the company reported revenue of $354 million pro-forma for the merger with Navios Maritime Containers L.P. (NMCI), which is expected to complete on March 31st 2021.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. 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