Thursday, May 6, 2010

Arpeni rating lowered to SD From CC

Standard & Poor's Ratings Services today lowered its corporate credit rating on Indonesia-based PT Arpeni Pratama Ocean Line Tbk. (Arpeni) to SD (selective default) from CC.
At the same time, the issue rating on the outstanding US$140.85 million senior secured notes issued by Arpeni Pratama Ocean Line Investment B.V. and guaranteed by Arpeni, due May 3, 2013, was affirmed at C following the missed payment of its coupon on May 3, 2010. It has a 30-day grace period to pay the coupon.
"We lowered the ratings on Arpeni to SD from CC after the company deferred principal payments of some loans," said Standard & Poor's credit analyst Manuel Guerena. "Although the company has said it plans to keep on making interest payments, the deferral is part of Arpeni's steps in trying to manage its cash, liquidity, and working capital positions."
However, this deferral exposes Arpeni to possible repayment acceleration of its debts if cross-default provisions are triggered--a situation compounded by the efforts to unwind some derivative transactions, Mr. Guerena said.
In our view, Arpeni's liquidity was increasingly stressed throughout 2009. Despite its high debt, the company funded its growing working capital requirements during the year with short-term loans. This situation was compounded by a weaker operating margin.
Arpeni dominates the local dry bulk industry, transporting about one-fifth of the overall coal shipments within Indonesia, where demand from the power sector is favorable. We expect the company to benefit from the thorough implementation of cabotage regulations by the Indonesian government starting this year; the regulations are aimed at reducing dependence on foreign-flagged vessels for transportation within Indonesian waters.

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