Harvey Gulf Announce $1 Billion Credit Facility

New Orleans based Harvey Gulf International Marine CEO Shane Guidry announced his company’s first public rating from Moody’s for a new $1 billion credit facility.

Harvey Gulf CEO, Shane Guidry, said the rating will help increase the company’s EBDITA to over $500 million in 2016, through additional new builds and acquisitions.

Moody's Investors Service assigned a first time corporate family rating (CFR) of B1 to HGIM Corp (Harvey), and a B1 rating to the company's proposed credit facility consisting of $250 million revolver and $750 million Term Loan B. Proceeds from the financing transaction will be used to refinance $534 million of existing debt, acquire nine Offshore Supply Vessels (OSV) and fast service vessels from Gulf Offshore Logistics, LLC (GOL) for $189 million, adjust for acquisition related excess working capital, and pay related fees and expenses. The company expects to close on two additional GOL vessels in the spring of 2014, for a total transaction valued at $268 million. The assigned first-time ratings are subject to Moody's review of final terms and conditions of the transaction which is expected to close by mid-June 2013. The rating outlook is stable.

Assignments:
Issuer: HGIM Corp.
Corporate Family Rating, Assigned B1
Probability of Default Rating, Assigned B2
$250 million revolver due 2018, Assigned B1, LGD3, 34%
$750 million term loan B due 2020, Assigned B1, LGD3, 34%
Outlook, Stable

The B1 CFR reflects Harvey’s modest size and primary geographic concentration in Gulf of Mexico (GOM); relatively short track record as a company with sizeable assets and fleet size; customer concentration with top three customers accounting for over 60% of total revenues; exposure to crude oil and natural gas price cycles which drive the levels of offshore exploration and production (E&P) activity; and low likelihood of debt reduction over the next 12-18 months given the expectation of increased capex from new vessel builds.

At the same time, the B1 CFR also recognizes Harvey’s significant position as a provider of Jones Act OSV and ocean towing vessel (OTV) services in the GOM where activity is expected to remain robust at least through 2015; existing long-term charters for most of its fleet; high quality fleet of vessels with average OSV fleet age of four years; good EBITDA margins; and deepwater focus. Currently strong industry fundamentals in its primary geographic market are likely to keep demand high for Harvey’s OSV services, and potentially allow for some margin expansion through day-rate increases as the contracts on vessels acquired from GOL are negotiated.

Harvey’s revolver and term loan B are rated B1 (LGD3, 34%). The credit facilities benefit from a first lien on substantially all of the company’s assets and comprise the vast majority of the debt in the company’s capital structure, and are thus rated in line with the company’s CFR. A higher than normal family recovery rate has been utilized to recognize the all first lien bank debt capital structure of the company and good collateral coverage.

Pro forma for these financing and acquisition transactions, Harvey is expected to have an adequate liquidity profile with a modest cash balance and $250 million revolver availability at the close of the financing transaction. Moody’s expects the company to utilize at least half of its revolver over the nest 12-18 months to fund its new build program. Financial covenants under the credit facility are expected to be total leverage ratio of no greater than 5.75x through June 2015 with future step downs, and fixed charge coverage and asset coverage ratios of at least 1.10x and 1.15x, respectively. We expect Harvey to remain in compliance with the covenants at least through 2014. There are no debt maturities until June 2018 when the revolver matures. Since the almost all of the current and future fleet of vessels is expected to be pledged as collateral for the secured credit facility, Harvey would have limited alternative venues for asset sales as sources of backup liquidity, if needed.

Harvey’s stable outlook reflects Moody's expectation that the company will maintain its EBITDA margins and good safety record, positive fundamentals in the GOM E&P activity will allow for absorption of additional servicing capacity expected to come online due to significant new vessel build programs undertaken by Harvey’s competitors; and that the management will successfully handle any operational complexities arising from the material increase in its fleet size.

At this time, an upgrade is unlikely mainly because of the company's limited scale and revenue concentration. However, an increase in geographic diversification and asset base, a larger worldwide market share, and Debt/EBITDA sustained below 3.5x could result in an upgrade. On the other hand, further increase in leverage, caused by either a severe market contraction or heavily debt funded growth in the fleet, with Debt/EBITDA sustained over 5x beyond 2013 could result in a downgrade.

HGIM Corp. provides vessel services to support offshore exploration and production efforts predominantly in the Gulf of Mexico. With the acquisition of nine vessels from Gulf Offshore Logistics, LLC, the company would have a fleet of 35 vessels (27 OSVs and 8 OTVs) plus have nine vessels under construction and options to purchase two additional vessels from GOL when they deliver.

www.harveygulf.com