NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the Issuer Default Rating (IDR) for Kirby Corporation (KEX) at 'BBB'. In addition, Fitch has affirmed the senior unsecured revolving credit facility, senior unsecured term loan facility, and senior unsecured notes ratings at 'BBB'. The Rating Outlook is Stable. Approximately $650 million of outstanding debt is covered by these ratings. A full rating list follows at the end of this release.

KEY RATING DRIVERS

The ratings are supported by the company's strong free cash flow (FCF) generation, 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.

KEX's acquisitive nature is the issue that continues to place the most pressure on Kirby's ratings and is a driving factor limiting the potential for an Outlook revision to Positive or a near term upgrade in the ratings. Following the repayment of $1.2 billion in debt incurred in connection with acquisitions in 2011 and 2012, Fitch expects KEX to resume strategic acquisitions in the near term, largely funded through debt, given current liquidity levels. Offsetting the risks of on-going leveraging acquisitions is KEX's track record of using FCF to repay acquisition-related debt and using equity for portions of larger transactions. Also, as KEX continues to grow in size, the effect of larger transactions on the company's credit profile will be less pronounced.

Strong capacity utilization and pricing power is expected to continue through 2014 and into 2015. KEX's strong presence in petrochemicals, black oil, and petroleum products (approximately 95% of marine revenues) will provide continued high demand for both inland and coastal markets. Demand is largely driven by the shale oil and gas boom in North America providing higher petroleum production and lower-priced natural gas.

The tank barge industry, including KEX, has grown capacity by approximately 200 barges per year since 2011. Fitch believes the industry will continue to grow through 2015, although the pace may slow. The additional capacity will be put to work with the aforementioned demand, although in a downturn scenario it may complicate asset utilization, horsepower distribution, and diminish operating EBITDA.

In line with adding capacity, capital expenditures are at a historically high level. Fitch expects capex to be in line with the company's budget of $370 million to $380 million, although it could decrease a bit after in 2015. Construction on barge agreements signed in 2014 will continue through 2017, largely on the coastal side. Fitch expects ongoing agreements for new inland capacity to be signed at more normalized levels. The elevated levels of capex highlight the growth in demand and flexibility KEX maintains with its cash flow generation.

Going forward, Fitch expects KEX's FCF generation to be relatively strong, provided stable economic conditions, although it has been somewhat weak in 2014, at an estimated $100 to $150 million for the full year. Weaker FCF in 2014 is largely based on higher cash taxes and working capital outflows. Stronger FCF after 2014 will allow KEX to be flexible from year-to-year with its capital planning to take advantage of timely opportunities in acquisitions, capital expenditures, debt repayment, and shareholder distribution.

KEX's adjusted leverage (total adjusted debt/operating EBITDAR) at Sept. 30, 2014 was 2.3x, compared to 2.7x at year-end 2013. KEX typically maintains adjusted leverage of 2.5x to 3.5x, depending on the timing of the most recent acquisition and its operating profitability. KEX does not maintain a specific target, although a stable conservative strategy is expected to continue. KEX incurs lease expense for certain rented facilities and equipment, largely for towboats, which inflate rent expenses somewhat due to crew expenses included in the cost of the charter. Fitch multiplies annual rent expense by 8x to calculate total adjusted debt.

Financial flexibility remains adequate at KEX. The company had a cash balance of $3.7 million and revolver availability of $274 million ($325 million less $45 million outstanding and $5.6 million in letters of credit) as of Sept. 30, 2014. Fitch expects the revolver to be drawn for most periods as KEX will continue to use it for general corporate purposes, given liquidity needs going forward. There are no major maturities until KEX's term loan expires in 2016.

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to a positive rating action include:

--Adjusted leverage (total adjusted debt/operating EBITDAR) being maintained in the 2.0x-2.5x range for an extended period;

--Continued focus on deleveraging the balance sheet;

--Maintain stronger cash balances to support acquisition strategy.

Negative: Future developments that may, individually or collectively, lead to a positive rating action include:

--Additional large debt funded acquisition;

--A shift in cash distribution priorities away from deleveraging the balance sheet.

Fitch affirms KEX's ratings as follows:

Kirby Corporation

--IDR at 'BBB';

--Senior unsecured revolving credit facility at 'BBB';

--Senior unsecured term loan facility at 'BBB';

--Senior unsecured notes at 'BBB'.

The Rating Outlook is Stable.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage', May 26, 2014.

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=929637

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