A credit rating agency has downgraded an Alaska Native corporation subsidiary over its performance and weak cash flow generation.
Moody's Investors Service at the end of June downgraded NANA Development Corp.'s corporate family rating, reflecting "significant deterioration in operating performance and weak cash flow generation attributable to some of the company's core businesses in recent quarters," the agency said in a news release. NANA Development is a subsidiary and the business arm of NANA Regional Corp.
NANA Development was founded in 1974. It owns and manages a portfolio of businesses with a focus on the federal, oil and gas, and commercial business sectors, according to its website. The company's services range from hotel management to construction to engineering and more. The NANA region is in Northwest Alaska.
The development corporation's rating dropped from Caa1 to Caa2 — on the lower end of Moody's rating spectrum — and the outlook is negative.
The Moody's downgrade affects about $300 million of the corporation's rated debt.
Revenue declines in the company's oil and gas business were a key part of the downgrade, Moody's said. The agency also cited diminished revenues from the commercial segment and pressure on the company's federal segment.
"I think the big picture is, these guys, on one hand they're very diversified," said Manish Desai, an analyst at Moody's. "On the other hand, they're diversified into sectors that are under pressure. There's not one strong segment that is offsetting the others. On the federal side, they seem to be doing okay — consistent, but still under pressure."
The downgrade makes it more difficult for the corporation to borrow more, and "they might be limited in how much more debt they can take on," said Desai.
Royalty contributions from the Red Dog zinc mine are expected to "continue to be an important source of liquidity" for NANA Development, but "the company may increasingly rely on those potentially volatile cash streams to service debt and fund growth," Moody's said. The mine is on land owned by NANA Regional and is operated by Teck Resources Ltd.
Starting in fiscal 2017, royalty contributions to NANA Development from the regional corporation will be reduced by 50 percent, "but this will be partially offset by the simultaneous elimination of the annual dividend payment to NRC to cover a portion of general and administrative ('G&A') expenses," Moody's said in the news release.
"Moody's also projects limited to no performance-based dividends to NRC (to fund distributions to native shareholders) over the intermediate term given expectations for continued weak operating performance, which will help to preserve cash," the agency said.
NANA Development spokeswoman Blythe Campbell said in an email that the company wouldn't "speculate about Moody's projections" when asked about how this would affect shareholder dividends.
Shelly Wozniak, a spokeswoman for NANA Regional, said in an email that after the fiscal year ends in September, "the board will make a determination regarding the possibility of a shareholder dividend."
In November 2015, NANA Regional said its December dividend distribution would be about $12.7 million paid to more than 13,800 shareholders — or about $920 per person. The company now has more than 14,000 shareholders.
NANA Development Corp. President Helvi Sandvik said a decline in oil prices has affected business, but she disputed issues with the federal side of the company.
"(In the) federal sector, we don't agree with their conclusion," she said. "On the federal side, our performance is quite strong."
In an email from Sandvik to NANA Development board members and senior management at both corporations earlier this month, she said that two NANA companies — GIS and NANA WorleyParsons, both of which do work in the oil and gas industry — "have both gone through substantial downsizing as they have had to adjust their cost structures to lower work volumes." Sandvik wouldn't discuss specifics about that in a phone interview.
She also wrote in that email that "Our liquidity is strong and we do not have concerns about our ability to meet our current debt obligations."
Moody's expects the corporation's operating performance will continue to weaken in the near future.
"We don't see things getting much better over the next 12 months," Desai said.
The state of Alaska's credit has also been downgraded this year by all of the big three credit rating agencies: Moody's, Fitch Ratings and Standard & Poor's.