OREANDA-NEWS. S&P Global Ratings said today that it placed its 'B+' project rating on Westway Group LLC on CreditWatch with negative implications. The recovery rating is unchanged at '3', which indicates expectations of meaningful (50%-70%; lower end of the range) recovery if a default occurs.

The CreditWatch placement stems from the recent breach of Westway's leverage covenant. As of June 30, 2016, Westway was unable to meet its covenant of 5.25x, with its leverage (by the issuer's calculation) at 5.65x. The debt service ratio exceeded the test amount of 2.25x, with some headroom based on the sponsor's calculations.

We expect to resolve this CreditWatch after we have assessed Westway's new capital expansion projects to determine if they alleviate our covenant concerns or lead to a financial forecast revision that could affect the rating.

"The CreditWatch placement reflects the recent breach of the project's leverage covenant. This could potentially lead to weaker ratings as a result of diminished covenant headroom or weaker debt service coverage ratios, as well as heightened refinancing risk," said S&P Global Ratings credit analyst Michael Ferguson.

We will seek to resolve the CreditWatch in the next two months when we have more information about the project's expansion plans, and whether or not they could help alleviate our covenant concerns.