The ratings on Hornbeck Offshore Services Inc. reflect the risks posed by the company's niche position in the highly volatile offshore supply vessel (OSV) market, an aggressive growth strategy, significant contract-renewal risk in 2005, and high debt leverage. These risks are tempered by the diversification provided by its tug and tank barge business. The majority of Hornbeck's cash flow is generated from its OSV division (expected to average about 70% of EBITDA), which is largely located in the deep-water Gulf of Mexico and is susceptible to the exploration and production industry's highly volatile and cyclical capital spending. Hornbeck and the OSV industry are exposed to extreme earnings and cash flow volatility, as operators tend to discount pricing to the level
