Moody's confirms XPO CFR at B1; Perhaps movement upwards because of Moody's unbiased analysis. Nothing here that can't be solved by using XPO's smarts. Owning assets considered a necessity. 'However, owned assets are a necessity in the mature LTL market and provide direct control of transportation, which is crucial when capacity becomes constrained across logistic modes. ' Had to bite the bullet and buy assets sooner or later. XPO chose sooner when a good deal presented itself.
Sr Unsecured to B2 and new Sr Secured at Ba1
Global Credit Research - 13 Oct 2015
Approximately $4.9 billion of rated debt affected
New York, October 13, 2015 -- Moody's Investors Service, ("Moody's") confirmed the corporate family rating of XPO Logistics, Inc. ("XPO") at B1, assigned a Ba1 to the company's new secured term loan and downgraded senior unsecured notes to B2 from B1. Moody's also raised the Speculative Grade Liquidity rating to SGL-2 from SGL-3. The rating outlook is stable. This action concludes the review for downgrade that commenced on September 10th. The review followed the announcement by XPO that it had agreed to purchase Con-way Inc. ("Con-way").
RATINGS RATIONALE
"The purchase of Con-way provides a key business, less than truckload, which was missing from XPO's offerings, and it brings a leading position in that market," said Chris Wimmer, senior credit officer and Moody's lead analyst for XPO. "That said, we expect XPO to focus on integration, achieving synergies and deleveraging for the next couple years. The firm's B1 rating will not withstand further large acquisitions until those objectives are achieved."
Debt to EBITDA (after Moody's standard adjustments for leases and pension) is expected to be considerably above other B-rated logistics companies at least through the end of 2015. As the recent acquisitions are digested, we expect EBITDA expansion to drive down leverage to 4.5 to 5.0 times by 2016 year-end, as cash flow increases from realized cost savings and increased business from new and existing customers.
In Moody's view, XPO's recent acquisitions represent a strategy change, with assets introduced into a heretofore asset-lite operation. This increases capex needs and lowers free cash flow, negatively impacting XPO's credit profile. However, owned assets are a necessity in the mature LTL market and provide direct control of transportation, which is crucial when capacity becomes constrained across logistic modes.
The liquidity profile of XPO is good, as reflected in the firm's SGL-2 Speculative Grade Liquidity rating. Cash after funding the Con-way purchase is expected to be nearly $600 million and is likely to be supplemented with proceeds from strategic dispositions. There are no material debt maturities until 2019, and near term obligations can be funded through internal funds. The firm's revolver is expected to have ample availability after closing well in excess of annual capex needs.
The new term loan, in addition to the upsized revolver places significant secured debt above XPO's senior unsecured notes. This results in a downgrade for the notes, to B2 from B1.
The stable rating outlook reflects Moody's expectation that XPO will focus on integrating recently acquired companies while reducing leverage and increasing free cash flow for the next 18 to 24 months.
XPO's ratings are unlikely to be considered for upgrades until such time that XPO has completed the integration of its recent acquisitions and its financial results demonstrate the achievement of meaningful cost savings. The ratings could be upgraded if XPO achieves sustainable improvement in operating margins, Debt to EBITDA of less than 4.0 times and FFO + Interest to Interest of more than 4.0 times.
The ratings will likely be downgraded should XPO pursue another large acquisition prior to such time that Moody's believes meaningful synergies have been achieved from prior mergers and integration is substantially complete. The ratings could also be downgraded if Debt to EBITDA is above 5.5 times or higher at the end of 2016, or if FFO + Interest to Interest weakens towards 2.5 times from an expected level of more than 3.0 times.
The Con-way notes remain under review for downgrade. During its review, Moody's will consider how Con-way will fit into the XPO organization structure and whether there will be sufficient information to maintain a separate rating on the Con-way debt going forward. There is a change of control provision on Conway's Notes due 2018, but not on the Notes due 2034. The ratings would be withdrawn if the Notes are redeemed.
The principal methodology used in these ratings was Global Surface Transportation and Logistics Companies published in April 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
Downgrades:
..Issuer: XPO Logistics, Inc.
....Senior Unsecured Regular Bond/Debenture, Downgraded to B2 (LGD4) from B1 (LGD4)
Assignments:
....Senior Secure Term loan B, assigned Ba1 (LGD2)
Raised Ratings:
..Issuer: XPO Logistics, Inc.
.... Speculative Grade Liquidity Rating, raised to SGL-2 from SGL-3
Confirmations:
..Issuer: XPO Logistics, Inc.
.... Probability of Default Rating, Confirmed at B1-PD
.... Corporate Family Rating, Confirmed at B1
Outlook Actions:
..Issuer: XPO Logistics, Inc.
....Outlook, Changed To Stable From Rating Under Review
XPO Logistics, Inc. (NYSE: XPO) is a provider of supply chain solutions to companies throughout the world. The company offers value-added services for truck brokerage and transportation, last mile logistics, intermodal rail and drayage, contract logistics, ground and air expedite, global forwarding and managed transportation. XPO serves more than 30,000 global customers with a network of over 54,000 employees and 887 locations in 27 countries. Moody's anticipates that XPO will generate revenues in excess of $15 billion in 2015, pro forma for the Con-way and Norbert Dentressangle acquisitions.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Chris Wimmer, CFA
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Robert Jankowitz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653