Moody's Lifts Ratings On More Than $3B Of XPO Logistics Debt

Rating agency Moody's Investors Service said it upgraded its ratings on about $3.2 billion debt issued by XPO Logistics Inc. XPO citing a "positive operating environment" in 2019 for transport and logistics companies, as well as XPO's strong performance.

In a note issued yesterday, Moody's said Greenwich, Conn.-based XPOs growing scale and investments in technology and infrastructure will strengthen its market position across all its service lines, especially in the e-commerce market which is experiencing secular growth trends. That, combined with a healthy economy and tight transport capacity, should lead to an improved ratio of debt to earnings before interest, taxes, depreciation and amortization (EBITDA), Moody's said in the note.

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As headwinds, Moody's noted XPO's short operating life in its current form, an aggressive growth strategy that "reduces visibility into the company's risk profile," and the cyclical nature of the transport sector, which is closely tied to economic activity and depends on what is known as "derived demand." Moody's pointed out that the stable nature of XPO's contract logistics business—which accounts for 37 percent of sales—helps to smooth out the cyclical volatility in the transport business

Moody's predicted that XPO would return to the acquisition hunt sometime next year; it had been reported that the company was targeting 2018 for 1 and possibly 2 purchases. XPO, which grew into a $17 billion company in large part on the back of 17 acquisitions from 2011 to 2015, has not made an acquisition since it bought trucker and logistics firm Con-way Inc. for $3 billion in September 2015.

The Moody upgrades affect a $1.5 billion senior secured term loan due in 2025, $1.2 billion in senior unsecured notes due in 2022, and $535 million in senior unsecured notes due in 2023, Moody's said.

XPO shares fell $5.62 a share today to close at $86.01 a share amid a sharp decline in U.S. equity markets.

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