The debt ratings of Odyssey Logistics & Technology Corp. were held steady by Moody's Investors Service in a recent review, a little more than a year after the ratings agency downgraded them.

However, the outlook for the Connecticut-based company was changed to stable from negative. While that change has no impact on the actual rating, it does signal that the company's finances are at a level where the rating does not have the short-term possibility to be downgraded — a negative outlook — or the potential to be upgraded, which would carry a positive outlook.

The action taken by Moody's affirms the debt rating of B3 for what Moody's refers to as the "corporate family rating," B3-PD for the probability of default, B2 for its first lien senior secured rating and Caa2 for its second lien senior secured rating.  All those ratings were established by Moody's review of Odyssey in 2020.

Odyssey's home page describes the company as a full-service logistics provider, with offerings in freight forwarding, truckload, intermodal and LTL. It is privately held.

While the secured lien has a lower debt rating, it is the B3 corporate family rating that is most significant. B3 is the sixth-highest among the ratings that Moody's refers to as "not prime," which elsewhere can be described as "non-investment grade" or more colloquially, junk. There are five levels of not-prime debt beneath the B3 level. 

Although the Odyssey ratings were affirmed at the same level as last year and the only change is the outlook, the difference in language between the report of last year and this year is stark. 

In 2020, Moody's said it expected Odyssey's free cash flow "to remain weak as cost savings gradually reverse and working capital uses cash to support growth. … As a result, the opportunity for meaningful debt reduction will be limited."

But in the recent review, it said that Moody's sees free cash flow for Odyssey as "comfortably positive in 2021, even with higher investments to accommodate topline growth." It said it expects free cash flow to rise in 2022. 

But the strong freight market of 2021 is highlighted early in the recent report. "Improving market conditions in domestic freight forwarding and intermodal have resulted in a strong rebound in results since Q2 2020 which Moody's expects to continue well into 2022, boosted by strengthening demand, tight capacity, and a healthy pricing environment," the ratings agency said. 

In the 2020 downgrade, Moody's said its earlier assumption was that it expected Odyssey's debt/earnings before interest, taxes, depreciation and amortization to drop to 6X. But at the end of 2019, it had blown out to 6.6X, and then deteriorated further in the first quarter of last year to 7.6X.

In the 2021 review, Moody's said debt/EBITDA was still above 7X at the end of the first quarter. But it added that it expects that ratio to approach the "low 6X range" by the end of the year, "largely driven by steadily improving earnings."

In a prepared statement provided to FreightWaves, Cosmo Alberico, the company's COO and CFO, did not address the ratings agency move directly. But he did speak positively about the company's performance. 

Moody's views cash at Odyssey in 2021 as adequate. Run-rate cash is $30 million to $40 million, and there is "at least" $40 million available under a $60 million revolving credit line, Moody's said. It added that it expects the revolver to be refinanced. 

That gives Moody's confidence about the company's liquidity, which it said had "[come] under pressure in prior quarters."

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