FedEx Freight, the delivery company’s LTL spinoff, will be entering the world with a debt rating one notch less than the parent company.
S&P Global Ratings said Friday it had issued a rating of BBB- to FedEx Freight. The parent company has a rating of BBB. Both ratings are investment-grade, though BBB- is the lowest investment grade on the S&P Global Ratings scale.
Moody’s has a rating on FedEx (NYSE: FDX) of Baa2, which is considered equivalent to the S&P BBB rating. As of Friday, Moody’s had not rated the debt of FedEx Freight.
There aren’t many other LTL carriers with publicly-traded debt as a point of comparison. But at Ba2 at Moody’s and BB at S&P Global, XPO has a lower debt rating than FedEx Freight will carry into its spinoff. Those XPO ratings are both non-investment grade.
Several other large LTL carriers do not have publicly-traded debt, such as Old Dominion Freight Lines (NASDAQ: ODFL) and ArcBest (NASDAQ: ARCB). LTL carrier Forward Air (NASDAQ: FWRD) is carrying a non-investment grade rating of B, several notches below both XPO and FedEx Freight.
FedEx Freight will begin life with a debt load driven in part by an expected $4.3 billion dividend payment to FedEx. Reviewing the debt structure, S&P Global said FedEx Freight will issue a $600 million unsecured delayed draw term loan to go along with an estimated $3.7 billion in other unsecured debt to make the dividend payment.
It also has taken on a $1.2 billion revolving credit facility. However, S&P notes the line will not be tapped until the spinoff is closed.
The current date for the spinoff is June 1.
The BBB- rating is being issued along with a stable outlook. Stable means that neither an upgrade nor downgrade is likely in the foreseeable future.
“The stable outlook incorporates our view that the company will generate and sustain funds from operations (FFO) to debt above 20%, reflecting an increase in average daily shipments, average weight per shipments and continued yield expansion in revenue per hundredweight,” S&P said in its report. “We assume the company’s credit measures gradually improve beyond calendar 2026, led by growth in its earnings and cash flow.”
The S&P Global (NYSE: SPGI) report recaps some of FedEx Freight’s key statistics, including revenue that is well above its competition. For example, Old Dominion had revenue of approximately $1.4 billion in the quarter ended September 30. In the quarter ended November 30, FedEx Freight reported revenue of about $2.2 billion.
Its approximately 26,000 doors, according to S&P, is the largest in the LTL industry. FedEx Freight will cover about 98% of all U.S. zip codes, “which we believe provides it with a competitive advantage over regional operators,” S&P said.
