S&P Assigns 'B' Rating to XPO Logistics (XPO)

Standard & Poor's Ratings Services assigned its 'B' corporate credit rating to Greenwich, Conn.-based XPO Logistics Inc. The outlook is stable. We also assigned a 'B-' issue rating to the company's proposed $500 million senior unsecured notes and a recovery rating of '5', indicating our expectation that lenders would receive a modest (10% to 30%) recovery in the event of a payment default.

"XPO Logistics Inc. has become one of the larger third-party logistics companies in the U.S. through an aggressive growth strategy involving acquisitions and internal investment," said Standard & Poor's credit analyst Lisa Jenkins.

We characterize XPO's business risk profile as "weak." While its aggressive growth strategy has bolstered the company's business profile in the highly fragmented logistics industry, in our view, it has taken a toll on the company's financial profile. Significant investments over the past two years have left the company highly leveraged. We characterize XPO's financial risk profile as "highly leveraged" and its liquidity as "adequate."

The outlook is stable. We expect XPO to benefit from its recent acquisition of higher margin businesses, which have dramatically increased the scale of the company and improved its earnings potential. As a result, we expect credit metrics to improve over the coming year, and this is factored into our ratings. However, we also expect the company to continue its aggressive growth strategy and, as a result, we do not believe credit metrics will improve enough to warrant an upgrade over the next year.

If XPO moderates its growth strategy, begins to generate positive operating cash flow, and FFO to debt improves to the mid-teen-percent area and we believe it will stay there, we could raise the ratings.

We could lower ratings if FFO/debt is consistently in the mid-single-digit percent area or lower. This could occur if XPO has problems managing its growth or is even more aggressive than we expect in pursuing acquisitions or investments and the company continues to consume cash, with little prospect for improvement.

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