Moody's Investors Service downgraded the long-term debt ratings of FedEx Corporation (NYSE: FDX) and of Federal Express Corporation (together "FedEx" or "the Company"), including the senior unsecured rating to Baa2 from Baa1 and the ratings of all of the Enhanced Equipment Trust and Equipment Trust Certificates. Moody's also affirmed the P-2 short term rating. The rating outlook is stable.

RATINGS RATIONALE

"Today's downgrades reflect Moody's belief that FedEx will sustain credit metrics more in line with the Baa2 rating category given the prior and upcoming significant debt-funded investments, including the pending acquisition of TNT Express," said Moody's Senior Credit Officer, Jonathan Root. "Reliance on debt to fund share repurchases well in excess of free cash flow since fiscal 2013 has increased debt and financial leverage, and that is in addition to the debt issued to complete the GENCO acquisition," continued Root.

Debt to EBITDA stood at 3.0 times at 30 November 2015. Moody's anticipates that FedEx will consume much of the January 2016, 25 million share repurchase authorization in upcoming months and concurrent with the acquisition of TNT Express (EUR4.4 billion purchase price, about 18x EBITDA, all debt funded) anticipated to close before 31 May 2016. As a result, Moody's believes that FedEx will again issue debt to repurchase shares as well as to fund the acquisition of TNT, extending pressure on credit metrics.

Moody's believes there is significant execution risk in acquiring TNT. FedEx has yet to quantify the synergies it expects to realize, nor the associated costs. Moody's believes that it will take at least several years for FedEx to realize the financial and operational benefits it expects from acquiring TNT. The target has a low single-digit EBIT margin and a high-single digit EBITDA margin that meaningfully trails those of FedEx, so FedEx's consolidated margins are likely to weaken.

The Baa2 unsecured rating reflects the support to revenues and operating earnings of the company's global scale, and strong brand and franchise, its good liquidity and cost flexibility. FedEx's favorable trend in operating results, supported by the three-year, $1.6 billion cost improvement program that is reaching its conclusion in fiscal 2016 and volume growth, particularly in the US Ground business support the Baa2 rating. The stable outlook reflects our expectation of steady operating earnings and operating cash flows and that FedEx will reduce share repurchases to levels that offset dilution and not require meaningful debt-funding beyond fiscal 2016.

A downgrade of the ratings could occur if FedEx:

o continues to repurchase its shares in amounts in excess of free cash flow that are funded with new debt

o completes an acquisition of more than $1.5 billion that is debt-funded before the integration of TNT demonstrates significant improvements in operating profitability

o does not achieve the expected benefits of the GENCO or TNT acquisitions, foregoing the earnings and cash flow benefits the company expected when making these investments

o sustains Debt to EBITDA above 3.4 times beyond 18 months following the closing of the TNT transaction, EBIT to interest below 4.0 times or negative free cash flow, or

o sustains unrestricted cash below $1.5 billion

While not expected before fiscal 2019, a positive rating action could occur if FedEx was to strengthen its credit metrics, such as by sustaining Debt to EBITDA below 2.5 times and EBIT to Interest above 7.5 times. Abandoning the aggressive financial policy of recent years that has prioritized debt-funded share repurchases, increasing EBITDA in the expanded European operations by more than $800 million and reducing funded debt would be important contributors to a stronger credit profile. Margin expansion across the company and or debt reduction would also be needed to restore credit metrics.

Downgrades:

..Issuer: Alliance Airport Authority, Inc.

....Senior Unsecured Revenue Bonds, Downgraded to Baa2 from Baa1

..Issuer: Federal Express Corporation

....Senior Secured Enhanced Equipment Trust Series 1998-1A, Downgraded to A3 from A2

....Senior Secured Enhanced Equipment Trust Series 1999-1A, Downgraded to A3 from A2

....Senior Secured Enhanced Equipment Trust Series 1998-1B, Downgraded to Baa3 from Baa1

....Senior Secured Enhanced Equipment Trust Series 1999-1B, Downgraded to Baa3 from Baa1

....Senior Secured Enhanced Equipment Trust Series 1999-1C, Downgraded to Baa3 from Baa2

....Senior Secured Pass-Through Series 2012-A1, Downgraded to Baa1 from A3

....Senior Secured Pass-Through Series 1995-B3, Downgraded to Baa1 from A3

....Senior Secured Pass-Through Series 1993-C2, Downgraded to Baa1 from A3

....Senior Secured Pass-Through Series 1996-A2, Downgraded to Baa1 from A3

....Senior Secured Pass-Through Series 1996-B2, Downgraded to Baa1 from A3

....Senior Unsecured Medium-Term Note Program, Downgraded to (P)Baa2 from (P)Baa1

....Senior Unsecured Regular Bond/Debenture, Downgraded to Baa2 from Baa1

....Senior Secured FIX Loan Certicates, Downgraded to Baa2 from Baa1

..Issuer: FedEx Corporation

....Senior Unsecured Regular Bond/Debentures, Downgraded to Baa2 from Baa1

....Senior Unsecured Shelf, Downgraded to (P)Baa2 from (P)Baa1

..Issuer: INDIANAPOLIS AIRPORT AUTHORITY, IN

....Senior Unsecured Revenue Bonds, Downgraded to Baa2 from Baa1

Affirmations:

..Issuer: FedEx Corporation

....Senior Unsecured Commercial Paper, Affirmed P-2

Outlook Actions:

..Issuer: Federal Express Corporation

....Outlook, Changed To Stable From Negative

..Issuer: FedEx Corporation

....Outlook, Changed To Stable From Negative