A rating action by Moody’s on flatbed operator PS Logistics – a company that has made numerous acquisitions in that field in recent years – is noteworthy more for some of the information it reveals about the privately held business than for any change in its financial status.
PS Logistics, the operating name for parent company Carriage Logistics, recently saw its debt ratings from Moody’s (NYSE: MCO) hold steady across several different classifications.
Its corporate family rating stayed steady at B2, which is five notches below the cutoff for investment-grade debt ratings. Its probability-of-default rating also held at B2.
PS Logistics’ rating on its senior secured first lien loan was affirmed at B1, which is stronger than the B2 rating. Its rating on unsecured notes was affirmed at Caa1, two notches below the family rating.
The B2 rating on PS “reflects the company’s position as one of the largest providers of flatbed transportation and logistics services, its solid operational track record through business cycles and adequate liquidity,” Moody’s said in its report. “Further, the rating reflects the company’s moderately high financial leverage, acquisitive financial policy and ongoing capital needs to enhance its fleet of trucks.”
The reference to PS Logistics as “acquisitive” was the only mention in the report of the fact that the company has made multiple purchases in recent months, buying Fluker Transportation in November, Yardy Transportation in March and the flatbed segment of ELS in January 2024. When PS Logistics announced the Fluker deal, it said in a prepared statement that it had acquired 27 trucking companies and five non-asset-based logistics companies since 2016.
Ratings agency has been down on freight
The affirmation of the existing ratings is in slight contrast to recent freight-related actions by Moody’s, which have been distinctly bearish. They have been either ratings downgrades or more frequently, placement of companies on its negative watch, often a prelude to a downgrade.
RXO (NYSE: RXO) got a negative outlook in March; chassis provider Trac Intermodal met the same fate; truck parts supplier Fleet Pride saw a move to a negative outlook; and Forward Air’s turmoil last year led to downgrades by Moody’s and the two other key ratings agencies – Fitch and S&P Global Ratings (NYSE: SPGI) – with the latter hitting the company twice.
Debt ratings on privately held firms reveal significantly less financial data about the companies than quarterly earnings reports provide on publicly traded companies. But the Moody’s report did reveal several things about PS Logistics.
- Its fleet comprises more than 4,500 trucks with more than 40 terminals throughout the U.S.
- In the 12 months ended Sept. 20, its revenue was about $1.6 billion. Debt rating reports do not generally release information on profitability. But the report said it expects profitability to improve this year.
- PS Logistics is expected by Moody’s to be free-cash-flow-positive in 2025.
- Its fleet is described by Moody’s as “very young … so we expect new truck purchases to moderate over the next year.”
- The outlook on the company was listed as stable: Conditions do not suggest any basis for a ratings increase or decrease in the coming months. That is based not only on Moody’s expectations for greater profitability but also on the projection that the company’s ratio of debt to earnings before interest, taxes, depreciation and amortization will be around 5X by the end of the year. Its current level was not disclosed, but it was presumably higher than 5X.
Moody’s said there could be a ratings upgrade if the company’s EBITA margin is sustained above 6% and the debt/EBITDA margin could be sustained below 4X. A downgrade could happen if debt/EBITA remains above 5X and the EBITDA margin drops below 4%. (EBITA is earnings before interest, taxes and amortization; EBITDA throws depreciation into that number. Moody’s used both numbers in its analysis).
PS Logistics has a $150 million asset-based lending facility that has not been touched and expires in September 2026.
S&P rating steady since 2021
S&P has a B rating on PS Logistics, which is equivalent to the B2 rating of Moody’s. The S&P Global rating has been in effect since September 2021.
Moody’s also said it will be watching the average age of the fleet. If that number significantly increases, it could result in higher operating costs or could be a sign that “the company doesn’t have the financial capacity to invest in its fleet.”
Despite the bearishness of Moody’s freight-related actions in the past year, the ratings agency was moderately bullish, or at least not bearish, on PS Logistics’ prospects.
“We expect PS Logistics’ operating performance to moderately improve over the course of 2025. Lower trucking rates and softer volumes have weighed on PS Logistics’ earnings since 2023,” the agency said. “However, we expect rates to modestly increase in 2025 as excess trucking capacity continues to exit the market.”
Unique driver pay structure
The report also noted that PS Logistics’ driver pay structure is based on a percentage of freight rates, rather than the more prevalent per-mile approach. Moody’s said that system “creates a flexible cost structure and limits significant margin erosion during down markets. Further, it contributes to PS Logistics’ below average driver turnover levels.”
With tariffs looming large over all transportation sectors, Moody’s said PS Logistics could be protected against some of the bigger impacts from the levies because “we believe most of the freight PS Logistics transports is largely produced and used domestically.” But overall, “the impact and uncertainty of tariffs pose a risk to overall volumes and demand in these end markets.”
The bigger picture, Moody’s said, is that “the company is exposed to end market demand that correlates with cyclical industrial production and construction spending in the U.S.”
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