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Moody’s downgrades LaserShip’s debt ratings

Agency says company is highly levered and suffers from weak liquidity

Moody's has downgraded LaserShip's debt, saying the company is highly levered and suffers from weak liquidity. Pictured is a LaserShip facility in Tennessee. (Photo: LaserShip)

Debt rating agency Moody’s Investors Service last week downgraded the ratings of LaserShip Inc., the corporate parent of regional parcel carrier LaserShip-OnTrac, saying its move reflects the company’s “very high financial leverage, weak liquidity and moderate scale in the competitive e-commerce residential delivery market.”

In a report published March 2, Moody’s lowered its corporate rating to Caa1 from B3 and the probability of default rating to Caa1-PD from B3-PD. 

The report came a day after LaserShip-OnTrac CEO Mark Holifield resigned unexpectedly after 17 months and was replaced by Jim Duffy, who is currently CEO of FleetPride, touted as the nation’s largest distributor of truck and trailer parts. The Moody’s note made no mention of the change in the C-suite. 

In the report, Moody’s said it expects LaserShip’s leverage to remain very high and liquidity to remain weak through 2023. LaserShip’s network capacity growth in 2022, spawned by its late ’21 acquisition of West Coast regional carrier OnTrac, enabled it to operate successfully during the ’22 peak season, according to Moody’s. However, package delivery volumes were less than expected in the second half of 2022, which impacted earnings for the year, the agency said.

Consumer spending in general will remain subdued, which will affect delivery volumes across the industry. LaserShip should see some volume improvement through the year as its network grows and it adds customers. However, higher interest costs and softer volume growth will constrain the company’s ability to meaningfully improve operating leverage and result in negative free cash flow in 2023, Moody’s said.

The negative outlook “reflects the risk that LaserShip may be unable to “improve earnings or reduce its cash burn over the next 12 months given a weaker macroeconomic environment,” Moody’s said. Prolonged weakness will “increase the risk that the company’s capital structure is unsustainable at currently very high leverage levels.”

The agency added that, as a result of these developments, LaserShip may be limited in its ability to “absorb adverse operational developments.”

Moody’s expects negative free cash flow to persist through 2023, although at a lower level through ’22 as capex spend is reduced by more than half. However, higher interest costs will more than offset the company’s modest earnings growth and contribute to its ongoing cash burn, according to the agency.

On a positive note, Moody’s expects LaserShip’s free cash flow to become moderately positive in 2024.

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