Odyssey Logistics has had its debt rating cut by Moody’s for the second time in less than three months, a rapid deterioration that is far quicker than normal movements by a ratings agency.
Moody’s (NYSE: MCO) said Monday it was reducing its corporate family rating on Odyssey to Caa-1 from B3. The B3 rating had only been in effect since September.
Two other ratings–the probability of default and the senior secured first lien bank credit facility–also went to Caa1 from B3.
A rating of Caa1 is deep into speculative territory, colloquially known as “junk.” It is seven notches below the cut line between investment grade and non-investment grade debt and only four notches above the Moody’s grade for a default.
The Moody’s rating is also one notch less than the B- rating of S&P Global Ratings (NYSE: SPGI). S&P gave Odyssey that rating in June and it remains in place.
Before the latest two cuts by Moody’s, Odyssey Logistics carried a B2 rating that was increased to that level in August 2022 and affirmed in March 2024.
Stable outlook before both moves
Both cuts in the company’s debt rating this year came even as the Moody’s outlook on Odyssey was listed as “stable.” Many downgrades are preceded by a company first having its outlook changed to negative. A downgrade then may or may not ensue, and if there is an action, it might take months before it occurs. (The inverse of that is that prior to an upgrade, a company may be bestowed with a positive outlook that can be in place for a long time before any action is taken).
Odyssey’s downgrade then is particularly notable in two ways: a second one occurred so soon after the first, and conditions were considered strong enough prior to both moves that Moody’s didn’t even have Odyssey with a negative outlook before it acted.
The outlook on Odyssey at Moody’s was held at stable after the latest reduction in its rating. S&P Global also has a stable outlook on Odyssey.
The Transport Topics rankings of top brokerages of 2024 lists Odyssey as the 80th largest brokerage, with gross revenue of $169 million.
It is unusual in having publicly-trade debt; other 3PLs that carry ratings of public debt from ratings agencies are some of the biggest brokers, such as C.H. Robinson (NASDAQ: CHRW), RXO (NYSE: RXO) and privately-held Echo Global Logistics. Smaller firms like Odyssey generally do not have publicly-traded debt.
Big debt load in a down market
The basic message of Moody’s in its rating of Odyssey was one of too much debt and a poor market ahead to help reduce it.
“The downgrade of Odyssey’s ratings reflects our expectation that the company will operate with very high leverage and weak interest coverage over the next twelve months,” Moody’s said in its report. “A challenging freight market with weak pricing and soft volumes have contributed to Odyssey’s lower earnings and persistently negative free cash flow.”
Moody’s said Odyssey will be operating this year with a debt to EBITDA load “well in excess of 7X.”
By contrast, when Moody’s affirmed the B3 rating of Echo Global in October, it said the company’s debt/EBITDA ratio would be “slightly below” 7X by the end of this year. It also said it expected a decline in that ratio to below 6.5X next year. That B3 rating is where Odyssey was, and is now one notch less than that.
But the real crunch could be coming in 2027, Moody’s said.
“We believe a reduction in leverage to a more sustainable level is dependent on improving freight market conditions, which we expect will remain challenging heading into 2026,” the ratings agency said. “This poses a risk to Odyssey since the company faces refinancing risk with significant debt maturities in 2027.”
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