S&P Global warns of looming problems at Odyssey as it cuts rating

S&P Global also hit Odyssey with a negative outlook, suggesting conditions are in place for a further downgrade barring a turnaround.

With its move, S&P Global now has Odyssey at a debt level that is considered equivalent to that of Moody’s (NYSE: MCO). That agency cut its rating on Odyssey in November to Caa1. That level is considered equivalent to the S&P ratings of CCC+. 

Moody’s reduced Odyssey’s debt rating twice in a three-month span in 2025. 

Closer to default grade than investment grade

Both agencies’ ratings are deep in speculative territory, seven notches under the cutoff line between investment and non-investment grade debt.

But the ratings are only five notches above the grades they would give to a company considered in default. 

Odyssey is unique among 3PLs in that it has publicly-traded debt even though it is nowhere near being among the largest brokerages, nor is its stock publicly traded. 

Privately-held Echo Global Logistics, one of the largest 3PLs, has publicly-traded debt and had been a publicly-traded stock before being bought by a private equity company. C.H. Robinson (NASDAQ: CHRW) and RXO (NYSE: RXO) are both publicly traded in equity and debt markets.

According to S&P, the debt burden at Odyssey continues to be a problem.

“We believe ongoing earnings weakness will impair Odyssey’s ability to refinance upcoming debt maturities,” S&P Global said in its analysis. 

Obligations upcoming

Odyssey faces maturity in a $125 million revolving credit facility in July 2027, though so far the company has only drawn $9 million on that, according to S&P. 

It also has a term loan of $490 million that matures in October 2027.

“Multiple years of soft freight demand, depressed trucking rates, and rising costs have contributed to reported operating losses over the past two years, which we expect will continue in 2026 and 2027,” S&P Global said. 

Free cash flow has been negative since 2023 and was negative $27 million last year, S&P said. The agency added that was “a trend we expect to persist through 2026.”

Given all that, S&P Global said, “we believe it’s unlikely Odyssey will be able to access capital markets at favorable terms. This poses a risk to the sustainability of its capital structure and heightens the possibility of a debt restructuring.”

A request for comment from Odyssey had not been responded to by publication time.

Revolver is limited

Although the revolving credit line has only been hit for $9 million out of $125 million, S&P Global said Odyssey can not tap all of what is remaining. 

There is a “first-lien net leverage covenant” when Odyssey’s debt to EBITDA ratio hits 6.25X. That comes into play if Odyssey were to try to draw on the line beyond about $43.7 million.

Debt coverage at the end of last year was about 6.7X, S&P Global said. 

“We project revolver utilization to rise to $31 million by Dec. 31, 2026, and close to $42 million by mid-2027, eventually exhausting all available liquidity and making a default increasingly likely,” S&P Global said

Reports from rating agencies do not break out all key financial indicators at the companies that are being rated. But in the latest report on Odyssey, S&P Global said the 3PL’s adjusted EBITDA had dropped from about $170 million in 2022 to about $95 million last year. “The decline stemmed from lower volumes and sharp declines in freight rates,” the report said.

“The company operates in specialized end markets (metals, chemicals, packaged freight, etc.) and has relatively little exposure to retail and e-commerce.” S&P Global said. Its customers have “complex regulatory and safety requirements, which we believe differentiates it from other logistics providers.”

Although freight markets are rebounding, S&P Global’s rating on Odyssey is not banking on that. The ratings agency says it “expects subdued freight demand will continue constraining pricing power and restrict any meaningful improvement in profitability in 2026.”

As a result, S&P said it expects Odyssey’s 2026 adjusted EBITDA to be up only 6% to 10% this year, “which isn’t sufficient to fully offset its interest costs and capital-spending needs.”

“We believe that a freight cycle turnaround could support Odyssey with opportunities to expand profitability and generate breakeven free cash flows in 2028,” S&P Global said. 

(Recent data suggests that turnaround is in full swing).

But the S&P Global negative outlook on Odyssey appears to be only secondarily tied to S&P Global’s view of the freight market. It’s more a function of its balance sheet.

A further downgrade, S&P Global said, could occur is “the company’s profitability and cash flows don’t improve due to continuing weak freight market conditions that cause it to draw further on its revolver, constraining liquidity; or Its debt facilities become current and the company faces significant challenges in refinancing.”

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