XPO upgraded by S&P, just one notch below investment-grade

The one debt series where S&P Global has given XPO an investment-grade rating is for an issue-specific BBB-  on the company’s senior secured debt. That rating was already in place but affirmed in the most recent S&P Global action.

XPO also saw its senior unsecured debt receive a two-notch increase to BB.

S&P rating tops Moody’s

In making the change, S&P Global (NYSE: SPGI) now has its corporate rating for XPO at a higher rating equivalency than Moody’s (NYSE: MCO). 

Last September, Moody’s affirmed its rating on XPO at Ba2, which is two notches less than the investment grade cutoff.  But Moody’s also put XPO’s outlook at “positive.”

That step often is a precursor to a rating upgrade, though a company can stay with that designation for a year or more. XPO is coming close to 11 months on a positive outlook at Moody’s with no change in its rating.

XPO had a stable outlook from S&P Global. A positive outlook is not a prerequisite to a ratings upgrade.

XPO declined comment on the S&P Global action.

Stronger market propels the move

The S&P Global rationale for the increase in XPO’s debt rating was heavily rooted in both the strengthening fundamentals of the trucking market, with spillover business from truckload to LTL a key part of that, and what the improved market has meant for certain key debt rating metrics, such as the ratio of Funds from Operations (FFO) to debt.

S&P Global said the FFO to debt ratio was 35.7% in the second quarter, and is expected to be 35% to 36% for the year. S&P said its earlier expectation was the full year rate would be 30%. It also expects XPO’s ratio to be 40% next year.

Addressing the company’s operating performance, an aspect of XPO’s business that S&P Global cited in its upgrade rationale is what it said was a decision to “insource more of its linehaul.” The ratings agency described that as part of a three-year trend.

Less outsourcing

A quick glance at recent trends in purchased transportation does not at first look like much has changed. In the second quarter, XPO spent $464 million on purchased transportation, up from $426 million a year earlier. Three years ago in the second quarter of 2023, the spend on purchased transportation was $423 million.

But four years ago, in the second quarter of 2022, the company’s purchased transportation spend was $525 million on a revenue base of $2.047 billion, or 25.6% of revenues. In the second quarter of 2026, purchased transportation of $464 million was 19.7% of revenues of $2.355 billion.

S&P Global used other metrics to tout the changes. “In 2023, XPO outsourced 20.9% of its linehaul miles with S&P Global Ratings-adjusted EBITDA margins of 14.9%, compared with 6.7% and 17.8%, respectively, for 2025,” the agency said. 

S&P Global said there have been “other service improvement initiatives…more efficient routing, lower damage claims.”

Truckload spillover

The spillover from the truckload market–which LTL carriers often see as a negative trend rather than positive, because it can create operational issues with what the companies describe as “product mix”–got a thumbs up from S&P Global.

“Tighter trucking supply (revocation of nondomiciled licenses, English language proficiency testing, decertification of commercial driver license schools) and higher fuel costs have caused shippers to evaluate alternatives to TL shipping,” the ratings agency said. “This is contributing to a rebalancing of loads across various transportation modes (intermodal, LTL, TL). While we believe some TL pricing increases will subside once oil prices normalize, structural factors from lower capacity will likely persist.”

The S&P Global forecast is that it expects XPO’s North American tonnage to rise 2% to 3% this year, with a yield increase of 4% to 5%.

Through the first six months of 2026, pounds per day at XPO was up 0.6%. Revenue per shipment excluding fuel surcharge revenue, the metric for yield, was up 1.8% for the first six months of the year. 

“For 2027, we view the capacity dynamics playing out in 2026 to be largely structural, with the potential for better macroeconomic conditions, and therefore expect tonnage and yield growth to be around 3%-5%,” S&P Global said.

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