XPO rating cut by S&P, agency cites continuing weak freight market

XPO’s credit rating has been downgraded by S&P Global Ratings, as the ratings agency said “persistently soft freight market conditions” are not likely to improve on a “material” basis for the next 12 months.

The LTL carrier’s new issuer credit rating is BB, down one notch from BB+. XPO (NYSE: XPO) has had a negative outlook from S&P Global since December 2023. A negative outlook is often a prelude to a downgrade–just as a positive outlook can come before an upgrade–but the more than 18 months it has sat with a negative outlook and no action is relatively long by credit agency standards.

In conjunction with the downgrade, S&P Global moved the outlook on XPO to stable from negative.

With the move, the company rating on XPO at S&P Global (NYSE: SPGI) and Moody’s (NYSE: MCO) are now equivalent. Moody’s has a Ba2 rating on XPO, which is considered on the same level as a BB rating at S&P Global. Both grades are two notches below the cutoff for investment grade versus non-investment grade debt ratings.

S&P’s move comes more than two weeks after Fitch Ratings affirmed its rating on XPO at BB+. That is one notch above the ratings for Moody’s and S&P Global, but also is not investment grade.

When XPO was put on a negative outlook by S&P at the end of 2023, a key spur to that action was XPO’s acquisition of 28 terminals from bankrupt Yellow Corp. for $870 million.

That acquisition resulted in “elevated leverage projected over the near term,” S&P said in its rationale for why it made the change on XPO Thursday. “At the time, we believed the freight market was nearing an inflection after operating at trough levels since mid-2023; however, market conditions have yet to show meaningful improvement, and we no longer anticipate conditions will improve over the next 12 months.”

A recap of the conditions facing trucking and the LTL sector is familiar to those in the industry: “tonnage has continued to decline…through both decreasing shipment per day and weight per shipment, a meaningful departure from our previous expectation for tonnage growth inflecting positive back in 2024.”

In discussing the terminals that led to the negative outlook, S&P said the doors the company bought “left XPO with excess capacity of 30% as volumes remain muted.”

The bearish outlook for the freight market pops up numerous times in the S&P Global ratings report. Tonnage “could return to growth in 2026,” the agency said, but it would not be at a pace that would have led XPO to keep its BB+ rating. “Ongoing uncertainty around trade policies and potential effects on economic growth further clouds visibility into macroeconomic conditions that could weigh on demand,” S&P Global said.