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Rating Action:

MOODY'S ASSIGNS A3 RATINGS TO USFREIGHTWAYS GUARANTEED NOTES AND BANK CREDIT AGREEMENT. CONFIRMS Baa1 RATING OF 6 5/8% NOTES.

28 Apr 1999
MOODY'S ASSIGNS A3 RATINGS TO USFREIGHTWAYS GUARANTEED NOTES AND BANK CREDIT AGREEMENT. CONFIRMS Baa1 RATING OF 6 5/8% NOTES. Moody's Investors Service assigned A3 ratings to the USFreightways Corporation (USF) $100 million Guaranteed Notes and $200 million syndicated bank Credit Agreement, and confirmed the Baa1 rating on the 6 5/8% Notes due May, 2000. Moody's points out that USF has indicated its intent to provide guarantees from substantially all of its subsidiaries for the Guaranteed Notes, while upstream guarantees from most USF subsidiaries are already in place for the Credit Agreement. The 6 5/8% Notes, however, are not guaranteed and are structurally subordinated to the Guaranteed Notes and the Credit Agreement. The ratings also take into account Moody's expectation that USF will remain a profitable leader in the regional 'less than truckload' (LTL) segment, while preserving its solid balance sheet with strong cash flow.


Ratings assigned are:


USFreightways Corporation- $100 million of Guaranteed Notes and $200 million bank Credit Agreement due 2003 at A3;


Rating confirmed:

USFreightways Corporation- 6 5/8% Notes due May, 2000 confirmed at Baa1


Moody's expects that the regional LTL segment will continue to grow as shippers shift freight away from the long haul segment towards the lower cost regional and express delivery carriers. Moody's believes that the shorter delivery cycles provide regional LTL truckers with the opportunity for relatively better asset utilization and greater ability to commit to delivery schedules, without the higher overall costs or high driver turnover rates that continue to affect the long haul truckers.


USF has a record of profitable growth. Its 91.7% consolidated operating ratio is one of the best in the LTL segment and is expected to improve modestly over the near term. Moody's expects that larger shippers will continue to embrace the concept of a core carrier, by concentrating business at preferred carriers while demanding a higher level of overall service at a favorable all-in delivered cost. USF has responded by broadening its transportation service through its non-LTL units, principally logistics and freight forwarding, which now comprise about 20% of total revenue. While these units produce lower margins than LTL trucking they add service value and support the core trucking operations, yet require a much lower level of capital than the core trucking business.


Moody's anticipates that USF will grow these non-LTL units through moderate acquisitions. However, Moody's also expects that USF will preserve its solid balance sheet which was strengthened by a $70 million equity offering in 1997. Leverage is expected to increase only modestly from the 24% Debt to Total Capital level at fiscal, 1998 (Adjusted Debt to Total Capital of 39%) through these add-on acquisitions. Capital spending is anticipated to increase somewhat during the remainder of this year as USF completes the terminal upgrades for its flagship Holland unit, and then return to maintenance levels supported by operating cash flow.


The $200 million Credit Agreement provides for revolving advances, bid loans and letters of credit and is syndicated among a group of U.S. regional and international banks. Each Significant Subsidiary of USF, defined as any subsidiary with more than 3% of USF consolidated assets, is required to issue its unconditional guaranty for prompt payment of amounts drawn under the Credit Agreement. The Credit Agreement also contains protective covenants including: a minimum Consolidated Net Worth of $300 million, and a maximum ratio of Consolidated Funded Debt to Adjusted Cash Flow (as defined) of 3:1. The Guaranteed Notes are to be guaranteed by substantially all of USF's subsidiaries.


USFreightways Corporation, with headquarters in Rosemont, Illinois, is a holding company for freight transportation services provided through five regional less than truckload operating companies, as well as logistics and freight forwarding services.
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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