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Related Issuers
Rating Action:

Moody's upgrades Transplace ratings (CFR to B2); outlook stable

06 Sep 2019

New York, September 06, 2019 -- Moody's Investors Service ("Moody's") upgraded its ratings for Transplace Holdings, Inc. ("Transplace"), including the Corporate Family Rating (CFR) to B2 from B3 and its Probability of Default Rating to B2-PD from B3-PD. Concurrently, Moody's upgraded its ratings on the company's first lien senior secured revolver and term loan facilities to B1 from B2 and also upgraded its ratings on the company's second lien senior secured term loan to Caa1 from Caa2. The outlook is stable.

RATINGS RATIONALE

The upgrades recognize Transplace's good execution and steady earnings growth that has resulted in improving credit metrics with Moody's adjusted debt-to-EBITDA of around 5.6x as of June 2019. The upgrades also incorporate Moody's expectations that Transplace will maintain a relatively stable operating profile along with positive free cash generation going forward.

The B2 rating considers Transplace's modest scale, the high degree of competition within the third-party logistics (3PL) space as well as the cyclical nature of transportation markets that are prone to economic downturns. The rating favorably considers Transplace's transportation management (TM) business (comprised of TM fees and TM Services), a segment that generates a relatively stable revenue stream with TM fixed and variable fees accounting for about 35% of overall revenue. Moody's views the TM segment as being an important ratings driver as it creates multiple cross-selling opportunities for 3PL services (about 25% of revenue) while also entrenching the company with its existing customers due to the contractual and the sticky nature of the business.

Tempering considerations include the uncertain outlook for US transportation markets which are currently facing a number of headwinds including a weakened demand environment, overcapacity in trucking, and the disruptive effects of trade disputes. Notwithstanding Transplace's healthy 3PL net revenue growth in the 1H of 2019, Moody's expects a more challenging environment for transportation markets over the next few quarters with lower spot trucking rates and softer demand in intermodal. Partially countering these near-term concerns around transportation markets is Moody's expectation that Transplace's TM segment will maintain a healthy growth rate and also Moody's expectation that Transplace will benefit from relatively stable end markets such as food and beverage for a portion of its revenue.

The stable outlook considers the recurring nature of Transplace's transportation management segment which Moody's expects to support a relatively stable operating profile.

Moody's expects Transplace to maintain a good liquidity profile. Moody's anticipates positive free cash flow generation in both 2019 and 2020 with free cash flow-to-debt in the low to mid-single-digits. External liquidity is provided by $90 million revolving credit facility (undrawn as of June 2019) that matures in 2022. The revolver contains a springing first lien net leverage ratio of 7.0x that comes into effect if usage under the facility exceeds 35%. Over the next twelve months, Moody's anticipates comparatively modest usage under the revolver and expect the company to maintain comfortable cushions relative to the springing covenant.

Any upgrade would be predicated on expectations of strong financial performance across all of Transplace's segments as well as the continuation of a good liquidity profile with FCF-to-Debt consistently in the mid to high single-digits. The ratings could be upgraded if Transplace were to reduce leverage such that Moody's adjusted Debt-to-EBITDA was expected to be sustained below 4.0x. Given the company's small size, we would expect Transplace to maintain credit metrics that are stronger than levels typically associated with companies at the same rating level.

A weakening of Transplace's competitive standing within transportation management or any expectation of lower TM sales and earnings would create downward rating pressure. The ratings could be downgraded if liquidity were to weaken such that free cash flow generation was expected to be sustained in the low single-digits, or if the company became more reliant on revolver borrowings to fund its day-to-day operations. The ratings could be downgraded if Debt-to-EBITDA is expected to be sustained above 6.5x.

Transplace's environmental risks are moderate. Transplace is an asset light company and therefore its direct exposure to carbon and air pollution risk is limited. That said, their revenue is dependent on trucking/rail transportation firms and as such, more stringent emission regulations may have an indirect but negative impact on Transplace.

The following is a summary of today's rating actions:

Issuer: Transplace Holdings, Inc.

Corporate Family Rating, upgraded to B2 from B3

Probability of Default Rating, upgraded to B2-PD from B3-PD

$90 million 1st lien senior secured revolver due 2022, upgraded to B1 (LGD3) from B2 (LGD3)

$435 million 1st lien senior secured term loan ($429 million outstanding) due 2024, upgraded to B1 (LGD3) from B2 (LGD3)

$110 million 2nd lien senior secured term loan ($100 million outstanding) due 2025, upgraded to Caa1 (LGD5) from Caa2 (LGD5)

Outlook, Stable

Transplace Holdings, Inc., headquartered in Frisco, Texas, is a provider of transportation logistics solutions in the US, Mexico and Canada. Its service offering includes Transportation Management and a variety of third-party logistics solutions including international freight movement, truck brokerage and intermodal. Pro forma net revenues for the twelve months ended June 2019 are approximately $310 million.

The principal methodology used in these ratings was Surface Transportation and Logistics published in May 2019. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Eoin Roche
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Russell Solomon
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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