XPO Logistics will cut debt with funds from spinoff; leverage is 1.7x

By Devika Patel

Knoxville, Tenn., Nov. 1 – XPO Logistics, Inc. plans to use funds from a cash distribution paid out by subsidiary RXO Inc. when it spins off from XPO Logistics to pay down debt.

XPO Logistics’ net leverage ratio as of Sept. 30 was 1.7x, down from 1.8x as of June 30, which is within the company’s target range of 1x to 2x.

The company’s net leverage ratio is calculated as net debt, which was $2.36 billion as of Sept. 30, divided by adjusted EBITDA for the trailing 12 months, which was $1.4 billion for the period ended Sept. 30.

As of Sept. 30, the company had $1.54 billion of total liquidity, including $544 million of cash and cash equivalents and approximately $1 billion of available borrowing capacity.

“We ended the quarter with $544 million of cash,” chief financial officer Ravi Tulsyan said on the company’s third quarter ended Sept. 30 earnings conference call on Monday.

“This cash combined with available borrowing capacity under committed borrowing facilities gave us over $1.5 billion of liquidity at quarter end.

“We had no borrowings outstanding under our ABL facility and our net leverage at quarter end was 1.7x adjusted EBITDA.

“RXO will dividend the net proceeds [from the RXO notes sale and the RXO credit agreement} to XPO, which XPO will then use to pay down debt,” he said.

In the third quarter, revenue increased 3% year-over-year to just over $3 billion.

On Oct. 11, RXO began a roadshow for a $350 million offering of five-year senior notes (Baa3/BB+) backing XPO Logistics’ spinoff of its tech-enabled brokerage platform.

Initial guidance had the notes coming at a discount to yield 7¾% to 8%.

BofA Securities Inc. is the left bookrunner. Citigroup Global Markets Inc., Barclays, Goldman Sachs & Co. LLC, KeyBanc Capital Markets Inc., Morgan Stanley & Co. LLC, Scotia Capital (USA) Inc. and Wells Fargo Securities LLC are the joint bookrunners.

The notes become callable after two years at par plus 50% of the coupon. They feature a 40% equity clawback during the non-call period and have a 101% poison put.

Proceeds will be used to fund a cash distribution to XPO Parent in connection to the spinoff and/or to provide working capital.

The issuing entity will be XPO Escrow Sub, LLC, to be joined by RXO, Inc. when the spinoff is concluded.

On Oct. 18, RXO entered into a credit agreement providing for a five-year $500 million multicurrency revolver and a five-year $100 million unsecured term loan.

Citibank, NA is the administrative agent.

The revolver has a $50 million sublimit for letters of credit. Initial availability is subject to some conditions including the spin-off of RXO, which is expected to become a separate publicly traded company. The term loan is available in a single draw starting one day prior to consummation of the spin-off.

Revolver and term loan borrowings bear interest at term SOFR plus a margin that ranges from 100 basis points to 162.5 bps, depending on the company’s debt rating. The term loan and revolver have a ticking fee, and the revolver has a commitment fee that, in each case, ranges from 10 bps to 30 bps, depending on the company’s debt rating.

The term loan amortizes quarterly, starting March 31, 2025, at a rate equal to 5% a year for the first eight quarters and 10% thereafter.

Proceeds of the term loan may be used to fund the distribution to XPO Logistics and for general corporate purposes. The revolver may be used for general corporate purposes.

Citibank and BofA Securities, Inc. are the joint lead arrangers and bookrunners. Bank of America, NA is the syndication agent.

On Oct. 19, XPO began a cash tender offer for any and all of its outstanding $520 million of 6¼% notes due 2025 (Cusips: 983793AH3 and U9840VAH6).

The company is concurrently soliciting consents from noteholders to proposed amendments to the indenture, providing for, among other things, the elimination of substantially all of the restrictive covenants, certain events of default and the guarantees. Holders may not tender their notes without delivering consents.

The company is offering a total consideration of $1,012.50 per $1,000 principal amount of notes to holders who tender and deliver their consents by the early deadline, 5 p.m. ET on Nov. 1.

The total consideration includes an early tender payment of $50 per $1,000 principal amount that will not be paid to holders who tender after the early deadline.

The tender offer and consent solicitation will expire at 5 p.m. ET on Nov. 17.

Holders will also receive accrued interest to the relevant settlement date. Early settlement is expected to occur on Nov. 2 and final settlement on Nov. 18.

The consent solicitation must yield consents from holders of at least a majority in principal amount of the notes to be successful.

Citigroup Global Markets, Inc. (800 558-3745, 212 723-6106 or ny.liabilitymanagement@citi.com) is the lead dealer manager in the tender offer and lead solicitation agent.

Morgan Stanley & Co. LLC is the co-dealer manager in the tender offer and the co-solicitation agent.

Global Bondholder Services Corp. (855 654-2015, 212 430-3774 or contact@gbsc-usa.com) is tender and information agent for the tender offer and consent solicitation.

XPO Logistics is a Greenwich, Conn.-based provider of supply chain solutions.

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