XPO Logistics takes major steps to reduce debt load

Roughly two weeks after announcing record-breaking second quarter earnings results, freight transportation and logistics services provider XPO Logistics said yesterday it has taken significant steps to reduce its debt load, with the pricing of a $1.,642 billion refinancing of its existing term loan agreement.

The company said that the closing under the term loan is expected to occur on August 25, adding that its proceeds will be mainly allocated to replace its existing $1.6 billion term loan, which bears interest at LIBOR plus 4.5 percent, with a 1.0 percent. 

“We have refinanced another $1.642 billion of our existing debt on more favorable terms than our previous ones, and coupled with the two refinancings we announced last week, we have now refinanced $2.6 billion of our debt on more favorable terms,” said XPO Chairman and CEO Brad Jacobs in an interview. “The key takeaway is we reduced our expected cash interest expense by about $40 million per year over the next five years. Collectively in aggregate we have reduced our expected interest by more than $200 million over the next five years and we have extended the maturity base of our debt and increased our flexibility to pay down debt sooner, because now we are generating significant amounts of cash flow, and we intend to use that cash flow to continue to pay down debt.”

On XPO’s earnings call earlier this month, the company said it had reached a key inflection point for accelerating EBITDA and cash flow. And with its record-breaking second quarter results––in the form of total gross quarterly revenue up 202.9 percent annually to $3.7 billion, net income of $42.6 million, or earnings per share of $0.35, up significantly from a net loss of $75.1 million or $0.89 per share a year ago, and adjusted EBITDA at $354.9 million up from $79.7 million a year ago in posting its first-ever quarterly profit the company also set new records with $261 million in cash flow from operations and $170 million of free cash flow––Jacobs said XPO’s equity and debt both traded up, making its credit profile stronger . He also said this has allowed XPO to significantly lower its cost of capital.

Going forward, Jacobs said XPO will continue to invest in technology and as a result of this debt refinancing it expects to pay down debt while continuing to grow the company internally.

In the second quarter, XPO’s growth was largely paced by its last-mile and truck brokerage operations in North America, as well as its contract logistics business in Europe, which continues to be a major driver. Jacobs cited margin expansion for last-mile and some major customer wins on both sides of the ocean, coupled with its North American LTL business, which he said was a star in terms of profitability.