High-grade transportation paper holds steady; RXO, Penske, Ryder mostly up; inflows decline

By Cristal Cody

Tupelo, Miss., July 14 – Bonds in the transportation space are holding strong this week after Yellow Corp. diverted a potential bankruptcy, though its future remains turbulent with a lawsuit filed June 27 against the International Brotherhood of Teamsters.

Yellow’s issues were not seen causing “any spillover” in other transportation paper such as RXO Inc. this week, a source said.

The split-rated XPO Escrow Sub LLC 7½% senior notes due 2027 (Baa3/BB+) were quoted on Friday little changed at 102½ bid, 103½ offered.

“There’s not a lot of them,” a source said. “It was 102¼ bid earlier in the month.”

The notes were issued in a $355 million offering on Oct. 11, 2022 at 98.962 to yield 7¾% as part of RXO’s spinoff from XPO Logistics, Inc. last year.

S&P Global Ratings changed the outlook on RXO to stable from positive on June 29, citing a weaker freight transportation environment in 2023.

S&P warned July 6 it sees a growing risk for a distressed exchange or default from Yellow.

Moody’s Investors Service also in June downgraded Yellow and revised the company’s outlook to negative from stable.

On June 27, Yellow (Nasdaq: YELL) reported it filed suit against the Teamsters, alleging its union contract was breached and caused more than $137 million in damages by blocking Yellow’s restructuring plan, known as One Yellow. The company said the modernization efforts must be completed in 2023 since it needs to refinance $1.3 billion of debt – a $567.4 million term loan due June 30, 2024 and a $729.4 million U.S. Treasury loan that matures Sept. 30, 2024.

The Nashville-based transportation company said it is entitled to $137.3 million for damages from the union, or “in the event of its demise, at least $1.5 billion for the loss in enterprise value.”

On Monday, Yellow reported in a regulatory filing that it entered into an amended and restated credit agreement with lenders and a waiver agreement on its term loans regarding the minimum consolidated EBITDA financial covenants for the testing periods ending on June 30 and Sept. 30.

On Wednesday, AFS Logistics and TD Cowen said its third-quarter TD Cowen/AFS Freight Index projects the first quarter-over-quarter increase since the first quarter of 2022 for truckload, less-than-truckload and parcel transportation markets.

“Sluggish demand pushes carriers to drop rates, but the move by FedEx to close 29 locations is indicative of the broader trend of LTL carriers removing excess capacity and cost to mitigate the extent of the decline,” Kevin Day, president of LTL for AFS, said in the announcement. “A major threat to the current favorable trend for shippers is a potential Yellow bankruptcy. That’s a wild card that could present an extraordinary opportunity for LTL carriers to push up rates in a way that’s inconsistent with current data.”

Bonds priced May 22 from Penske Truck Leasing Co. LP/PTL Finance Corp. were wrapped around issuance or stronger on Friday, a source said.

Penske’s 6.2% notes due 2030 (Baa2/BBB) went out with a 101 handle.

The notes priced at par in a $500 million offering.

Ryder System, Inc.’s $650 million of 5.25% medium-term notes due 2028 (Baa2/BBB+) brought May 10 at 99.871 traded on Friday at the 99 to par bid range and were going out on a 99 handle, a source said.

Corporate inflows slow

Corporate high-grade fund inflows declined to $691 million over the past week ended Wednesday, according to Refinitiv Lipper US Fund Flows.

Inflows totaled $1.62 billion in the prior week.

U.S. high-grade funds and ETFs inflows also slowed to $1.11 billion this week from $6.82 billion in the prior week ended Wednesday, according to a BofA Securities note.

High-grade fund inflows dropped to $250 million from $4.67 billion of inflows in the previous week.

ETF inflows also softened to $860 million over the past week ended Wednesday from $2.15 billion a week earlier.

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