S&P assigns BBB rating to FedEx's US$1B of notes due 2022 and 2042; FedEx to use proceeds from offering for working capital, general corporate purposes

Nevin Barich

NEW YORK , July 24, 2012 (press release) – Standard & Poor's Ratings Services today assigned its 'BBB' rating to FedEx Corp.'s $1 billion notes due 2022 and 2042. The company will use proceeds from the offering for working capital and general corporate purposes.

Our ratings on FedEx reflect the transportation services company's strong competitive position, moderate financial policies, and good cash-generating capability. Its operation in competitive markets with significant capital expenditure and investment requirements and exposure to cyclical pressures offsets those factors somewhat. Standard & Poor's categorizes FedEx's business risk profile as "satisfactory" and its financial risk profile as "intermediate," according to our criteria.

We believe FedEx will continue to benefit from yield initiatives across its portfolio of businesses over the coming year and from its efforts to improve operating efficiency in its U.S. package network. However, the economic outlook remains uncertain as does the outlook for fuel prices. As a result, we believe the express business is likely to continue to experience some volume pressure over at least the next few months, although this should be offset somewhat by continued strong growth in the ground business.

Our current 'BBB' corporate credit rating incorporates our expectation that funds from operations (FFO) to total debt (adjusted for operating leases and postretirement obligations) will average 30%-35% and that adjusted debt to capital will average 45%-55%. As of May 31, 2012, these figures stood at approximately 38% and 54%, respectively. If FFO to debt were to increase above 40% and we believed it would stay there, we could revise the outlook to positive or raise the rating, depending on the strength of the credit metrics. Although we consider this less likely, we could lower the rating if unanticipated operating challenges or weaker-than-expected demand results in FFO to total debt falling to less than 25%.

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