FedEx Eases Path to Freight Spinoff After Debt Exchange
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FedEx Corp. said its bondholders agreed to remove its freight business from its lending documents as a party obligated to help pay the company’s debt, making it easier for the shipping giant to spin the business off into a new company.
The Memphis, Tenn.-based courier said it will pay some bondholders a $2.50 fee for each $1,000 principal of the existing debt as compensation for accepting new terms on the notes.
The move comes after FedEx announced plans last year to spin off its freight division, which accounted for about 11% of the parcel giant’s revenue in the last fiscal year, into a separate publicly traded company. Removing that business as a guarantor on much of FedEx’s outstanding debt gives the company room to proceed with fewer restrictions on how any proceeds from a spinoff can be used, according to Matt Woodruff, head of transportation at CreditSights.
FedEx ranks No. 2 on the Transport Topics Top 100 list of the largest for-hire carriers in North America.
It would also allow the company more freedom to negotiate a sale of the unit, he said. Under the original bond documents, FedEx may have been required to use proceeds from a separation of the unit to pay down debt or make investments in its business, a stipulation that was tied to the freight unit’s status as a guarantor.
“Removing this language around the guarantee is going to provide FedEx the maximum amount of flexibility,” Woodruff said. “Now that they’ve done this, they can actually go out and they can structure a deal freely.”
A representative from FedEx referred to the company’s statement announcing results of the debt exchange offer and declined to comment further.
The debt exchange is expected to settle Feb. 26.
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