Lineage Logistics LLC Outlook Revised To Stable From Positive On Acquisition Of Preferred Freezer Services


  • Lineage Logistics LLC announced that it has agreed to acquire competitor Preferred Freezer Services LLC.
  • Although the company has not yet finalized its financing plans, we expect reported leverage to increase in 2019 from our previous expectations. However, we believe leverage will remain commensurate with the current rating.
  • Therefore, we are revising our outlook to stable from positive.
NEW YORK (S&P Global Ratings) March 15, 2019—S&P Global Ratings today took the 
above listed rating action. The outlook revision follows Lineage's 
announcement that it has entered into an agreement to acquire Preferred 
Freezer Services. Like Lineage, Preferred Freezer is a cold storage logistics 
firm that mainly operates refrigerated warehouses in the U.S. It also arranges 
transportation services for its customers. Although the company has not 
disclosed final terms, we expect the transaction to be financed with a 
combination of additional debt and an equity contribution from the Lineage's 
existing owners.


Our outlook on Lineage is stable. Although the company will benefit from 
increased scale and a broader geographic footprint, we believe that its credit 
metrics will remain elevated through 2019, with debt to EBITDA of at least 10x 
and funds from operations (FFO) to debt in the mid-single-digit percent area, 
in line with our expectations for reported 2018 metrics. However, we expect 
credit metrics to improve in 2020 as the company realizes full contributions 
from its recent acquisitions, with EBIT margins improving to the mid-teens 
percent area from the low-teens percent area in 2019, debt to EBITDA declining 
to the mid-7x area, and FFO to debt increasing to the high-single-digit 
percent area.


We could raise our rating on Lineage over the next 12 months if the company 
successfully closes and integrates its proposed acquisition of Preferred 
Freezer, resulting in improved operating efficiency and profitability. In 
order to raise the rating, we would need to see EBIT margins in the low teens 
percent area and debt to EBITDA in the 7x area on a sustained basis.


We could lower our rating over the next 12 months if the company's credit 
metrics decline, with debt to EBITDA increasing above 10x on a sustained 
basis. This would most likely result from increased labor costs or significant 
customer attrition, or if the company encounters unexpected operational 
problems while integrating its recently acquired facilities. It could also 
occur if Lineage pursues additional debt-financed acquisitions.

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