Daseke Inc. Downgraded To 'B-' On Expected COVID-19 Impact On Company's End Markets; Outlook Negative

  • Due to the impact of a likely recession in the U.S. in 2020, we currently assume Addison, Texas-based flatbed trucking provider Daseke Inc.'s 2020 earnings and cash flows will be weaker than previous expectations. We believe Daseke's manufacturing and industrial end markets could weaken substantially.
  • Therefore, S&P Global Ratings is lowering its issuer credit rating on Daseke to 'B-' from 'B'. The outlook is negative.
  • At the same time, we are lowering our issue-level rating on Daseke's senior secured term loan to 'B-' from 'B'. The recovery rating on this debt remains '3', indicating our expectation for meaningful (50%-70%; rounded estimate: 55%) recovery in the event of a payment default.
  • The negative outlook reflects that the company's credit metrics will likely weaken in a U.S. recession. We assume Daseke's adjusted debt leverage will increase substantially in 2020, with tight headroom under the company's financial covenants.
NEW YORK (S&P Global Ratings) March 26, 2020—S&P Global Ratings today took the 
rating actions listed above.


We assume a U.S. recession would cause a decline in demand in Daseke's 
manufacturing and industrial end markets, resulting in weaker credit measures. 
S&P Global's economists believe that the U.S. is entering a recession--if not 
already in one. Therefore, we assume Daseke's adjusted debt leverage will 
increase substantially to the high-6x area in 2020 as the company's end 
markets contract due to lower economic activity as a result of the 
coronavirus. Depending on the depth and longevity of a U.S. recession, there 
is the potential for additional downside risk to our forecast.


The negative outlook on Daseke reflects our expectation that the company's 
industrial end markets will weaken due to the impact of a recessionary 
environment. We assume Daseke's debt leverage will rise in 2020 as a result.


We could lower our ratings on Daseke in the next 12 months if the downturn in 
the economy and weaker industrial production caused the flatbed and 
specialized trucking markets to weaken beyond our expectations. This could 
cause the company to experience strained liquidity or for leverage to rise to 
unsustainable levels.


We could revise the outlook on Daseke to stable if its credit measures did not 
deteriorate as much we expected, with the company's debt-to-EBITDA ratio in 
the low-5x area or better and its FOCF-to-debt ratio in at least the 
low-single-digit percent area. We would also need to see the company maintain 
sufficient headroom to its covenants of at least 15%.

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