Daseke Companies, Inc. -- Moody's upgrades Daseke's ratings, corporate family and senior secured ratings to B2, outlook stable

Rating Action: Moody's upgrades Daseke's ratings, corporate family and senior secured ratings to B2, outlook stableGlobal Credit Research - 23 Feb 2021New York, February 23, 2021 -- Moody's Investors Service ("Moody's") upgraded the ratings of flatbed and specialty truck carrier Daseke Companies, Inc. ("Daseke"), including the corporate family and senior secured ratings to B2 and the probability of default rating to B2-PD. Moody's also assigned a B2 senior secured rating to the new $400 million senior secured term loan due 2028 that the company plans to arrange in connection with the refinancing of its existing $500 million senior secured term loan due 2024. The Speculative Grade Liquidity rating remains SGL-3. The rating outlook is stable.The upgrade of the ratings reflects Moody's expectation that the operational and cost measures that Daseke implemented in the last 18 months will sustainably improve the efficiency of its transportation services.RATING RATIONALEThe ratings of Daseke consider the company's position as a leading provider of open deck transportation services using flatbed trailers as well as specialized open deck trailers for heavy haul, over-dimensional and high value freight. Daseke implemented a range of operational and cost measures in the last 18 months, including operational integrations that reduced the number of operating units to nine from 16 previously, corporate cost reductions, and other business improvements. The company also strengthened its corporate structure to manage its operations more effectively, including through the appointment of a new management team. The current lack of a permanent CEO poses a governance risk, however.Moody's expects debt/EBITDA to remain at 4 times in 2021 in the absence of debt-funded acquisitions. Although leverage is moderate, the company is exposed to end-markets that are correlated with cyclical industrial production and construction spending in North America. Moody's expects Daseke's EBITA margin to be approximately 4.5% in 2021, likely somewhat below the margins in 2020 that were impacted by robust demand in the renewable energy end-market in the company's higher margin specialty segment. These margins represent a step-up from the low single-digit margins prior to 2020.As an operator of heavy-duty trucks with diesel engines, Daseke is exposed to the environmental risk that emission regulations will become more stringent, which could result in higher engine costs.Liquidity is adequate (SGL-3). Moody's expects free cash flow to be about breakeven in 2021, in part due to considerable investments in tractors and trailers that will help to lower the fleet age. Free cash flow is calculated including fleet investments funded through equipment loans but excluding proceeds from the sale of used vehicles. The availability of Daseke's $100 million revolving credit facility is approximately $85 million. Moody's expects the company's cash balance to exceed $100 million in 2021 in the absence of acquisitions.The $400 million senior secured term loan due 2028 that Daseke plans to arrange is rated B2, the same level as the corporate family rating. This reflects the very high proportion of secured debt in the company's capital structure, comprising the asset-based revolving credit facility, the senior secured term loan and the equipment loans that are secured by newly purchased tractors. Considering the respective collateral of the secured debt, the recovery rate of the revolving credit facility would be highest, but there is no material differentiation in recovery rate at this point between the term loan and equipment loans.The stable rating outlook reflects Moody's expectation that Daseke will be able to grow its revenues moderately while sustaining EBITA margins at around 5% amid improving prospects for US industrial production and construction activities. The outlook also assumes that Daseke's acquisition strategy will be measured and will balance the impact of any incremental debt on the company's capital structure.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings could be upgraded if EBITA margins are at least 6%, debt/EBITDA is maintained at 4 times or less, and the company demonstrates consistently positive free cash flow while maintaining adequate investments in its fleet, such that (retained cash flow minus capital expenditures)/debt is at least 4%, taking into account fleet investments funded through equipment loans. (FFO+interest)/interest of at least 4 times is also an important consideration for an upgrade.The ratings could be downgraded if Moody's expects EBITA margins to decrease below 4%, debt/EBITDA to increase above 5 times or free cash flow to be consistently negative. (FFO+interest)/interest of less than 3 times, tightening liquidity and an accelerated pace of debt-funded acquisitions could also cause a ratings downgrade.The following rating actions were taken:Upgrades:..Issuer: Daseke Companies, Inc..... Corporate Family Rating, Upgraded to B2 from B3.... Probability of Default Rating, Upgraded to B2-PD from B3-PD....Senior Secured Bank Credit Facility, Upgraded to B2 (LGD4) from B3 (LGD4)Assignments:..Issuer: Daseke Companies, Inc.....Senior Secured Bank Credit Facility, Assigned B2 (LGD4)Outlook Actions:..Issuer: Daseke Companies, Inc.....Outlook, Remains StableThe principal methodology used in these ratings was Surface Transportation and Logistics published in May 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1113382. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Daseke Companies, Inc., headquartered in Addison, TX, is a leading provider of open deck transportation and logistics services and a direct subsidiary of Daseke, Inc., a company listed on NASDAQ Capital under the ticker "DSKE". Revenues were $1.5 billion in 2020.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. 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Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Rene Lipsch VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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