Borrowing to Fund Stock Buybacks

XPO Logistics Inc. is selling US$1 billion of bonds to fund share buybacks and refinance debt as it abandons acquisitions to boost its stock price.

The trucking company and warehouse operator will use the bonds to repay borrowings under its existing credit agreement, among other general corporate purposes like repurchasing shares, according to a statement Tuesday. The 5.5-year securities, which can’t be bought back for 2.5 years, may yield between 6.5 percent and 6.625 percent, according to a person familiar with the matter who asked not to be identified as the details are private.

CEO Brad Jacobs said during Friday’s fourth-quarter earnings call that XPO’s new objective is buying back stock rather than pursuing mergers and acquisitions (M&A), sending shares lower. The company announced a $1 billion share buyback program in December, which was exhausted by Feb 4. It adopted a new $1.5 billion repurchase plan less than two weeks later.

XPO also cut its 2019 profit forecast Friday for the second time in two months, citing the loss of business from its largest customer and softening European demand. While it didn’t identify the firm that cut back business by two-thirds, Wall Street analysts and industry consultants said it was most certainly Amazon.com Inc., which has been building up its own logistics network, reducing the e-commerce giant’s need for third-party providers.

See also:

• Senate Democrats Propose Limits to Corporate Buybacks
• Bondholders Teach Shareholders Who’s Boss
• Corporate Spending Likely to Lag

The buybacks are “a negative development for the credit story at this point,” CreditSights analysts led by Ashwin Tiruvasu, who rate XPO bonds as underperform, said in a note Tuesday. Equity analysts also have concerns—once Morgan Stanley’s top pick for 2019, analyst Ravi Shanker downgraded the stock as the company’s change in guidance “has raised questions on forward visibility,” according to a report Tuesday.

XPO, based in Greenwich, Connecticut, also said that it may amend its existing $1 billion revolving credit facility by extending its maturity, according to the statement. The bond sale is being managed by Citigroup Inc., Morgan Stanley, and JPMorgan Chase & Co., the person familiar said.

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