For the second time this year, Moody’s Investors Service has downgraded the debt rating of trailer manufacturer Wabash National.
The latest move takes the company’s corporate family rating (CFR) to B2 from B1. Other changes implemented by Moody’s Wednesday were to take Wabash’s probability of default rating to B2-PD from B1-PD, and to cut its senior unsecured notes rating to B3 from B2.
Moody’s also kept the outlook on Wabash (NYSE: WNC) at negative. While this is not rare, it is often the case at the ratings agencies that a company that had been on a negative credit watch sees the negative outlook disappear when the downgrade is implemented (or a positive outlook moves to stable after an upgrade).
A negative outlook means a “a higher likelihood that the credit rating may change in the medium term,” according to the ratings agency.
Moody’s (NYSE: MCO) had lowered Wabash’s CFR rating to B1 from Ba3 in May. Its move occurred at approximately the same time that S&P Global Ratings (NYSE: SPGI) also had reduced its rating on Wabash to B+ from BB-. That B+ rating is considered equal to Moody’s B1 rating. As of Thursday, the S&P Global rating was still in place, one notch more than the new rating from Moody’s.
Five steps below investment grade
The B2 rating at Moody’s is five notches less than the cutoff between investment grade and non-investment grade debt. The S&P Global is four notches below the cutoff.
“The rating downgrade reflects our expectation that Wabash’s credit metrics will remain weak over the next 12 months,” Moody’s wrote in its report. “Wabash’s earnings have significantly deteriorated amid a protracted down cycle in truck trailer production as the company’s customers defer investments in their transportation fleets.”
In its latest earnings released last week, Wabash said it shipped 6,940 trailers in the third quarter compared to 7,585 in the third quarter of 2024. Truck body shipments were 3,065 versus 3,630 a year earlier.
In the earnings report, the company said its backlog of $829 million at the end of the third quarter was the result of a “wait and see” approach at its customers.
Red ink in the third quarter
The Transportation Solutions segment at Wabash, which includes its container operations, had a third quarter operating loss of $13.1 million, compared to operating earnings of $29.1 million a year earlier.
Moody’s rationale for the reduction and the continued negative outlook is rooted in its forecast. “We expect soft end market demand to stretch into 2026 based on lower order backlogs, though we do anticipate trailer production will gradually recover over the course of next year supported by pent up replacement needs of fleets,” the Moody’s report said. “However, given the decline in Wabash’s earnings in 2025, a recovery in the company’s credit metrics will likely extend into 2027 when we expect more meaningful growth in trailer production volumes to occur.”
Both S&P Global and Moody’s had earlier expressed concern about the nuclear verdict that initially hit Wabash with a more than $400 million verdict in September 2024. That was cut down first by a Missouri judge and then further in a settlement last month. But Moody’s said Wabash will still be on the hook for a $30 million payment.
No revenue bounceback in 2026
Wabash’s 2025 revenue is down 20.1% from a year earlier. Moody’s said it expects that decline to hold through the end of the year and then be repeated in 2026.
“The steep falloff in revenue reflects lower demand for new truck trailer production following an
extended replacement cycle in the immediate post-pandemic years,” the Moody’s report said. “Further, lingering uncertainty around US tariffs has caused transportation fleets to slow or defer spending on new truck trailers and bodies.”
Wabash has been touting the success of its Parts and Service segment, including its relatively new Trailers as a Service offering that allows access to trailer capacity by customers without owning the trailer, but under conditions that differ from a normal long-term lease of a trailer.
The key benchmark for the ratings agencies is debt to EBITDA. Moody’s said Wabash was at 1X in that category at the start of the current freight downturn. By the end of next year, the ratings agency said it expects that number will be up to 5X. It then sees the number coming back to 3X by the end of 2027.
Wabash’s third quarter earnings report said the company’s cash and cash equivalents had dropped to $91.7 million at the end of the third quarter from $155.5 million at the end of 2024. But Moody’s said it was confident in the company’s liquidity as it also has $264 million in a revolving credit facility and other capital.
But Moody’s also said it expects Wabash to have negative free cash flow into 2026.
Wabash’s stock closed Thursday at $7.76. It is down about 59.5% in the last year. Its 52-week high was December 11 at $20.63.
A spokeswoman for Wabash said the company declined comment on the Moody’s report.
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