Investing.com -- Fitch Ratings has revised the outlook for Forward Air (NASDAQ: FWRD ) Corporation and Clue Opco LLC, collectively known as FWRD, from stable to negative. The agency has also affirmed the Long-Term Issuer Default Ratings (IDRs) at ’B’ for both companies. Clue Opco’s senior secured credit facilities and notes have been affirmed at ’B+’ with a Recovery Rating of ’RR3’.

The revision to a negative outlook is due to the increased risk associated with FWRD’s expedited freight business and the potential impact of higher uncertainty in the freight markets in 2025. If FWRD’s operating challenges persist or the market weakens more than expected, the company’s Free Cash Flow (FCF) and financial flexibility could deteriorate, leading to a potential downgrade. FWRD’s metrics for 2025 are considered weak for the ’B’ level, with EBITDA interest coverage of 1.8x and EBITDA leverage around 6.0x.

Despite these challenges, FWRD’s focus on de-risking, cost-out actions following the purchase of Omni Logistics, and a path to operating improvements have been taken into account in the ratings. FWRD specializes in premium transportation and forwarding services.

Fitch predicts that FWRD will generate around $290 million of EBITDA in 2025, a nearly 12% increase from $252 million in 2024. This increase is expected to come from recent cost and pricing actions, limited direct exposure to China, and broader international freight services.

Fitch also forecasts mildly positive FCF in 2025, which could strengthen over the medium term if the company continues to execute well and there are no significant disruptions in the operating environment. The agency expects discretionary cash flow to be allocated to deleveraging as FWRD pursues de-risking the business.

FWRD’s near-term liquidity profile is considered adequate, given the significant availability under its $300 million Revolving Credit Facility (RCF), long-dated maturity profile, and expectations of modestly positive FCF. However, FWRD’s cushion to its leverage covenant could diminish if operating improvements lag, as the covenant steps down to 5.5x at the end of 2026, from 6.75x at the end of 2024.

Fitch expects both EBITDA interest coverage and EBITDA leverage to be weak for the ’B’ rating level, at least in the near term. The agency forecasts EBITDA interest coverage of about 1.8x in 2025, potentially reaching 2.0x in 2026. EBITDA leverage is forecast to trend to nearly 6.0x in 2025 and around 5.5x in 2026.

Fitch believes FWRD’s management will remain committed to de-risking the business as it integrates the Omni business, pursues business transformation initiatives, and navigates uncertainty in freight markets. FWRD’s board has also undertaken a strategic review of the business that could lead to portfolio transactions.

In terms of service quality, FWRD has differentiated itself from traditional less-than-truckload (LTL) operators by focusing on expedited or high-value freight, where premium service quality can capture outsized margins. The acquisition of Omni adds direct retail access, providing a significant addressable market in expedited LTL.

Fitch compares FWRD with other trucking and transportation companies, such as XPO, Inc. (BB+/Stable), TFI International (NYSE: TFII ), STG Distribution, LLC (CCC+), and Waste Pro USA, Inc (B+/Stable). FWRD has a niche market position, focusing on premium and expedited freight, which requires a higher degree of network speed and premium service quality.

In the recovery analysis, Fitch assumes that FWRD would be reorganized as a going concern in bankruptcy rather than liquidated. Fitch estimates FWRD’s going concern EBITDA at $225 million, reflecting a persistently weak and competitive freight environment and significant customer loss. The agency assumes FWRD would receive a going concern recovery multiple of 5.5x in this scenario.

Factors that could lead to a negative rating action or downgrade include challenges executing on operational initiatives, EBITDA interest coverage sustained below 2.0x, a weakened liquidity position, or EBITDA leverage sustained above 5.0x.

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