WEX Inc.

S&P Global Ratings' negative rating outlook on WEX centers on the company's high leverage due to incremental debt, lower surplus cash, and earnings that fell during the recent economic downturn. That said, we expect earnings to recover with the broader economy and cash balances to return to historical levels over the next 12 months. We expect net debt to EBITDA to exceed 6.0x, FFO to debt to be 8%-13%, and interest coverage to be 3.0x-4.0x over the next 12 months. We could lower the rating over the next six to 12 months if WEX sustains net debt to EBITDA above 6.5x or if EBITDA coverage of interest falls below 2.5x without signs of improvement. Separately, we could lower the rating

...WEX Inc.'s high leverage underpins our negative outlook, although we expect leverage to decline after the second quarter of this year. Net debt to EBITDA ended the first quarter of 2021 at 7.4x (using rolling-12-month EBITDA), which we view as high and a weakness for the rating. WEX's 9.54% funds from operations (FFO) to debt and 2.9x EBITDA coverage of interest are also relatively weak for the rating. However, these ratios include a full year of depressed business activity arising from the COVID-19 pandemic, and we expect them to start improving, in line with our U.S. forecasts for GDP growth, discretionary consumer spending, and rising oil prices. Net debt to EBITDA was marginally better on an annualized basis, at 6.7x, for the first quarter of 2021. The annualized 14.8% FFO to debt and annualized 3.8x EBITDA coverage of interest were also stronger. We expect second-quarter leverage to rise marginally as the company uses cash or draws on its revolver to pay for its $275 million acquisition...

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