WEX Inc.

The stable outlook over the next 12 months reflects our expectation that WEX will sustain EBITDA coverage of interest at 3.0x-6.0x. Our outlook also considers the company's market position, adequate liquidity, and expected organic growth in revenue and EBITDA due to higher fuel spend and continued recovery in the travel and corporate segment. We could lower the rating over the next 12 months if we expect net debt to EBITDA to remain above 6.5x and EBITDA coverage of interest less than 3.0x because of higher leverage or a decline in EBITDA. Large debt-financed acquisitions that meaningfully increase debt or deplete surplus cash could also lead to a downgrade, all else equal. An upgrade is unlikely over the next 12 months.

...WEX Inc.'s leverage improved over the past 12 months but remains aggressive. Net debt to EBITDA ended the first quarter of 2022 at 6.3x (using rolling-12-month EBITDA), which we view as high and a weakness for the rating. WEX's 6.8x EBITDA coverage of interest is stronger and provides some mitigating support. The company has a proclivity for acquisitions that could increase leverage in the future. We view the brokered deposits at WEX Bank as debt because they predominantly consist of short-term liabilities that must be repaid in under a year, unless renewed. This creates 1.5x to 2.0x of additional leverage when compared with WEX's term loan calculations and covenants. As a result, net debt to adjusted EBITDA has remained above 4.9x since its 2015 low. Since 2015, WEX has acquired the stock or assets of 10 companies for $3.7 billion in consideration, which includes $1.1 billion over the past 12 months....

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