WEX Inc.

The stable outlook over the next 12 months reflects our expectation that WEX will sustain leverage of 5.0x-6.5x and EBITDA coverage of interest above 6x. Our outlook also considers the company's modest market position and adequate liquidity, as well as our expectation for continued, albeit slower, growth in revenue and EBITDA over the next 12 months. We could lower the rating over the next 12 months if we expect net debt to EBITDA to rise above 6.5x or EBITDA coverage of interest to fall below 6.0x on a sustained basis. Large debt-financed acquisitions that meaningfully increase debt or deplete surplus cash could also lead to a downgrade. Over time, we could raise the rating if the company maintains its market

...Our rating on WEX reflects the company's strong operating performance and large portfolio of high-quality securities, balanced by high gross debt. WEX's performance has sharply rebounded since COVID-19-related lows in 2020. For the rolling 12 months ended June 30, 2023, WEX's S&P Global Ratings-adjusted EBITDA was $1.24 billion--up $344 million, or 38% year-over-year. Balancing our view of WEX's strong performance is the large increase in deposit-based funding on the company's balance sheet. We include WEX's on-balance-sheet deposits--used to fund its fleet receivables and growing investment portfolio--in our gross debt calculation. We think WEX's growing investment portfolio may help offset interest rate risk associated with the company's debt. While WEX's short-term deposit liabilities grew by about $1.0 billion through the first six months of 2023, the bulk of this growth came from an increase in health savings account (HSA) deposits, which have a weighted average cost of just 11 basis...

Full Report