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S&P, Moody's downgrade United Parcel Service as pension liabilities rise

S&P Global Ratings and Moody's on Aug. 9 downgraded their credit ratings on United Parcel Service Inc.

S&P Global Ratings lowered its long term issuer credit rating on UPS to A from A+ on the view that the package delivery company's pension obligations will strain its credit measures despite strong earnings growth, sending its funds from operations-to-debt ratio in the low 30% level through 2020.

The ratio has worsened recently due to the company's large pension deficit, the agency noted. It could widen further, thus weighing on UPS' future earnings and credit measures.

The rating agency expects UPS to deliver a strong operating performance in the year. Sizable pension contributions and elevated capital expenditures, however, could partly offset the company's earnings.

The stable outlook reflects S&P Global Ratings' expectation that UPS' credit measures will remain relatively stable. Its short-term credit rating is unchanged.

Separately, Moody's downgraded its senior unsecured rating on UPS to A2 from A1, affirming its P-1 short-term ratings.

"The downgrade reflects our view that UPS will not generate sufficient cash to strengthen its balance sheet while it remains in the midst of a capital intensive period of heavy investment and requisite pension funding, and shareholder returns continue," said Moody's Senior Vice President Jonathan Root.

The rating agency maintained its negative outlook on the company on the view that tough operating conditions may push UPS to rely on the debt market despite its share repurchase actions.

Trade uncertainties could affect UPS' growth, both rating agencies noted.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.