Moody’s Investors Service recently downgraded the long-term ratings of United Parcel Service Inc. debt, citing the package-delivery company’s recent agreement to withdraw from the Central States multi-employer pension plan (MEPP). The credit-rating company cut UPS’s senior unsecured debt to Aa2 from Aaa, and affirmed its short-term rating of P-1.

In addition, Moody’s says the outlook is stable. “The Aa2 rating considers the moderation of financial metrics that will result from incremental debt incurredÂat a time when UPS is expected to continue with its shareholder enhancement programs,” notes the agency. “The amount of the payment required to withdraw from the MEPP was considerably larger than Moody’s had anticipated when UPS was rated Aaa.”

In late December, UPS ratified an agreement with The International Brotherhood of Teamsters under the UPS National Master Agreement, which allows the company to withdraw employees from the MEPP and establish a jointly trusteed, single-employer plan for this group. UPS made a pretax $6.1 billion payment to the Central States plan on December 26, in connection with its withdrawal.

Moody’s notes that UPS will withdraw only from the Central States plan at this time and continue to make contributions to other multi-employer plans. The ratings agency also says it will treat these payments like debt.

“In addition, with weakening freight activity as the U.S. economy slows, there is increased potential for softness in UPS’s profits and cash flow going forward,” says the rating company. “This slowing could have a more pronounced negative impact on key credit metrics than during previous down-cycles, given the higher level of debt following the MEPP withdrawal.”