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December 10, 2007 |
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ADVANCE AUTO: Moody's Rates US$200 Mil. Senior Term Loan at Ba1 Moody's Investors Service has affirmed the Ba1 corporate family rating of Advance Auto Parts, Inc. and assigned a Ba1 rating to its new US$200 million senior unsecured term loan. The Probability of Default rating was downgraded to Ba2 from Ba1. The outlook is positive. The SGL-2 speculative grade liquidity rating was also affirmed. The Ba1 corporate family rating reflects Advance Auto's solid franchise and operating model, tempered by its regional concentration in the eastern United States. It has done a credible job of competing effectively by focusing on improving its retail positioning with fresher stores and superior customer service. Its commercial business continues to broaden and improve, which serves to leverage the cost base already in place with its retail stores. Credit metrics are -- for the most part -- low investment grade according to Moody's Global Retail Rating Methodology, with the unsecured credit facilities exhibiting investment grade features. The rating and positive outlook already incorporate Moody's expectation for a modest uptick in leverage which will result from the new term loan, proceeds from which will be utilized for share repurchases. The spread between the Baa3 rating indicated by the rating methodology grid and the company's actual Ba1 rating reflects Moody's concern with respect to potential changes in business strategy that may result from the change in chief executive officer, as well as the company's adoption of a more aggressive financial policy. In addition, while not dramatic, operating performance has been slightly softer for the last three quarters, likely due to high fuel prices and other macroeconomic factors. The downgrade of the Probability of Default rating to Ba2 from Ba1 reflects the change to 65% from 50% in the expected family recovery rate used under Moody's Loss Given Default methodology given that the company's debt now consists entirely of bank debt which is expected to exhibit higher recovery under default situations generally. This rating change is not a reflection of any change in the company's fundamental credit characteristics. The SGL-2 speculative grade liquidity rating, representing good liquidity, reflects Moody's expectation that Advance Auto will be largely able to self-fund substantially all of its working capital requirements from internal sources with only modest reliance on the revolving credit facility. Ratings affirmed: -- Corporate family rating at Ba1, -- Speculative grade liquidity rating at SGL-2. Rating downgraded: -- Probability of Default rating to Ba2 from Ba1 Rating assigned: -- Senior unsecured term loan at Ba1 (LGD3, 38%). Headquartered in Roanoke, Virginia, Advance Auto Parts (NYSE: AAP) -- http://www.advanceautoparts.com/ -- is the second- largest retailer of automotive aftermarket parts, accessories, batteries, and maintenance items in the United States, based on store count and sales. As of April 22, 2006, the company operated 2,927 stores in 40 states, Puerto Rico, and the Virgin Islands. The company serves both the do-it-yourself and professional installer markets. |
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