Moody's Investors Service's Ba3 rating for Advance Stores proposed credit facility, currently in syndication through lead banks J.P Morgan, Credit Suisse First Boston and Lehman Brothers has remained unchanged following the events of Sept. 11. Marie Menendez, v.p., senior credit officer, corporate finance group for Moody's, said, the B1 senior implied rating of Advance Holding means it is more volatile than higher-quality credits, but Moody's does not expect the credit quality of the loan to change. The new facility consists of $530 million in senior secured term loans and a $150 million revolver.
The credit is being used to finance the acquisition of Discount Auto Parts. Menendez believes the acquisition will not impact the credit quality of the company. "Advance is using equity, DAP has a fairly strong franchise and Advance has been successful at integrating large acquistions," she noted. There is adequate collateral coverage on the bank debt and Advance will take a considered approach to converting the DAP stores and distribution centers. Of the acquired stores, 438 of 667 are in Florida where Advance has a limited presence, she added. Further supporting the ratings is the improved demographics of vehicles in service, Menendez stated, with record numbers of cars on the road reaching the point of requiring repair.
The ratings, however, reflect the "very full price" being paid for DAP of 8.3 times prior-year EBIDTA or more than $1 million per retained store location after conversion costs. There are also general concerns over high levels of competition within a low-growth retail segment, increased concentration in the Southeast and concentration to Florida's weather and economic risks, according to the Moody's report. The total cost of the acquisition will be about $520 million, including the refinancing of DAP's debt. Jimmie Wade, president, cfo and secretary, was travelling and could not be reached for comment.