Moody’s rates Midas note add-on Caa1

Moody's Investors Service said it affirmed Midas Intermediate Holdco II, LLC's (Service King) B2 corporate family rating and B2-PD probability of default rating, as well as the Ba3 rating on its senior secured credit facilities and the Caa1 rating on its unsecured notes, following the announced $75 million add-on to the notes.

The agency also assigned a Caa1 rating the new $75 million add-on.

The outlook remains stable.

Moody’s said the affirmation of the corporate family rating reflects its expectation that the additional $75 million will be used to fund future acquisitions in Service King's pipeline consistent with the company's acquisition history (in terms of purchase multiples and scale), which will help bring credit metrics back in line with the company's B2 rating.

The agency estimates leverage pro-forma for the proposed transaction at around 8 times for the LTM period ended April 2, 2016 (after adjusting for some acquisition related costs and the expected full year impact of acquired stores), which is high for the rating category.

However, Moody’s said it expects continued solid operating performance that includes meaningful topline growth driven by positive same store sales and new store acquisitions, as well as margin and EBITDA improvements that will drive pro-forma leverage below 7 times over the next 24 months.

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