Moody's gives Parts Authority B2, loan B1

Moody's Investors Service said it assigned first-time ratings to PAI Holdco, Inc. (Parts Authority), including a B2 corporate family rating, a B2-PD probability of default rating and a B1 rating to the proposed first-lien senior secured term loan. The outlook is stable.

The ratings reflect elevated leverage (pro forma debt-to-EBITDA approaching 6x including Moody's standard adjustments) and Moody's forecast for modest free cash flow driven by the need to maintain large and growing inventory levels. The liquidity position is modest with expectations to hold nominal cash on the balance sheet along with an ABL facility that is small relative to the revenue base, the agency said.

“Governance considerations acknowledge private equity ownership and the risk that Parts Authority could undertake a debt-funded distribution or large acquisition to further enhance scale in a highly competitive and fragmented industry. Accordingly, financial policy was a key consideration in the rating outcome,” Moody’s said in a press release.

The rating assignments follow the company's plan to raise senior secured debt, consisting of an unrated $125 million asset-based loan (ABL) facility, a $600 million first-lien term loan and an unrated $200 million second-lien term loan to help fund Kohlberg & Co.'s acquisition of a majority stake in Parts Authority, the agency said.

Private equity sponsors and management will provide cash equity.

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