Moody's lowers American Tire to SLG-3

Moody's Investors Service said it lowered American Tire Distributors, Inc.'s speculative-grade liquidity rating to SGL-3 from SGL-2 and affirmed its corporate family and probability-of-default ratings at B3 and its senior unsecured notes at Caa1 (LGD5, 73%).

The outlook is stable.

The company announced on Dec. 19 that it acquired Am-Pac Tire Dist., Inc. from Itochu Corp. for $75 million less Am-Pac debt repayment and any net working capital or other adjustments.

The agency said the B3 corporate family rating and stable outlook reflect the strategic benefits of the transaction, which is expected to significantly strengthen the company's market position and distribution capabilities, as well as the longer-term stability of replacement tire demand and the company's leading market position, diverse customer base and adequate near-term liquidity.

The rating also reflects American Tire's high leverage, inconsistent free cash flow generation over the past several years, dependency on purchases from a limited number of tire suppliers, acquisitive growth strategy and the characteristically low margins associated with distribution businesses, Moody's said.

The SGL downgrade primarily reflects reduced, yet adequate, remaining availability under the company's $400 million asset-based revolving credit agreement due to increased borrowing, the agency added.

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