Moody’s rates American Tire loan B3

Moody's Investors Service said it assigned a provisional B3 rating to American Tire Distributors, Inc.'s proposed $140 million add-on senior secured term loan.

At the same time, the agency affirmed all of the company's existing ratings, including the B2 corporate family rating, B2-PD probability of default rating and B2 rating on the existing senior secured term loan. The speculative grade liquidity rating was also affirmed at SGL-3.

The outlook remains stable.

Proceeds from the proposed term loan and about $375 million initial public offering of common stock will be used to repay American Tire’s $421 million senior subordinated notes, reduce revolver borrowings by about $50 million and pay a $12 million fee to terminate the existing TPG management agreement and other fees and expenses.

The extension of the incremental term loan is subject to completion of an IPO by American Tire’s parent company, ATD Corp., expected in February 2015. Following the offering, TPG will own about 78% of the equity and American Tire will operate as a "controlled company."

Assuming the IPO is completed as proposed, Moody's expects to affirm American Tire’s B2 corporate family and B2-PD probability of default ratings upon close of the transaction. At close, the agency also expects to downgrade the B2 rating of the existing $720 million term loan to B3, reflecting the lack of support from the $421 million senior subordinated notes in the capital structure, consistent with Moody's Loss Given Default methodology.

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