Moody's drops KAR Holdings outlook to negative

Moody's Investors Service said it changed the outlook for the long-term ratings of KAR Holdings, Inc. to negative from stable, citing the likely effect on credit metrics of top line pressures across all three of the company's segments, with used car floorplan financing facing particularly difficult business conditions.

The change in outlook also reflects longer term structural threats, including continuing dealer closures and lower lease originations, which will affect demand for the company's whole car auction business over time, the agency noted.

Concurrently, Moody's said it affirmed the B2 corporate family and probability of default ratings, noting that the ratings are supported by ongoing cost cutting measures and the potential that consumer demand for used cars could in fact benefit from the economic slowdown in 2009.

KAR Holdings' B2 corporate family rating primarily reflects generally weak credit metrics, including the company's very high financial leverage and relatively modest free cash flow generation in relation to debt levels, the agency added.

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