Moody's affirms AutoNation

Moody's Investors Service said it affirmed AutoNation's Ba1 corporate family rating and probability of default rating, assigned a Ba2 rating to the amended credit facility, $700 million revolver and $600 million term loan, and affirmed the Ba2 ratings on the senior unsecured floating- and fixed-rate notes.

The outlook is stable.

AutoNation's Ba1 corporate family rating reflects its standing as the largest auto retailer with revenues of just under $18 billion, industry leading operating margins over 23% (measured as adjusted EBIT/adjusted gross profit) and its diverse business model, the agency said.

"While the company's operating performance has softened in 2007, the strength of its business model, highlighted by the highly profitable and strong cash flow generating parts & service business, which is not heavily correlated to new and used vehicle sales, has enabled AutoNation to generate over $650 million of EBIT and retained cash flow in the twelve months ended September 2007, despite a $1 billion revenue decline from 2006," said Kevin Cassidy, vice president/senior credit officer, at Moody's.

"The company has less cushion in its rating category due to softer operating results, which are attributed to softness in consumer spending and the weak housing market as well as an aggressive share repurchase program, which has raised the debt levels under its working capital facility. This has tightened the leverage ratio in the bank credit facility, however, the Co. has ample financial flexibility in the short-term."

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