Advance Auto improves liquidity, but top line declines ‘meaningfully’

By Devika Patel

Knoxville, Tenn., May 19 – Advance Auto Parts, Inc. improved its liquidity last quarter through a $500 million revolver draw and a $500 million 10-year notes offering, garnering a better rate than previous note issues, but the company was still negatively affected by the Covid-19 stay-at-home orders and its top line declined.

“We took steps in the first quarter to safeguard our balance sheet,” executive vice president and chief financial officer Jeff Shepherd said on the company’s first quarter ended April 18 earnings conference call on Tuesday.

“This includes borrowing $500 million against a previously unused $1 billion revolver and issuing a new $500 million 10-year note at 3.9%.

“This strategic offering provided us with additional liquidity at a lower rate than our two outstanding notes due in 2022 and 2023, respectively,” Shepherd said.

Covid-19 had an impact on the company’s first-quarter sales.

“During the first quarter of 2020, Advance was significantly impacted by Covid -19,” president and chief executive officer Tom Greco said in a press release.

“As Covid-19 stay-at-home orders were implemented broadly, we experienced significant reduction in both professional car counts and DIY retail traffic beginning in mid-March and impacting the remaining six weeks of the quarter,” Greco said on the call.

“This led to fewer miles driven and, as a result, our top line meaningfully declined.

“Overall, in Q1, our net sales decreased 8.6%,” Greco said.

Despite the decrease in sales, the company was in a good starting position due to prior actions.

“We’ve worked hard to reduce costs, strengthen our balance sheet and improve cash flow in recent years,” Greco said on the call.

“As a result, we believe we’re in a great starting position to manage our way through this,” Greco said.

Cash and cash equivalents were $1,279,838,000 as of April 18, 2020, compared to $418,665,000 as of Dec. 28, 2019.

Long-term debt, less current portion, was $1,241,094,000 as of April 18, 2020, compared to $747.32 million as of Dec. 28, 2019.

On March 17, Advance Auto informed administrative agent Bank of America, NA that the company would borrow $500 million under its $1 billion revolving credit facility entered on Jan. 31, 2017.

The borrowing is aimed at increasing the company’s cash position and preserving financial flexibility in light of current uncertainty in global financial markets. The proceeds of the new borrowing may be used for working capital, ongoing operating needs and general corporate purposes.

The revolver includes a $200 million sublimit for letters of credit, and total commitments may be increased by up to $250 million.

The facility matures in January 2022 but may be extended by up to two one-year periods.

Initial interest was Libor plus 110 basis points. The spread over Libor ranges from 91 bps to 150 bps, depending on debt ratings.

The facility fee was 15 bps initially and ranges from 9 bps to 25 bps.

On April 13, the company priced $500 million of 3.9% 10-year senior notes (Baa2/BBB-) at a spread of Treasuries plus 320 bps.

Initial guidance was in the Treasuries plus 337.5 bps area.

BofA Securities, Inc., J.P. Morgan Securities LLC and SunTrust Robinson Humphrey Inc. were the bookrunners of the Rule 144A and Regulation S private offering.

Proceeds were earmarked for general corporate purposes, including debt refinancing.

Advance Auto is a Roanoke, Va.-based specialty retailer of automotive aftermarket parts, accessories, batteries and maintenance items.

© 2015 Prospect News.
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