S&P upgrades Advance Auto

Standard & Poor's upgraded Advance Auto Parts Inc. including raising Advance Stores Co. Inc.'s $160 million revolving credit facility due 2006, $165 million term loan due 2006 and $250 million term loan due 2007 to BB from BB-. The outlook is positive.

S&P said the upgrade reflects Advance Auto's continued improvement in operating performance and reduced debt levels that have led to improved credit protection measures.

The integration of Discount Auto Parts has continued to go well, with the full integration of non-Florida stores completed and systems and re-merchandising initiatives in the Florida stores accomplished.

S&P said it believes Advance Auto will continue to generate significant free cash flow in future years that should result in further debt level reductions and improved credit protection measures.

Advance Auto's ratings reflect the company's aggressive acquisition history and somewhat high leverage. These risks are mitigated by Advance's leading position in the auto supply retail segment, improved operating performance in the past two years, and its success in integrating previous acquisitions.

The acquisition of Discount Auto Parts strengthened Advance's position as the number-two auto supply retailer in the U.S.; the combined entity has about 2,400 locations in 37 states, S&P noted. The purchase also significantly enhanced Advance's market share in Florida, where Discount Auto has more than 400 stores. All of the store re-merchandising, systems conversions, and improvements in store appearances for the non-Florida Discount Auto stores have been completed and are performing well. However, the integration of the Discount Auto stores in Florida is not expected to be completed until 2005.

Industry demographics remain favorable, as the average age of vehicles continues to increase and a greater percentage of sales are in light trucks, the parts of which have a higher average ticket, S&P noted. Future growth could come from commercial sales, which represent about 15% of Advance's sales.

EBITDA coverage of interest is trending at more than 3.5x. This ratio is expected to improve to more than 4x in 2003, as the company is expected to utilize free cash flow to reduce debt, S&P said. Advance generated more than $200 million of free cash flow in the first half of 2003 and $145 million of free cash flow in 2002. Total debt to EBITDA was 3.8x in 2002 and is expected to improve in future years as debt levels are reduced.

Moody's rates Overnite Transportation's loan Ba1

Moody's Investors Service rated Overnite Transportation Co.'s proposed $300 million senior secured credit facility due 2008 at Ba1. The outlook is stable.

The facility is secured by the stock of the borrower and the guarantors. The bank debt is rated the same as the senior implied rating since there is little liquidation value to stock as security.

The rating reflects the company's relatively low initial debt level and good credit statistics, the competitive cost advantage through its mostly non-unionized trucking operations, the opportunity for some productivity improvement, and the potential for revenue growth from market penetration, customer switching because of the proposed Yellow/Roadway merger and recovery in industrial shipments, Moody's said.

The rating also reflects the potential for disruption in transit service as the company seeks to continue optimizing its line-haul network, while continuing to operate in both the long-haul and the regional markets, concern over the sufficiency of capital investment to meet its business objectives, moderate liquidity with funding sources primarily consisting of cash from operations and a $175 million revolver, the underfunded pension obligation and the company's funding plans over then next several years, and uncertainty over corporate governance and business direction as the board of directors is assembled and establishes oversight responsibility for Overnite as a separate company, Moody's added.

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