Moody’s rates LS Group loan B2

Moody’s Investors Service said it assigned first-time ratings to LS Group OpCo Acquisition LLC, including a B2 corporate family rating and a B2-PD probability of default rating. Moody’s also assigned a B2 to the planned $1.575 billion senior secured term loan.

Proceeds with about $1.69 billion of common equity contributed by funds affiliated with Meritage Group LP will be used to fund the acquisition of Les Schwab and its affiliates.

“The ratings reflect LS Group’s strong brand awareness in its core markets, a somewhat diversified earnings stream that includes “under-the-car” products and services, a 52% equity contribution and good liquidity” said Bill Fahy, Moody’s senior credit officer, in a press release.

“However, the ratings are constrained by the company’s relatively high pro forma leverage of about 5.6 times for the LTM period ending June 30, 2020, modest scale, geographic concentration and high reliance on a relatively narrow product line related to replacement tires” Fahy added.

Moody’s assigned the company a stable outlook. The outlook reflects the view leverage and coverage will improve over the near term as revenues and earnings trend positive following the trough of the pandemic-driven downturn, Moody’s said.

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