S&P ups Capital Automotive revolver to BB

S&P said it affirmed its B+ corporate credit rating on Capital Automotive LLC and its subsidiary Capital Automotive LP and revised the outlook to negative from stable.

The agency also raised the rating first-lien term loan due 2019 and revolving credit facility due 2018 to BB from BB- and revised the recovery rating to 1 from 2 (lower end of the range). The 1 recovery rating indicates expectations of a very high (90%-100%) recovery in the event of a payment default.

At the same time, S&P affirmed its rating on the second-lien term loan due 2020 at B-. The recovery rating is 6, which indicates expectations of negligible (0%-10%) recovery in the event of a payment default.

"The negative outlook revision reflects our view that covenant cushion for CARS will likely remain below 10% on its fixed charge covenant, which could lead to constrained liquidity if not remedied," S&P credit analyst Sarah Sherman said in a news release.

"Additionally, we expect narrow covenant cushion levels to potentially pressure the company's financial flexibility. One of CARS' 2017 asset backed security (ABS) note series has an accelerated amortization schedule that results in a $13 million payment per year. This note series is prepayable at par in 2017. If the company were to refinance the notes it would lower amortization expense by $12 million, and would result in fixed-charge coverage rising back to adequate levels."

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