Moody’s rates Global Auto B1, notes B2

Moody's Investors Service said it assigned first-time ratings to Global Auto Holdings (TopCo) Ltd., including a B1 corporate family rating and B1-PD probability of default rating. The agency also assigned a B2 rating to AAG FH UK Ltd.'s planned $525 million of senior unsecured global notes due 2029 and $525 million of senior unsecured global notes due 2032. The outlook is stable. Global Auto is the parent holding company of AAG, the issuer of the notes.

“The B1 corporate family rating recognizes Global Auto's increased scale following the acquisition of Lookers, plc as well as Lookers' meaningful market position as one of the largest automotive retailers in the UK. It also reflects that Global Auto will benefit from its expanded geographic reach outside of Canada, further diversification of its portfolio of brands with a focus towards luxury as well as the reliance on a more predictable parts and service business.

“However, the ratings are constrained by the significant scale of the acquisition of Lookers relative to the size of AAG and the risks associated with integrating a signficantly larger company in a disparate geography that could result in added costs or staffing challenges which could extend the time needed to strengthen credit metrics in the event that aggregate cost savings fall short of expectations,” Moody’s said in a statement.

The B2 senior unsecured rating reflects the notes’ place behind Global Auto’s secured debt, the agency said.

The proceeds from the $1.05 billion of senior unsecured debt will be used to repay about $987 million of debt, $23 million of pay fees and expenses and add $40 million of cash to the balance sheet.

“The stable outlook reflects our expectation that Global Auto will maintain good liquidity and will be able to successfully manage any margin impact as gross profit per vehicle continues to come under pressure from increasing inventories, higher interest rates and a more constrained consumer,” Moody’s said.

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