Pilot Travel Centers# Proposed Debt Rated #BBB-#; Existing Term Loan Recovery Expectations Revised

Stocks and Financial Services Press Releases Friday January 20, 2017 09:16
NEW YORK--20 Jan--S&P Global Ratings

NEW YORK (S&P Global Ratings) Jan. 19, 2017--S&P Global Ratings said today that it is assigning its 'BBB-' issue-level rating to Pilot Travel Centers LLC's proposed $1 billion revolver, $2.2 billion term loan A, and $1.2 billion term loan B facilities.

The company plans to use net proceeds to refinance its existing debt and pay down the existing term loan B by $250 million.

At the same time, we are raising the issue-level ratings on the existing senior secured debt to 'BBB-' and revising the recovery rating to '2'. All other ratings, including the 'BB+' corporate credit rating and stable outlook are unchanged.

We reassessed the recovery prospects for Pilot Travel Centers' secured debt and revised the recovery expectations to '2' from '3'. The '2' recovery rating indicates our expectation for substantial recovery (70%-90%; at the higher end of the range) in the event of payment default.

The revised recovery expectations reflect our current view of the benefits from the company's substantial asset ownership and competitive advantage as the largest operator of travel centers and travel plazas in North America, a business that has high barriers to entry.

Additionally, the company has consistently reported good profit and cash trends which we expect to continue over the next 18 months.
We anticipate adjusted debt leverage in the low-3x area over the next 12 months.
The proposed transaction will extend the revolver and term loan A debt maturities to 2022 and the term loan B facility matures 2023.
The refinancing will save Pilot interest costs, but does not meaningfully affect credit ratios and cash flows. We expect to withdraw the ratings on the existing debt once the transaction closes.
We have valued the company on a going-concern basis using a 6x multiple applied to our projected emergence-level EBITDA.
The 6x multiple is in line with multiples applied to peers.

It is our belief that, for the company to default, EBITDA would need to decline significantly from recent results, representing a material deterioration in the economy and lower demand for gas and diesel fuel in conjunction with an increase in competition from other fuel and convenience store retailers.

Our recovery analysis assumes that, in a hypothetical bankruptcy scenario, the secured credit facility lenders recoveries would benefit from a first lien on substantially all assets of the borrower and subsidiary guarantors, which includes the capital stock of domestic subsidiaries, and that the company would emerge from a bankruptcy event due to its sizeable market position and operating scale.

Simulated Default Assumptions Simulated year of default: 2022EBITDA at emergence: $528 millionImplied enterprise value (EV) multiple: 6xEstimated gross EV at Emergence of $3.2 billion Simplified Waterfall Net EV after 5% administrative costs: $3 billionValuation split % (obligors/non-obligors/unpledged): 100/0/0Secured credit facility claims: $3.6 billion*--Recovery expectations: 70%-90% (higher half of range)All debts amounts include six months of prepetition interest.

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