EOC Group Inc. Assigned #B# Corporate Credit Rating, Outlook New Debt Rated

Stocks and Financial Services Press Releases Thursday March 8, 2018 11:43
NEW YORK--8 Mar--S&P Global Ratings

NEW YORK (S&P Global Ratings) March 7, 2018--S&P Global Ratings today assigned its 'B' corporate credit rating to the Millwood, N.Y. and Birmingham, AL-based tire retailer and auto-service provider EOC Group Inc. The outlook is stable.

At the same time, we assigned our 'B' issue-level rating and '3' recovery rating to EOC Group's proposed first-lien credit facilities, consisting of a $100 million cash flow revolver due 2023, a $1.1 billion first lien term loan facility due 2025, and a $178.5 million delayed draw first-lien term loan due 2025. The '3' recovery rating indicates our expectation for meaningful (50%-70%, rounded estimate: 60%) recovery in the event of a payment default. Additionally, we assigned our 'CCC+' issue-level rating and '6' recovery rating to EOC Group's proposed $435 million second-lien term loan facility and $71.5 million delayed draw second-lien term loan maturing 2026. The '6' recovery rating indicates our expectation for negligible (0%-10%, rounded estimate: 0%) recovery in the event of a payment default.

The ratings on EOC Group reflect its high debt burden from the buyout, aggressive acquisition growth strategy, and the inherent risks in its expansion strategy. These risks are partially offset by the company's customer-centric service model, effective operating system characterized by a good selling culture and cost improvements, and its low capital-spending model.

The stable outlook on EOC Group reflects our expectation that the company will continue to grow revenues largely through acquisitions while obtaining some benefits from procurement savings and implementation of its operating system into acquired units. In addition, we expect EOC Group to generate moderately positive free cash flows and maintain adequate liquidity over the next 12 months.

If adjusted debt to EBITDA (pro forma for acquisitions) does not trend toward 7x in 2019, we could consider a lower rating. This could occur if operating performance does not improve in line with our expectations, including EBITDA margins in the 19% to 19.5% range. Integration issues, inability to achieve procurement savings, or heightened competition are factors that could cause the company's underperformance relative to our base-case scenario.

While unlikely in the next year, we could consider raising the rating if leverage trends toward 5x and we believe the company will maintain leverage in this range. Leverage improvement could occur from better-than-anticipated operating momentum from acquisitions, cost savings, and if the company reduces debt beyond our forecast.


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