S&P Affirms Advance Stores' Ratings
19 August 1998
S&P Afms Advance Stores' Rtgs Re:Western Auto Merger
NEW YORK--Aug. 19, 1998--(S&P) NY -- Standard & Poor's CreditWire 8/19/98 -- Standard & Poor's today affirmed its single-'B'-minus rating on Advance Stores Co. Inc.'s $200 million senior subordinated notes and Advance Holding Corp.'s $60 million senior discount debentures.Additionally, Standard & Poor's affirmed its single-'B'-plus corporate credit rating on both companies.
Advance Stores plans to merge with Western Auto Supply Co., a unit of Sears Roebuck & Co. Sears will receive a cash payment of $175 million and a 40% stake in the combined company. The current investors in Advance also will invest an additional $70 million in Advance.
The rating affirmation reflects an improved business profile, with Advance benefiting from the addition of Western Auto Supply's 590 auto parts stores in the U.S., 40 stores in Puerto Rico, and an extensive wholesale dealer network. In a consolidating industry, this transaction better establishes the company as a large, competitive, geographically dispersed auto parts retailer. On a pro forma basis, the combined entity had approximately $2.1 billion in sales during 1997. The company will operate more than 1,500 retail stores in 36 states and about 800 dealer stores in 48 states.
However, integration of Western's Parts America chain will be a challenge to management. Standard & Poor's believes it may be some time before the acquired stores can perform to the Advance standard.
OUTLOOK: STABLE
Although this acquisition better positions Advance as an auto parts retailer, the company may continue to use its financial flexibility to take advantage of other opportunistic acquisitions. The company's financial performance is expected to remain within parameters for the current rating. Neither the rating nor the outlook considers any financial support from Sears Roebuck & Co. (despite its 40% ownership), Standard & Poor's said.---CreditWire