SMK Speedy International & Unit Off S&P Watch
25 September 1998
SMK Speedy International & Unit Off S&P Watch
TORONTO--S&P's CreditWire 9/25/98--Standard & Poor's today affirmed its single-'B' corporate credit and single-'B'-minus senior unsecured debt ratings on SMK Speedy International Inc.(formerly Speedy Muffler King Inc.) and Speedy (USA) Inc. The ratings were removed from CreditWatch, where they were placed Nov. 17, 1997. The outlook is now stable.The ratings were lowered and placed on CreditWatch following a technical default on the company's US$125 million 10 7/8% senior notes, and a significant and rapid deterioration in the company's financial performance. SMK Speedy International (Speedy) is a no-appointment, while-you-wait automotive repair specialist.
On Sept. 17, 1998, Speedy entered a definitive sales agreement with Kwik-Fit Holdings plc to sell all of its European operations to Kwik-Fit for gross proceeds of approximately C$265 million. The transaction is expected to be completed in early 1999. On the same date, Speedy announced that it had completed the sale of 203 U.S.-based Speedy stores to Monro Muffler Brake Inc. for US$52 million in gross proceeds. Net proceeds are expected to be over C$200 million from the European sale and about US$46 million from the U.S. sale, for total net proceeds of over C$270 million.
The transactions will also significantly reduce Speedy's capital lease obligations and bank debt. The net proceeds will be used toward the repayment of the company's long-term and bank debt, which is estimated to be about C$225 million (net of estimated capital leases) as of July 4, 1998. Standard & Poor's expects that the majority of Speedy's public debt will be redeemed, either through existing covenants in the 10 7/8% note indenture or through a repurchase offer.
Speedy will retain approximately 147 stores under the Speedy banner in Canada and approximately 182 stores under the Car-X banner in the U.S. In 1997, the remaining stores accounted for an estimated C$165 million (25%) of the company's C$662 million in total revenues.
OUTLOOK: STABLE
The completion of the European sale will leave Speedy with a significantly smaller operation and further restructuring may be required. The muffler repair business, which comprises about one-third of Speedy's revenues, continues to decline due to improved manufacturing and better warranties. The auto service industry remains very competitive and margins are expected to remain tight. In addition, some of Speedy's global competitors may have more supplier leverage. Following the expected finalization of all asset sales and public debt redemption, the company will have an improved financial structure. If the company's operational restructuring plan, which is still in progress, is also successful, a modest rating upgrade may be warranted, Standard & Poor's said.--CreditWire
