S&P Revises United Auto Group's Outlook to Negative; Ratings Affirmed
14 January 1998
S&P Revises United Auto Group's Outlook to Negative; Ratings Affirmed
NEW YORK, Jan. 14 -- Standard & Poor's today affirmed United
Auto Group Inc.'s single-'B'-plus corporate credit rating and its
single-'B'-minus rating on the company's senior subordinated notes. The
outlook is revised to negative from stable.
The outlook revision follows the company's announcement of a special
pretax charge in the range of $28 million to $32 million to be recorded for
the fourth quarter of 1997 and management's indication that net losses in the
fourth quarter (before the charge) totaled a substantial $11 million -
$13 million. The special charge is to cover costs related to the divestiture
of nine poorly-performing new car franchises, and of various other
restructuring measures. Although the dealerships to be divested contributed
to operating losses, United Auto Group also is suffering from disappointing
performance in its core Atlanta region. Standard & Poor's expects that these
setbacks will prove temporary, and that United Auto Group will return to
meaningful profitability by mid-1998. However, absent this, or given an
acceleration of the pace of debt-financed acquisitions, ratings could be
lowered.
United Auto Group's ratings reflect the company's fair business position
as an automotive retailer, its ambitious growth strategy, and aggressive
financial policy. United Auto Group has expanded very rapidly in recent years
by acquiring franchised dealerships, seeking to capitalize on accelerating
consolidation in the automotive sector. The company has achieved a relatively
high degree of geographic diversity, and now has a broad product portfolio,
with 87 franchises (including pending acquisitions, net of planned
divestitures) spread among various manufacturers. The company's focus is on
enhancing profitability through increasing dealership revenues -- particularly
high-margin sales of used cars, finance and insurance products, parts, and
service -- while also exploiting potential economies of scale at the national
level and in its regional hubs. In addition, United Auto Group is
accelerating growth at its automotive finance company. However, financial
performance to date has been poor. Also, all of the company's expansion to
date has occurred during a period of broadly favorable market conditions; the
extent to which financial performance could erode in a cyclical downturn is a
major risk factor. Moreover, debt-leverage is aggressive, and, barring
additional equity issuance, additional acquisitions could result in financial
flexibility being constrained. -- CreditWire
SOURCE Standard & Poor's CreditWire