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S&P Rates Sonic Automotive

14 July 1998

S&P Rates Sonic Automotive $125 Million Subordinated Notes B-, Credit Rating B+

    NEW YORK, July 14 -- Standard & Poor's today assigned its
single-'B'-plus corporate credit rating to Sonic Automotive Inc. and its
single-'B'-minus rating to the company's proposed $125 million senior
subordinated notes due 2008, issued under Rule 144a.
    The rating outlook is stable.
    Proceeds of the new issue will be used to refinance existing borrowings
and fund pending acquisitions.
    The ratings reflect Sonic's position as one of the largest automotive
retailers in the United States, its ambitious expansion strategy, and
aggressive financial policies.  Sonic has been a participant in the
consolidation within the automotive retailing sector, growing rapidly in
recent years through acquisitions to become among the 10 largest dealership
groups.  The company's 34 dealerships (including pending acquisitions) are
mainly centered on certain metropolitan areas of the southeastern and
southwestern U.S. where population growth is higher and density of auto
dealerships is somewhat less than in other regions.
    With its 22 brands -- spread among domestic and foreign manufacturers --
Sonic has a broad product portfolio.  The company's strategy is to maximize
the profitability of acquired dealerships through increasing dealership
revenues -- particularly high-margin sales of used cars, finance and insurance
products, parts, and service -- and exploiting potential economies of scale in
its regional hubs.
    The company faces significant challenges to continue integrating acquired
dealerships, particularly given the accelerating pace of its expansion.
Additionally, all of the company's growth 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
issuances, further acquisitions could result in financial flexibility being
constrained.

    OUTLOOK: STABLE
    Sonic's aggressive growth strategy and the need for the company to
further demonstrate the effectiveness of its operating policies limit upgrade
potential over the next few years, Standard & Poor's said. -- CreditWire