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Holley Performance's Senior Sub Notes Rated 'B-' by S&P

13 May 1999

Holley Performance's Senior Sub Notes Rated 'B-' by S&P

    NEW YORK, May 12 -- Standard & Poor's today assigned its
single-'B'-minus rating to Holley Performance Products Inc.'s $115 million
senior subordinated notes due 2009, issued under Rule 144A with registration
rights.
    At the same time, Standard & Poor's assigned its single-'B'-plus corporate
credit rating to the company and its double-'B'-minus bank loan rating to
Holley's $60 million bank credit facility.
    The outlook is stable.
    Proceeds of the debt issue will be used to fund an acquisition and to
refinance existing debt.
    The ratings reflect the company's leading positions in niche automotive
parts markets, combined with a weak financial profile.
    Holley manufactures specialty products for the performance automotive,
marine, and power-sports replacement markets.  The company is the largest
provider of performance and remanufactured carburetors and performance fuel
injection systems.  Additional products include exhaust systems, internal
engine components, and ignition components.  Three acquisitions since August
1988 have broadened the company's product line, and Holley has one of the most
recognized brand names and the broadest distribution in the performance
automotive aftermarket.
    Motorsports is the fastest growing sport in the U.S., and its popularity
has led to increased demand for performance products.  Demand is somewhat
cyclical, although less than that of automotive original equipment and
replacement markets.  Holley's customer base is fairly concentrated, with its
two largest customers making up 30% of pro forma revenue.  Concentration risks
are somewhat mitigated by the company's strong brand name and market
positions.  A significant portion of revenue comes from remanufactured
carburetors, which is in decline as older vehicles are replaced with newer,
fuel injected vehicles.  Holley has introduced a line of remanufactured fuel
injectors that should gain in popularity as the fleet of fuel injected
vehicles reaches maturity.  Holley has an aggressive growth strategy, and will
be challenged to successfully integrate acquired operations.
    High financial risk results from an aggressively leveraged capital
structure and heavy debt use.  Pro forma total debt to earnings before
interest, taxes, depreciation, and amortization (EBITDA) is 4.9 times (x).
Internal cash flow generation should be sufficient to cover modest working
capital and capital expenditure requirements.  However, aggressive growth
goals will likely require additional borrowings to fund future acquisitions.
Over time, EBITDA interest coverage is expected to average between 2x to 2.5x,
and total debt to EBITDA is expected to average about 4x, satisfactory levels
for the rating.
    Holley's bank facility is rated one notch above the corporate credit
rating.  The facility consists of a $25 million revolving credit facility that
matures in 2003 and a $35 million acquisition facility to be used for two
years.  After two years, the principal amount of all loans outstanding under
the acquisition facility will amortize over four years.  Collateral is
provided by a first priority security interest in substantially all assets of
the company.  Holley's cash flows were significantly discounted to simulate a
default scenario and capitalized at an EBITDA multiple reflective of the
market.  Under this simulated downside case, collateral value is expected to
be sufficient to cover a fully drawn bank facility if a payment default were
to occur.
    OUTLOOK: STABLE
    Holley's leading market positions and brand name, modest cyclical
exposure, and good profitability should limit downside risk.  The company's
aggressive growth strategy is expected to result in continued high debt use,
limiting upside rating potential, Standard & Poor's said. -- CreditWire