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10 Jul 1998
MOODY'S ASSIGNS FIRST TIME RATING TO AUTOZONE, INC. (SENIOR UNSECURED AT Baa1).
New York, 07-10-98 -- Moody's Investors Service assigned, for the first time, ratings to the debt of AutoZone, Inc. ("AZO"). The ratings incorporate the company's prominent position in the auto parts retailing industry, its geographic diversity, its aggressive capital expenditure program, and debtholder protection measures, as well as the intense competition within auto parts retailing. Moody's also raised the senior unsecured debt rating of recently acquired Chief Auto Parts Inc., now a subsidiary of AutoZone, concluding the review begun on May 12, 1998.
Multiple seniority shelf at (P) Baa1 for senior unsecured debt, (P) Baa2 for subordinated unsecured debt and (P) "baa2" for preferred stock.
Senior unsecured debenture at Baa1.
Senior unsecured bank agreements at Baa1.
Chief Auto Parts Inc:
Senior unsecured notes to Baa3 from B2.
"Stable. AutoZone is appropriately positioned at its current rating levels given its share of a fragmented industry, solid debtholder protection measures and valuable franchise. Moody's anticipates that future acquisitions, if any, will be digestible and that AZO will continue to manage its expansion and financial condition prudently."
The company has two senior unsecured bank revolving credit agreements: $350 million expiring in December, 2001 and $150 million expiring in February, 1999. AZO's new multiple seniority shelf of $400 million contains a limitation on liens, but does not contain a limitation on sale/leasebacks. Chief was acquired by AZO on June 29. The rating on Chief's senior unsecured note is based on the fact that AZO has not at this time guaranteed or otherwise legally supported Chief's debt; should AZO do so, Moody's will review the Chief debt rating.
Moody's notes that AutoZone is both a holding and operating company, with significant assets owned by and leases incurred at subsidiaries. Funded debt, however, is expected to remain at AutoZone, Inc. Only the very recently acquired Chief subsidiary has any outstanding indebtedness (excluding capital leases). Moody's expects that any new debt issues will be incurred by parent AutoZone, Inc.
AutoZone is a specialty retailer of automotive parts and accessories, operating in a highly competitive, fragmented and consolidating industry. While AZO is a leading player in this industry, its share of the Do-It-Yourself market is currently estimated at the high single digits. Moody's anticipates that the company's strategy will remain focused primarily on the DIY segment of the market, which is expected to grow more slowly than the service segment of the industry. Aggressive expansion of storing has resulted in double-digit sales growth and, along with recent acquisitions, is likely to fuel future sales increases.
AutoZone is fairly well diversified geographically, with stores throughout the south, Midwest, eastern United States and, now, California. The Auto Palace acquisition has boosted the company's position in New England, and TruckPro has enhanced AutoZone's offerings in heavy duty truck parts. The recently completed acquisition of Chief has quickly increased AZO's presence in the important California market from about 12 stores to about 400. AZO should realize synergystic cost savings when these acquisitions are fully absorbed, given the company's technological and logistical capabilities. Opportunities for future expansion could include new markets in the United States, some of which may be more competitive or expensive than AZO's existing markets, and international locations.
AZO has a conservative financial condition, with healthy coverages and modest adjusted leverage. Operating profit margin stabilized during FY97, as the company's initiative to expand its commercial business with professional installers began to mature. Cash flow has been enhanced by the absence of dividends. However, AZO's capital expenditure plans for storing, along with the purchase of Chief for about $280 million (including the assumption of about $205 million in debt), are anticipated to require a net use of cash over the near term, as could any buyback of stock under the company's authorized $100 million share repurchase program or any additional acquisitions in this consolidating industry. Moody's expects that debtholder protection measures will remain strong.
Headquartered in Memphis, AutoZone, Inc. operated, on May 9th, about 2,001 stores in 38 states serving the "Do-It-Yourself" segment of auto parts retailing industry. AutoZone subsequently acquired 560 stores with the purchase of Chief Auto Parts Inc.
No Related Data.
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