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Rating Action:

Moody's Assigns B3 Rating To Dollar Financial's Credit Facilities

04 Oct 2006
Moody's Assigns B3 Rating To Dollar Financial's Credit Facilities

New York, October 04, 2006 -- Moody's Investors Service affirmed Dollar Financial Group, Inc.'s (Dollar) B3 Corporate Family Rating, and assigned a B3 senior secured rating to its new $75 million U.S revolving credit facility. Moody's also assigned a first time rating of B3 to the $295 million term loan and $25 million revolving credit facilities of National Money Mart Co. (NMM), Dollar's Canadian subsidiary. Finally, Moody's assigned a first time rating of B3 to the $80 million senior secured term loan facility of Dollar Financial U.K. Limited (DFUL), Dollar's U.K. subsidiary. The rating outlook remains positive.

The ratings relate to Dollar's plan to refinance its existing senior unsecured notes and revolving credit facility and concurrently acquire 82 of its Canadian franchise stores. The new credit facilities will fund the refinancing and acquisition.

Dollar's acquisition of the Canadian franchise stores will be immediately accretive to earnings and contribute approximately $45 million to revenues and approximately $19 million to EBITDA. Dollar also realizes several other benefits from this transaction, such as lowering its consolidated tax burden, reducing its cost of debt via the lower interest rate on the new credit facilities, and freeing up territory in Canada for future growth initiatives. Dollar's tax burden will be reduced as a result of: 1) interest expense at the foreign subsidiaries will rise, thus reducing their taxable income, and 2) interest expense at the U.S. entity will decline and it will thereby become profitable, allowing it to begin utilizing its approximately $100 million in net operating loss carryforwards.

As a result of the increased debt load from the refinancing and acquisition, Dollar's leverage, as measured by adjusted debt to EBITDAR (total debt plus capitalized operating lease rentals divided by EBITDA plus lease rental expense), will worsen relative to the recent improvement that had resulted from the company's common equity issue and debt paydown. Adjusted EBIT to interest expense (EBIT plus 1/3 of rental expense divided by interest expense plus 1/3 of rental expense) will also deteriorate modestly. Somewhat mitigating these developments will be higher consolidated EBITDAR margins resulting from the higher margin Canadian stores and anticipated improvement in free cash flow to adjusted debt.

The credit facilities at Dollar, NMM, and DFUL are secured on the assets of the respective entity. The facilities at NMM and DFUL are guaranteed by Dollar, and are also cross-guaranteed, but for tax reasons Dollar's revolver has no upstream guarantees from the foreign subsidiaries (Dollar's facility does have a pledge of the stock of the foreign subsidiaries, however). In this respect, Moody's considered the structural inferiority of the Dollar credit facility to the facilities at the foreign subsidiary level. However, Moody's concluded that this factor did not warrant a notching differential between the Dollar credit facility and the facilities at the foreign subsidiary level.

The maintenance of the positive ratings outlook reflects Dollar's strong competitive position within the industry, which Moody's believes is enhanced by the Canadian acquisition, as well as the strong cash flow generating capability of the firm.

What Could Change The Rating -- Up:

The main source of upward pressure on the rating would be improvement in the company's leverage profile and free cash flow, and demonstration that improved levels are sustainable.

What Could Change The Rating -- Down:

Increased leverage, material weakening in cash flows, and adverse developments in the political/regulatory framework that affect Dollar's business.

The following rating has been affirmed:

Dollar Financial Group, Inc.

- Corporate Family Rating B3

The following new ratings have been assigned:

Dollar Financial Group, Inc.

- Senior Secured Rating B3

National Money Mart Co.

- Senior Secured Rating B3

Dollar Financial U.K. Limited

- Senior Secured Rating B3

Moody's most recent rating action for Dollar occurred on July 20, 2006, when Moody's affirmed Dollar's Corporate Family Rating and senior unsecured rating of B3 and changed the outlook to positive from stable.

Dollar Financial Group is a wholly-owned subsidiary of Dollar Financial Corp. (ticker symbol DLLR), a leading international financial services company serving under-banked consumers. Dollar, based in Berwyn, PA, reported total assets of $551 million at fiscal year end June 30, 2006.

New York
Robert Young
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Curt Beaudouin
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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