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12 May 2010
Approximately $525 Million of Rated Debt Affected
New York, May 12, 2010 -- Moody's Investors Service assigned AutoTrader.com,
Inc. ("ATC") a Ba3 Corporate Family Rating (CFR),
and a B1 Probability of Default Rating (PDR), and also assigned
Ba3 ratings to the company's proposed $100 million senior
secured revolving credit facility, $100 million senior secured
term loan A facility and $325 million senior secured term loan
B facility. These are first-time ratings for ATC.
Proceeds from the financing will be used to pay a distribution to ATC's
owners, including Cox Enterprises, Inc. ("CEI",
Baa3 senior unsecured). CEI currently owns about 90% of
ATC, but it recently announced on May 5, 2010 that it has
agreed to sell a 25% equity stake in ATC to Providence Equity Partners
which will lower its ownership to about 68% though still maintaining
control of the company. The rating outlook is stable.
....Corporate Family Rating, Assigned
....Probability of Default Rating, Assigned
....$100 Million Senior Secured Revolving
Credit Facility, Assigned Ba3, LGD3-30%
....$100 Million Senior Secured Term
Loan A Facility, Assigned Ba3, LGD3-30%
....$325 Million Senior Secured Term
Loan B Facility, Assigned Ba3, LGD3-30%
ATC's Ba3 CFR is largely driven by the strong cash flows the company
generates from its position as a leading seller of digital automotive
advertising, its significant level of subscription based revenues
largely derived from automotive listings and control by fiscally conservative
CEI. The rating incorporates Moody's expectation that ATC
will grow both organically and through acquisitions and that it will sustain
debt-to-EBITDA leverage (incorporating Moody's standard
adjustments) between 2.5x and 3.0x. These strengths,
however, only partially offset ATC's key business risks including
the company's relatively short operating history, small scale,
narrow business focus and vulnerability to the health of automobile sales,
mainly used autos which is driven by consumer spending, particularly
in the future as organic growth moderates. In addition, there
is a significant level of competition in the sale of digital automotive
advertising and listings. Further, Moody's believes
there are only moderate entry barriers.
The stable rating outlook reflects Moody's expectation that ATC
will modestly expand its dealership footprint, continue to garner
market share, and grow both revenues and cash flow. The outlook
also factors in the potential for acquisitions, but assumes that
leverage will remain stable.
The credit facilities will be secured by a first priority interest in
and lien on substantially all of ATC's assets. Further,
the debt will be guaranteed by all existing and future domestic subsidiaries.
The facilities are rated the same as the Ba3 CFR due to the absence of
claims that would otherwise afford debt cushion for secured lenders.
The Ba3 ratings for the debt instruments reflect both the overall probability
of default for ATC, to which Moody's has assigned a B1 PDR,
and a below-average mean family loss given default assessment of
35% (or an above-average mean family recovery estimate of
65%), in line with Moody's LGD Methodology and typical treatment
for an all-first-lien senior secured debt capital structure.
Moody's subscribers can find further details on ATC's ratings in
the credit opinion published on www.moodys.com.
ATC's ratings were assigned by evaluating factors we believe are
relevant to the credit profile of the issuer, such as i) the business
risk and competitive position of the company versus others within its
industry, ii) the capital structure and financial risk of the company,
iii) the projected performance of the company over the near to intermediate
term, and iv) management's track record and tolerance for risk.
These attributes were compared against other issuers both within and outside
of ATC's core industry and ATC's ratings are believed to be
comparable to those of other issuers of similar credit risk.
AutoTrader.com, Inc. with its headquarters in Atlanta,
GA, is the Internet's leading automotive classifieds marketplace
and consumer information website. ATC is controlled by Cox Enterprises,
Inc. Pro forma for the 25% equity stake sale, ownership
will be split between CEI (68%), Providence Equity Partners
(25%), Kleiner Perkins (6%) and ATC's management
and other stockholders (less than 2%).
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Rates AutoTrader.com Ba3; Outlook Stable
Alexandra S. Parker
Corporate Finance Group
Moody's Investors Service
No Related Data.
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