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Rating Action:

Moody's affirms ATU's Caa1 CFR, changes outlook to stable

18 Oct 2010

Approximately EUR 600 million rated debt affected

Frankfurt am Main, October 18, 2010 -- Moody's Investors Service has today affirmed the Caa1 corporate family rating (CFR) of A.T.U. Auto-Teile-Unger Investment GmbH & Co. KG and the Caa3 (LGD5, 87%) rating for the existing floating rate notes (initially EUR150 million) issued by A.T.U. Auto-Teile-Unger Investment GmbH & Co. KG. At the same time Moody's has changed to definitive the B3 (LGD3, 37%) ratings for ATU's EUR375 million fixed rate senior secured notes and its EUR75 million floating rate senior secured notes due May 14, 2014. The outlook on the ratings has been revised to stable from negative.

The outlook change to stable was prompted by the successful placement of senior secured notes worth EUR450 million and the group's ability to obtain a EUR30 million revolving credit facility. The successful refinancing extends the group's debt maturity profile with no major debt coming due before 2014 and gives the group more time to continue its gradual recovery in earnings.

Moody's previously noted on 24 September 2010 that a successful refinancing could lead to a change in the outlook to stable from negative.

RATINGS RATIONALE

ATU's Caa1 corporate family rating (CFR) is supported by the demonstrated commitment and ability of ATU's management to restructure and reposition the group. Major achievements have been significant cost savings through personnel reduction and improved sourcing, as well as the increased efficiency of sales and marketing activities. In total, the group estimates that it has reduced its cost base by approximately EUR116 million compared with 2007 levels. In addition, ATU made further progress in repositioning its business model to its original and successful value-for-money proposition, providing good quality parts of well-known brands and good service at a low price.

However the rating remains constrained by the group's high leverage (Debt/EBITDA of 7.7x as of June 30, 2010) and its operating performance being to a large extent reliant on the winter tire segment.

Future events that have potential to improve ATU's outlook or ratings include a continued improvement in ATU's operating performance, especially during the important winter tire season, which should result in a significant reduction in leverage to levels below 7x debt/EBITDA as well as the return to notable free cash flow generation for 2010.

Consideration for downward migration would arise if the group's restructuring efforts proved to be insufficient, leading to reduced prospects that ATU can recover earnings to a level that sustainably supports the company's current debt load.

Today's change to definitive ratings for the new senior secured follows the assignment of provisional ratings on September 24, 2010 and Moody's receipt and review of final documentation, the terms and conditions of which are not materially different from those previously conveyed to Moody's.

Both the EUR375 million fixed rate senior secured notes as well as the EUR75 million floating rate senior secured notes have been issued by A.T.U. Auto-Teile-Unger Handels GmbH & Co. KG, a subsidiary of A.T.U. Auto-Teile-Unger Investment GmbH & Co. KG and the most significant operating entity of ATU group. The EUR375 million fixed rate senior secured notes, the EUR75million floating rate senior secured notes as well as the new EUR30 million super senior revolving credit facility, will benefit from guarantees of subsidiaries of the issuer A.T.U. Auto-Teile-Unger Handels GmbH & Co. KG. Together with the issuer, these subsidiaries represent substantially all of the revenues and tangible assets of the group (defined as PP&E, inventories, trade receivables, trademarks, franchises, industrial rights and similar rights).

Moreover, the proposed senior secured notes and the revolving credit facility will be secured by shares of capital stock of the issuer and the guarantors as well as certain inventory, receivables, moveable assets and trademarks of the issuer. Land, buildings and equipment are not part of the collateral since ATU leases most of its branches and owns only minor amounts of this asset category (as of December 2009, ATU reported consolidated property, plant and equipment amounting to EUR55 million). In total, Moody's estimates that the collateral represents the clear majority of the group's tangible assets. In this context, it should also be noted that goodwill (EUR588 million as per December 2009), represents a large portion of ATU's assets (EUR 1,066 million as December 2009), and that the book value of its tangible assets would be insufficient to cover the group's financial debt.

The revolving credit facility will rank super senior to the proposed senior secured notes on distribution of enforcement proceeds, or bankruptcy or insolvency proceeds of security. The proposed senior secured notes will rank effectively senior to the existing floating-rate notes, which benefit only from subordinated upstream guarantees and not from tangible collateral.

The B3 (LGD3, 37%) rating for the EUR375 million fixed rate senior secured notes and the EUR75 million floating rate senior secured notes is the outcome of Moody's application of its Loss Given Default Methodology, with the rating agency having taken the view that the security package comprises essentially all of the group's assets. The B3 (LGD3, 37%) rating is one notch above the Caa1 CFR whereas the Caa3 (LGD5, 87%) rating on the existing floating-rate notes remains two notches below the CFR. Moody's notes that, apart from the proposed senior secured notes and the existing floating-rate notes, ATU's debt structure will consist of only the new EUR30 million revolving credit facility and minor amounts of other bank debt following the refinancing. Moody's further notes that ATU has substantial lease obligations, of which EUR119 million (expected lease payments for 2010) has been considered as a lease rejection claim and ranked on par with the existing floating rate notes in the rating agency's loss-given-default analysis.

Downgrades:

..Issuer: ATU Auto-Teile-Unger Handels GmbH & Co. KG

....Senior Secured Regular Bond/Debenture, Downgraded to LGD3, 37% from LGD3, 35%

Assignments:

..Issuer: ATU Auto-Teile-Unger Handels GmbH & Co. KG

....Senior Secured Regular Bond/Debenture, Assigned B3

....Senior Secured Regular Bond/Debenture, Assigned 37 - LGD3 to B3

Outlook Actions:

..Issuer: A.T.U. Auto-Teile-Unger Invtmt GmbH & Co. KG

....Outlook, Changed To Stable From Negative

..Issuer: ATU Auto-Teile-Unger Handels GmbH & Co. KG

....Outlook, Changed To Stable From Negative

The principal methodologies used in rating A.T.U. Auto-Teile-Unger Investment GmbH & Co. KG were Global Retail Industry published in December 2006, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Measured by sales, A.T.U. Auto-Teile-Unger is Germany's leading operator of specialist auto retail stores with integrated, brand-independent workshops. The group operates more than 640 retail stores with approximately 12,500 employees, mostly in Germany but also in Austria, Czech Republic, Netherlands, Switzerland and Italy. In 2009, ATU generated EUR1.2 billion of sales, of which approximately 80% of were generated through sales of car parts and accessories and 20% from workshop services. ATU is owned by private equity firm KKR and management.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating is/are the following: parties involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information, confidential and proprietary Moody's Analytics' information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

The rating has been disclosed to the rated entity or its designated agents and issued with no amendment resulting from that disclosure.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the three years preceding the Credit Rating Action. Please see the ratings disclosure page www.moodys.com/disclosures on our website for further information.

MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Frankfurt am Main
Falk Frey
Senior Vice President
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Paris
Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany

Moody's affirms ATU's Caa1 CFR, changes outlook to stable
No Related Data.
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