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Global Credit Research - 18 Mar 2011
Approximately $2.9 Billion of debt securities affected
New York, March 18, 2011 -- Moody's Investors Service today affirmed Pilot Travel Centers, LLC's
(Pilot) Ba2 Corporate Family Rating (CFR) and Ba2 (LGD 4, 59%)
senior secured bank credit facility ratings. Moody's also
assigned a Ba2 senior secured rating to Pilot's proposed new senior
secured bank credit facility. In addition, Moody's
lowered Pilot's Probability of Default Rating (PDR) to Ba3 from
Ba2 and changed its rating outlook to stable from positive.
Moody's ratings are subject to receipt and review of final documentation.
In the event the transaction does not close as planned, the Probability
of Default Rating would likely revert back to Ba2.
Proceeds from the proposed new bank credit facility will be used to re-finance
Pilot's existing bank credit facility, repay the company's
$260 million guaranteed subordinated notes (not rated by Moody's),
and to fund a $1.0 billion dividend to shareholders.
"The change in outlook to stable reflects Pilot's more aggressive
financial policy with the funding of a shareholder dividend with additional
debt that will result in a deterioration of debt protection metrics"
stated Bill Fahy, Senior Analyst at Moody's. "Despite
higher debt levels associated with the re-financing, Moody's
believes that debt protection metrics will remain appropriate for the
company's Ba2 Corporate Family Rating as management focuses on debt
reduction and operating performance remains stable" commented Fahy.
However, Pilot's ability to incur additional debt without
negatively pressuring its ratings is unlikely based on current earnings
Ratings affirmed are:
Corporate Family Rating of Ba2
$500 million senior secured revolving credit facility expiring
2014 at Ba2 (LGD 4, 59%)
$500 million senior secured term loan A due 2014 at Ba2 (LGD 4,
$666.5 million senior secured term loan B due 2016 at Ba2
(LGD 4, 59%)
$345 million senior secured term Loan C due 2017, at Ba2
(LGD 4, 59%)
Ratings assigned are:
$800 million senior secured revolving credit facility expiring
2016, rated Ba2 (LGD 3, 41%)
$800 million senior secured term loan A due 2016, rated Ba2
(LGD 3, 41%)
$1.0 billion senior secured term loan B due 2018,
rated Ba2 (LGD 3, 41%)
$343 million senior secured term Loan C due 2018, rated Ba2
(LGD 3, 41%)
Ratings lowered are;
Probability of Default Rating lowered to Ba3 from Ba2
The outlook was changed to stable from positive
The downgrade of the PDR to Ba3 is driven by Pilot's proposed all
bank capital structure which increases the company's overall probability
of default as well as expected recovery in a distress scenario.
The Ba2 Corporate Family Rating reflects Pilot's relatively good
debt protection measures -- pro forma for the re-financing,
good liquidity, meaningful scale, geographic reach,
and relatively diverse profit stream. The ratings are constrained
by Pilot's relatively aggressive financial policy, reliance
on high volume, low margin fuel sales, the risk associated
with the integration of the Flying J acquisition, some regional
concentration, and the inherent risk of additional acquisitions
in a consolidating industry.
Factors that could result in an upgrade include a financial policy and
growth strategy that remained balanced and supported the credit profile
required of a higher rating. An upgrade would also require a sustained
improvement in debt protection metrics driven in part by stronger operating
performance of its fuel business, with gross margins from Pilot's
non- fuel businesses remaining stable. A higher ratings
would also require a the successful integration of the Flying J acquisition
and maintaining good liquidity. Quantitatively, an upgrade
would require sustained debt to EBITDA of well below 4.0 times,
EBITA coverage of interest of above 2.5 times, and retained
cash flow to net debt of over 14%.
A downgrade could occur in the event that debt protection measures weaken
or liquidity deteriorated. An inability to successfully integrate
the Flying J acquisition or the adoption of an aggressive financial policy
or growth strategy that negatively impacted debt protection metrics or
liquidity could also pressure the ratings. Specifically,
ratings could be downgraded if debt to EBITDA exceeded 4.5 times,
EBITA coverage of interest fell below 1.75 times, or liquidity
The last rating action for Pilot occurred on November 24, 2010,
when Moody's affirmed the company's Corporate Family,
Probability of Default, and senior secured bank ratings at Ba2 and
changed the outlook to positive from stable.
The principal methodology used in this rating is the Global Retail Industry
Rating Methodology published in December 2006.
Pilot Travel Centers LLC is a partnership that owns and operates approximately
440 travel Centers across the U.S. and Canada. In
addition to fuel, Pilot locations have convenience stores,
fast food restaurants, and other amenities. Annual revenues
are approximately $17 billion.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
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.
William V. Fahy
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Kendra M. Smith
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's affirms Pilot's Ba2 CFR, lowers PDR to Ba3; changes outlook to stable
250 Greenwich Street
New York, NY 10007
No Related Data.
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