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Rating Action:

Moody's assigns (P)B3 rating to ATU's senior secured notes; affirms Caa1 CFR

24 Sep 2010

Approximately EUR 600 million rated debt affected

Frankfurt am Main, September 24, 2010 -- Moody's Investors Service has today assigned a provisional (P)B3 rating to ATU's proposed senior secured notes worth EUR450 million. At the same time, Moody's has also affirmed the Caa1 corporate family rating (CFR) of A.T.U. Auto-Teile-Unger Investment GmbH & Co. KG. and the Caa3 rating for the existing floating rate notes (initially EUR150 million) issued by A.T.U. Auto-Teile-Unger Investment GmbH & Co. KG. The outlook remains negative.

ATU plans to raise EUR450 million of senior secured debt and obtain a EUR30 million super senior revolving credit facility in order to refinance its existing bank debt. The proposed EUR450 million debt financing will be in the form of senior secured notes or pari passu loans. The notes will not be registered under the United States Securities Act of 1933, as amended, and may not be offered or sold within the US (as defined in Regulation S under the Securities Act) except to qualified institutional buyers under Rule 144A and to non-US persons outside the US under Regulation S of the Act.

Given the proposed maturity in 2014, a successful issue would term out ATU's debt financing, which currently includes amortising and bullet term loans falling due over 2011-2013. As Moody's believes that ATU's existing debt maturity profile will be very difficult for the group to meet, a successful issue would take pressure off the group's refinancing needs and be viewed by the rating agency as a credit positive. Moreover, an extended debt maturity profile would give ATU more time to continue its gradual earnings recovery, which started in 2008 following a change in the group's senior management, and potentially achieve leverage levels that would allow for a higher rating. Therefore, an outlook change to stable from negative is likely if the proposed refinancing materialises as planned. ATU's current high leverage levels of approximately 7.7x debt/EBITDA as of Q2 2010 (as adjusted by Moody's) constrain the group's CFR at Caa1, but an upgrade to B3 would become possible if, amongst other developments, leverage to be further reduced to levels below 7x debt/EBITDA.

While ATU's current high leverage is the result of earnings erosion over 2006-2008, Moody's notes positively 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. This allowed for a reduction in leverage from 10.6x debt/EBITDA in 2008 to 7.7x as at Q2 2010 on an LTM basis. It also appears that ATU has made good 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, having noted that ATU's leverage remains high, Moody's cautions that the group's revenues and earnings still rely strongly on the winter tyre business, which in turn depends on weather conditions and is, therefore, difficult to predict. Moreover, competition in the car parts and car repair market remains intense, which will continue to challenge ATU's revenues and earnings in future.

The proposed EUR450 million worth of senior secured notes will be 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 proposed 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. Moody's understands that the proposed option of pari passu loans would rank effectively pari passu with the proposed senior secured notes.

The (P)B3 rating for the proposed senior secured notes is the outcome of Moody's application of its Loss Given Default Methodology, with the rating agency having taken the view into account that the security package comprises essentially all of the group's assets. The (P)B3 rating is one notch above the Caa1 CFR whereas the Caa3 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 in the rating agency's loss-given-default analysis.

These provisional ratings are based on draft documentation and summary terms and conditions received so far and are subject to Moody's satisfactory review of final documentation.

Assignments:

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

....Senior Secured Regular Bond/Debenture, Assigned (P)B3, LGD3, 35%

The last rating action was implemented on 11 September 2009, when the outlook on the Caa1 CFR was changed to negative from stable.

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 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 assigning 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.

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

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Frankfurt am Main
Rainer Neidnig
Asst Vice President - Analyst
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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

Moody's Deutschland GmbH
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Moody's assigns (P)B3 rating to ATU's senior secured notes; affirms Caa1 CFR
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