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02 Feb 2011
Approximately $370 million in rated debt affected
New York, February 02, 2011 -- Moody's Investors Service lowered Coach America's ("Coach America")
Corporate Family Rating ("CFR") and Probability of Default Rating ("PDR")
to Caa1 and Caa3, respectively from B3. The Caa1 CFR incorporates
the expectation of continued high leverage and weak credit metrics due
to ongoing softness in macroeconomic conditions including persistent high
single-digit unemployment levels. The Caa3 PDR reflects
the increased likelihood that the company might have to enter into a restructuring
due to the inability to meet current covenant threshold requirements and
the need for funding to cover maintenance-related capital expenditures.
The outlook is negative. These actions conclude the review for
possible downgrade initiated on August 2, 2010.
The CFR of Caa1 considers Coach America's continuing highly levered
capital structure, very weak EBIT to interest coverage (under one
times) and negative free cash flow. The company's performance has
been lower than Moody's had anticipated. Although Moody's
notes that the company has a well positioned business model, it
is in a cyclical industry currently under duress and continues to carry
the onerous debt burden taken on in 2007 when the company was bought by
its current equity sponsor. Moody's expects that the company's
financials are likely to remain depressed throughout the intermediate
term notably given the ongoing economic malaise combined with anticipated
required capital investments.
More positively, Moody's acknowledges that prior to the slowdown
in domestic economic activity, the company proactively managed its
cost structure. Additionally, Coach America's revenue base
benefits from high proportions of contracted or chartered business.
The company also maintains strong market positions in its markets.
Nonetheless, the lack of free cash flow available to pay down debt
limits Coach America's ability to meaningfully reduce elevated debt
The negative outlook reflects our view that liquidity is weak and that
a restructuring may be needed in the very near term.
The ratings would be subject to downward pressure if the company's margins
were to deteriorate, if volumes were to further decline, or
if the liquidity profile were to worsen. Credit metrics that would
likely accompany the aforementioned include: debt/EBITDA above 7.0
times, EBITA to interest below 0.5x and persistent negative
free cash flow.
The outlook could be stabilized if there is sustained improvement in Coach
America's liquidity profile affording the company ample headroom going
forward. Although less likely in the near term, positive
momentum could result from sustained free cash flow generation,
permanent debt reduction (i.e. Debt to EBITDA sustained
below 6.0 times and EBIT to Interest sustained above 1.0
Ratings downgraded (LGD assessments subject to change):
Corporate Family to Caa1 from B3
Probability of Default to Caa3 from B3
$30 million 1st lien revolving credit facility due 2013,
to Caa1 (LGD-3, 44%) from B2 (LGD-3,
$50 million 1st lien letter of credit facility due 2014,
to Caa1 (LGD-3, 44%) from B2 (LGD-3,
$195 million 1st lien term loan due 2014, to Caa1 (LGD-3,
44%) from B2 (LGD-3, 40%)
$50 million 1st lien delayed draw term loan due 2014, to
Caa1 (LGD-3, 44%) from B2 (LGD-3, 40%)
$55 million 2nd lien term loan due 2014, to Caa3 (LGD-6,
90%) from Caa2 (LGD-5, 88%)
The last rating action on Coach America took place on August 2,
2010 at which time the ratings were put under review for possible downgrade.
For further information please refer to the credit opinion to be posted
The principal methodology used in this rating was Loss Given Default for
Speculative-Grade Non-Financial Companies in the U.S.,
Canada and EMEA published in June 2009.
Coach America Holdings, Inc., headquartered in Dallas,
Texas, is a charter bus operator and motorcoach services provider
in the United States. The company had fiscal year 2010 revenues
of approximately $417 million.
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 maintaining
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
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and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
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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.
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 downgrades Coach America's CFR to Caa1 and PDR to Caa3; outlook negative
250 Greenwich Street
New York, NY 10007
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