S&P drops AutoNation, rates loans, notes BB+

Standard & Poor's said it lowered AutoNation Inc.'s corporate credit rating to BBB- from BBB, senior unsecured debt rating to BB+ from BBB- and $600 million revolving credit facility due 2010 to BB+ from BBB-. The ratings were removed from CreditWatch with negative implications, and the outlook is stable.

S&P also assigned BB+ ratings to the company's proposed $600 million unsecured term loan due 2010, $300 million floating-rate senior notes due 2013 and $300 million fixed-rate senior notes due 2014.

AutoNation will use the proceeds from the new debt, along with $125 million of borrowings from an existing $600 million revolving credit facility and $200 million of cash, to fund the $1.2 billion share repurchase and the tender and consent solicitation for its $324 million of existing senior notes.

S&P said the downgrade reflects AutoNation's repurchase of 50 million shares of common stock, primarily with new debt. The planned recapitalization will double debt levels to $1.8 billion, reduce equity and increase debt to EBITDA to 2.3x from 1x. The plan indicates that the company is pursuing a slightly more aggressive financial policy than it has in the past, when share repurchases were financed primarily with internally generated cash flow.

However, the agency said it believes AutoNation still has a moderate financial profile characterized by fair profitability and good cash-flow protection and expects the company to keep debt to EBITDA below 2.5x.

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