Moody's rates Pacer loan B1

Moody's Investors Service assigned a B1 rating to Pacer International Inc.'s proposed $330 million senior secured credit facilities, which consist of a $75 million revolving credit facility due 2008 and a $255 million amortizing term loan due 2010. The outlook is stable.

Moody's said the B1 rating assigned to the new credit facilities is the same as Pacer's senior implied rating as the new facilities represent nearly all of the company's pro forma $255 million of debt on the company's balance sheet upon close. The senior implied rating has been confirmed by Moody's, as credit fundamentals are only moderately affected despite both an increase in total debt and the replacement of a significant amount of subordinated notes with senior secured debt.

The stable outlook reflects Moody's, expectations that the company's free cash flow, derived from a largely non-asset-based business model, will be robust enough to adequately cover debt service in the near term, without substantial requirements to draw on the new revolving credit facility.

Although the proposed re-financing results in a higher total debt balance (pro forma $255 million upon closing versus $246 million as of April 2003), relative leverage levels only increase slightly, as debt/EBITDA increases from 2.8x as of the 12 months to April 2003 to pro forma 2.9x, Moody's said.

Moreover, since interest expense is estimated to reduce significantly due to the replacement of the higher-rate senior subordinated notes with term loan borrowings, both free cash flow and interest coverage will improve materially.

As a percentage of total debt, free cash flow improves from approximately 11% for the 12 months to April 2003 to pro form estimated 15%, while EBIT coverage of interest increases from about 2.6x to 4.0x.

However, Pacer's liquidity will be somewhat reduced, as the new revolving credit facility, at a $75 million commitment, is $25 million less than the facility it is replacing. Further, the new term loan facility, which amortizes at a rate of $15-$25 million per year, replaces a term loan facility which had only required nominal amortization.

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