Moody's assigns Caa2 to New SK, loans

Moody's Investors Service said it assigned New SK Holdco Sub, LLC (Service King) a Caa2 corporate family rating, a Caa2-PD probability of default rating and Caa2 ratings to Service King's $803 million senior secured first lien term loan due June 2027 and $57 million senior secured first-lien revolving credit facility expiring December 2026.

"The ratings assignment reflects the resolution of Service King's near-dated debt maturities via an out-of-court restructuring that resulted in a $500 million reduction in debt, a $160 million cash injection, and maturity extensions that will give the company about three years of operating runaway to turn the business around and significantly improve Service King's very weak credit metrics," said Stefan Kahandaliyanage, a Moody's vice president, in a press release.

"However, despite the reduction in debt and the cash infusion, Service King's credit metrics and liquidity both remain very weak and the company is expected to continue to generate negative free cash flow through the end of 2023," added Kahandaliyanage.

"In order for Service King to reduce leverage the company needs to complete a significant overhaul of its front and back of shop operations as well as improve body technician productivity, hiring and retention. Service King's management is now being led by collision industry veterans from former rival Crash Champions which we view positively and vehicle miles traveled, a key macro driver for the industry, has recently rebounded to pre-Covid levels," Kahandaliyanage said.

The outlook is stable.

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