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NEW YORK, Oct. 15,
1997 Standard & Poor's today affirmed its
single-'B' subordinated debt rating, and double-'B'-minus corporate credit and bank loan
ratings on Safelite Glass Corp. following the company's announcement that it plans to
merge with Vistar Inc. in a stock transaction. About $100 million of rated debt and $180
million of bank loans are affected.
The
combined company will be a leading provider of auto glass services and insurance-claims
management solutions with annual sales through company owned stores and independent
subcontractors in excess of $800 million. The merger will result in a near doubling of
revenues for Safelite, which will be the surviving entity. However, pro forma debt
protection measures will remain largely unchanged.
Current
ratings reflect Safelite's aggressive financial risk profile, countered by a solid
business position and good prospects for revenue and earnings growth over the next few
years. Safelite is the nation's largest provider of replacement automotive glass
(primarily windshields). It also processes automotive glass replacement claims for the
insurance industry. Safelite operates two windshield manufacturing facilities and
distribution centers, 74 warehouses, and over 500 retail service locations in 48 states.
Vistar currently owns 356 stores nationwide.
Both
companies offer a broad array of auto glass and related services, including glass
replacement, rock chip repair, truck backslider windows, and tinting services. The
combined company will provide coverage through a 50-state network of company owned stores
covering 77% of the U.S. population. Prospects for additional growth remain good, as the
combined company should benefit from increased outsourcing opportunities in the insurance
industry and from further consolidation in the automotive glass replacement and repair
market.
A
solid earnings outlook is important given the company's aggressive financial risk profile.
Earnings before interest, taxes, depreciation, and amortization (EBITDA) /
interest is
currently estimated to be about 1.8 times (x) for Safelite and is about 2.0x on a pro
forma basis. Financial ratios are expected to improve over time as a result of increased
operating leverage as the revenue base increases and from potential cost savings from the
combination of the two companies. Pro forma funds from operations to debt, currently
estimated to be in the low teen percent range, is expected to increase modestly to the
mid-teen percent range over the next three years.
OUTLOOK: STABLE. Downside risk is
mitigated by prospects for free cash generation over the next few years which should
enable Safelite to reduce debt levels. However, debt is not likely to be reduced enough to
warrant an upgrade over the next year or two, Standard & Poor's said.
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