Research: Rating Action: Moody’s downgrades Driven Holdings’ CFR to B3

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New York, November 22, 2022 — Moody’s Investors Service (“Moody’s”) has downgraded the Corporate Family Rating (CFR) of Driven Holdings, LLC (“Driven Holdings”) from B3 to B2, its Probability Rating (PDR) at B3-PD from B2-PD and its $500 million senior secured term loan and $300 million revolving credit facility ratings at B3 from B2. Moody’s also changed the speculative liquidity rating from SGL-2 to SGL-1. The outlook remains stable.

The downward revision reflects higher than expected leverage with Moody’s Q3 2022 lease-adjusted debt-to-EBITDA LTM ​​ratio of approximately 8.3x (pro forma for the 365 securitization issuance). million in October 2022 and the Revolver repayment of $300 million), which is well above the previous downgrade trigger of 6.75x. Taking into account the Company’s estimate for EBITDA acquired by LTM, Moody’s debt-to-lease-adjusted EBITDA ratio of approximately 7.6x is still above the downgrade threshold.

Downgrades:

..Issuer: Driven Holdings, LLC

…. Corporate family ranking, downgraded from B2 to B3

…. Default scoring probability, downgraded to B3-PD from B2-PD

…. Speculative liquidity rating, downgraded to SGL-2 from SGL-1

….Senior Secured Term Loan B, downgraded from B2 (LGD4) to B3 (LGD3)

….Senior Secured Revolving Credit Facility, downgraded from B2 (LGD4) to B3 (LGD3)

Outlook Actions:

..Issuer: Driven Holdings, LLC

….Outlook remains stable

RATINGS RATIONALE

Driven Holdings’ B3 CFR reflects governance considerations, particularly the company’s very aggressive financial strategies under a majority private equity stake, including its history of relying primarily on debt to finance the rapid growth of company-owned stores and a consistently high level of profit adjustments. Moody’s expects leverage to be in the mid-7x range over the next 12-18 months, depending on the pace of acquisitions and new site development. Additionally, integration and financing risks associated with acquisitions and industry challenges associated with staffing, supply chain and product inflation add downside risks. Moody’s Adjusted Debt calculation includes standard adjustments for operating leases and excludes net cash on the balance sheet and Moody’s Adjusted EBITDA does not add costs and expenses allowed under the credit agreement, such as acquisition-related costs.

In addition, while Moody’s considers the core group, Driven Holdings, LLC to have good liquidity, this is largely provided by its pro forma cash and cash equivalents of approximately $190 million, a $300 million revolving credit facility and alternative liquidity provided by sale-leaseback transactions of its owned stores. Operating cash flow has not been sufficient to fully cover the company’s significant growth CAPEX investments and acquisitions to increase store counts and profits.

The B3 CFR is backed by Driven Holdings’ significant system-wide revenue scale of over $5 billion, its market position as one of the largest automotive service operators with over 4,700 locations and multiple brands across a wide range of industry segments including paint, collision, glass, oil change, scheduled maintenance, car wash and parts supply. The B3 CFR is also supported by the national brand recognition of its portfolio companies, including Meineke and Maaco, as well as the company’s good liquidity profile.

The B3 rating on the term loan reflects the restricted group Driven Holdings which is highly dependent on the regular distribution of residuals and SPV management fees from all corporate securitization vehicles (WBS) to support its operations and flows. cash. In addition to the assets of the car wash, the Automotive Training Institute and certain company-owned store assets which together are not included in the WBS, the WBS has a priority interest in substantially all of the revenue-generating assets revenues from Driven Brands, including current and future intellectual property. for each brand, royalties, all existing and future franchise and development agreements, earnings from certain company-owned maintenance and paint, collision and glass locations and related store assets, earnings of certain activities in Canada and the distribution margin of hard parts and accessories in the US.

The stable outlook reflects Moody’s forecast for good liquidity over the next 12 to 18 months and positive free cash flow including sale and leaseback proceeds.

FACTORS THAT MAY LEAD TO IMPROVEMENT OR DEGRADATION OF RATINGS

Ratings could be improved with a successful integration of acquisitions, a sustained organic improvement in operating performance and a more moderate financial policy which translates into a sustainable strengthening of credit measures with a debt/EBITDA ratio consistently below 6.75x and an EBITA/interest ratio maintained above. 1.75 times. A higher rating would also require at least good liquidity.

The ratings could be downgraded if the EBITA/interest ratio approaches 1x and/or if Driven Holdings’ financial policy choices result in an inability to generate positive free cash flow including sale-leaseback proceeds and/or if liquidity deteriorates.

Driven Holdings, LLC, is the borrowing subsidiary of the select group of Driven Brands Holdings Inc. (Driven Brands), based in Charlotte, North Carolina. Driven Brands is a large, publicly traded automotive service company (NASDAQ:DRVN) operating in North America and Europe, serving a range of consumer and commercial automotive needs, including paint, collision, glass, oil change, regular maintenance, car wash, and parts supply. Annual revenue is approximately $2 billion, while system-wide sales generated by more than 4,700 primarily franchise/independent locations exceed $5 billion. Driven Brands is majority owned and controlled by subsidiaries of Roark Capital Group, a private equity firm.

The main methodology used in these ratings is Retail published in November 2021 and available on https://ratings.moodys.com/api/rmc-documents/356421. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to the jurisdiction: Ancillary services, Disclosures to the rated entity, Disclosures to be provided by the rated entity.

The ratings have been communicated to the rated entity or its designated agent(s) and issued without modification resulting from such communication.

These notes are solicited. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

The worldwide credit rating on this credit rating announcement was issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

Stefan Kahandaliyanage, CFA
Vice President – Senior Analyst
Corporate Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Margaret Taylor
Associate General Manager
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Release Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653


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