Group 1 Automotive, Inc. -- Moody's changes Group 1's outlook to stable; affirms Ba1 CFR

Rating Action: Moody's changes Group 1's outlook to stable; affirms Ba1 CFR

Global Credit Research - 31 Jul 2020

New York, July 31, 2020 -- Moody's Investors Service, Inc. ("Moody's") today affirmed the ratings of Group 1 Automotive, Inc. ("Group 1") including the Ba1 corporate family rating. The outlook was changed to stable from negative. The SGL remains unchanged at SGL-2.

"The outlook change to stable reflects the effectiveness of Group 1's strategy and execution as it has dealt with decreased revenues across the board due to the coronavirus, with the end result operating income is actually higher for the first half of 2020 compared to prior year despite a 19% drop in revenue," stated Moody's Vice President Charlie O'Shea. "This validates the flexibility in Group 1's business model, with management following a similar playbook as during the 2008-09 recession by quickly reducing variable costs, with SG&A down almost $100 million year-over-year, outweighing the reduction in gross profit due to reduced volumes," continued O'Shea. "With reductions in borrowing costs due to April's debt repayment via lower-cost mortgage financing, Group 1's interest coverage has rebounded to around 4.5 times, well above Moody's 4 times downgrade trigger."

Affirmations:

..Issuer: Group 1 Automotive, Inc.

.... Probability of Default Rating, Affirmed Ba1-PD

.... Corporate Family Rating, Affirmed Ba1

....Senior Unsecured Regular Bond/Debenture, Affirmed Ba2 (LGD6 from LGD5)

Outlook Actions:

..Issuer: Group 1 Automotive, Inc.

....Outlook, Changed To Stable From Negative

RATINGS RATIONALE

Group 1's Ba1 rating considers its flexible operating model, with relatively unpredictable new car profitability exceeded by the more predictable parts and service and growing used car segments, its brand mix, which is weighted to the historically more stable imports, and its geographic diversity, with presence in the UK and Brazil, with used businesses in those markets driving profitability under normal circumstances. Moody's notes that challenges remain in both of these international markets, as well as the potential for another "wave" of pandemic-related pressures in the US, with Group 1's heavy weighting in Texas noteworthy. The stable outlook recognizes the flexibility in Group 1's cost structure to mitigate the potential continued negative effect on revenues of the coronavirus such that credit metrics will largely be maintained at current levels.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Ratings could be upgraded if operating performance improved and financial policy remained conservative such that debt/EBITDA was maintained around 3.5 times and EBIT/Interest was sustained above 5 times, with liquidity remaining at least good. Ratings could be downgraded if negative trends in operating performance or financial policy decisions resulted in debt/EBITDA rising above 4.75 times or EBIT/Interest falling below 4 times, or if liquidity were to weaken.

Headquartered in Houston, Texas, Group 1 Automotive, Inc. is a leading retailer and servicer of new and used vehicles in the US, with operations in the United Kingdom and Brazil as well.

The principal methodology used in these ratings was Retail Industry published in May 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1120379. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Charles O'Shea VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Margaret Taylor Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653

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