LCM INVESTMENTS HOLDINGS II, LLC -- Moody's assigns first time Ba3 corporate family rating to Morgan Automotive

Rating Action: Moody's assigns first time Ba3 corporate family rating to Morgan AutomotiveGlobal Credit Research - 19 Apr 2021New York, April 19, 2021 -- Moody's Investors Service, Inc. ("Moody's) today assigned first time ratings to LCM INVESTMENTS HOLDINGS II, LLC (dba "Morgan Automotive", "Morgan"), including a Ba3 corporate family rating, a Ba3-PD probability of default rating and a B2 rating to Morgan's proposed $650 million senior unsecured notes issue. The outlook is stable.Proceeds from the proposed notes will be used in addition to a proposed unrated senior secured credit facilities to refinance Morgan's existing debt, pay a dividend to shareholders, and increase Morgan's cash balance . Moody's ratings and outlook are subject to receipt and review of final documentation."Morgan is well-positioned in its core Florida market, with a meaningful presence in the central part of the state, and has a favorable operating and acquisition track record, resulting in a reasonable quantitative profile, with debt/EBITDA of around 4.5 times and EBIT/interest of around 3.5 times, both of which are pro forma for this proposed new financing," stated Moody's Vice President Charlie O'Shea. "Premium and luxury mix is less-favorable than the majority of our rated universe, however this represents an opportunity for Morgan as it continues to expand, with a key credit factor going forward a disciplined approach to potential acquisitions," continued O'Shea. The rating also reflects governance considerations particularly that Morgan's financial strategies will support acquisitions and occasional special dividends but only to the extent that leverage remains at moderate levels.Assignments:..Issuer: LCM INVESTMENTS HOLDINGS II, LLC.... Probability of Default Rating, Assigned Ba3-PD.... Corporate Family Rating, Assigned Ba3....Senior Unsecured Regular Bond/Debenture, Assigned B2 (LGD5)Outlook Actions:..Issuer: LCM INVESTMENTS HOLDINGS II, LLC....Outlook, Assigned StableRATINGS RATIONALEMorgan Automotive's Ba3 rating considers its favorable position in the dynamic and competitive Florida market, its credit metrics, with debt/EBITDA on a pro forma basis for the proposed transaction and dividend payment of around 4.5 times and EBIT/interest of around 3.5 times, experienced management team, improving brand and used vehicle mix, and a cost structure that was rationalized during the COVID-19 pandemic, which will yield permanent savings. Ratings also consider its ownership by a family investment fund, and its good liquidity. Ratings are constrained by its narrow geographic focus and its financial strategies which are expected to support acquisitions and occasional special dividends but only to the extent that leverage remains moderate. The B2 rating on the proposed senior unsecured notes recognizes its position in the capital structure and follows application of Moody's Loss Given Default methodology, which includes the floor plan facility as a secured obligation.The stable outlook reflects Moody's view that Morgan will remain disciplined in its approach to sourcing, pricing, and integrating future acquisitions, and that its future shareholder return strategy will be relatively benign.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSRatings could be upgraded if operating performance continues its positive trend resulting in debt/EBITDA being sustained below 4 times and EBIT/interest maintained above 4 times, while preserving good liquidity, and an overall balanced financial strategy that ensures maintenance of this profile no matter the industry environment. An upgrade would also require increased brand diversity, as well as continued increased geographic breadth. Ratings could be downgraded if for any reason debt/EBITDA trended towards 5 times or EBIT/interest fell below 3 times, or if liquidity were to weaken.Morgan Automotive, with headquarters in Tampa, Florida, operates 44 franchised dealerships representing 27 nameplates and 1 used vehicle dealership in Florida. The company is supported by Redwood Capital, which is considered a "family office." Revenues for the year ended December 31, 2020 were about $3.2 billion.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 DISCLOSURESFor 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. 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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_1243406.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.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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. 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