-- The two largest U.S. parking garage operators, Standard Parking Corp. (unrated) and Central Parking Corp. (CPC), have entered an agreement to merge their operations.
-- Standard Parking will assume $210 million of CPC's debt, net of cash acquired, through a $450 million senior secured credit facility; we expect remaining funds to be used primarily for refinancing of Standard Parking's existing debt.
-- We have placed our 'CCC' corporate credit rating and all CPC-related ratings on CreditWatch with positive implications. Rating Action On March 1, 2012, Standard & Poor's Ratings Services placed its 'CCC' corporate credit rating and all other related ratings on Nashville, Tenn.-based Central Parking Corp. on CreditWatch with positive implications. Standard & Poor's could either raise or affirm the rating when it resolves the CreditWatch listing. Rationale The CreditWatch placement follows the announcement that CPC entered a definitive agreement on Feb. 29, 2012, to merge with Standard Parking Corp. in a transaction totaling $450 million. The boards of directors of both companies have approved the transaction, as have CPC's stockholders, who will own 28% of the combined company and receive $27 million in cash consideration in three years. Completion of the transaction is subject to Standard Parking's stockholders' approval as well as customary closing conditions, including antitrust and other regulatory review and consummation of financing. Management has indicated that it expects to complete the transaction by Sept. 30, 2012. We had previously anticipated that CPC would violate its leverage covenant in the fiscal second quarter of 2012 (ending March) (see the summary analysis published Dec. 19, 2011, on RatingsDirect). However, the proposed merger will, in our view, address this risk. As of Dec. 31, 2011, CPC had about $230 million in total debt outstanding, approximately $5.5 million in cash and cash equivalents, and less than 10% covenant cushions. The proposed transaction and recapitalization, in our view, creates a combined company with a pro forma adjusted leverage ratio (total debt to EBITDA), including lease adjustments, in the mid-8x area, and we expect cushion on the new covenants to be 10%-20%. CreditWatch The CreditWatch listing reflects our expectation that credit metrics would improve upon completion of the merger transaction. We also believe liquidity will improve as we expect the new credit facility's covenants will be less restrictive. We could raise or affirm our ratings following our analysis of the combined entity's business and financial profile, and if the company has sufficient covenant headroom, at the closing of the transaction. We would withdraw our ratings if CPC's existing debt is repaid, which we currently anticipate. (CPC does not disclose its financials publicly). Ratings List Ratings Put On CreditWatch
To From Central Parking Corp. Corporate credit rating CCC/Watch Pos/-- CCC/Negative/-- Senior secured First-lien term loan CCC/Watch Pos CCC
Recovery rating 3 3 Synthetic letter of credit CCC/Watch Pos CCC
Recovery rating 3 3 Revolving credit CCC/Watch Pos CCC
Recovery rating 3 3 Second-lien term loan CC/Watch Pos CC
Recovery rating 6 6