TEXT-S&P: Central Parking 'CCC' rating remains on watch positive
June 15 - Overview -- In February 2012 the two largest U.S. parking garage operators, Standard Parking Corp. (unrated) and Central Parking Corp. (CPC), entered an agreement to merge their operations. -- We expect the proposed merger to close as proposed in September 2012. -- Our 'CCC' corporate credit rating and all CPC-related ratings remain on CreditWatch with positive implications. Rating Action On June 15, 2012, Standard & Poor's Ratings Services said that its 'CCC' corporate credit rating and all other related ratings on Nashville, Tenn.-based Central Parking Corp. remain on CreditWatch, where they were placed with positive implications on March 1, 2012. CreditWatch with positive implications means that we could either raise or affirm our ratings on the basis of our analysis when we resolve the CreditWatch listing, particularly with respect to the company's debt and covenants. Rationale On Feb. 29, 2012, CPC entered into a definitive agreement to merge with Standard Parking Corp. in a transaction totaling $450 million. The boards of directors of both companies approved the transaction, as did CPC's stockholders, who will own 28% of the combined company and receive $27 million in cash 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 indicated that it expects to complete the transaction by Sept. 30, 2012. We had previously believed that CPC would violate its leverage covenant in the fiscal second quarter of 2012 (ending March). While the application of about $15 million in proceeds from an asset sale averted covenant violation in that quarter, EBITDA cushions remain thin; however, we believe the proposed merger will address this risk before a violation occurs. As of March 31, 2012, CPC had about $216 million in total debt outstanding, approximately $30 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 low-8x area. 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. Based on our forecast, in the absence of a waiver or an amendment to CPC's current credit agreement, we anticipate a violation of the leverage covenant in the fiscal fourth quarter 2012 (ending September). However, we expect the company to address this risk with the concomitant close of the proposed merger. We would withdraw our ratings if CPC's existing debt is repaid, which we currently anticipate. Related Criteria And Research -- Research Update: Central Parking Corp. 'CCC' Rating Placed On Watch Positive On Announcement Of Merger With Standard Parking, March 6, 2012 -- Summary: Central Parking Corp., Dec. 19, 2011 -- Use Of CreditWatch And Outlooks, Sept. 14, 2009 -- Corporate Ratings Criteria 2008, April 15, 2008 Ratings List Ratings Remain On CreditWatch Central Parking Corp. Corporate credit rating CCC/Watch Pos/-- Senior secured First-lien term loan CCC/Watch Pos Recovery rating 3 Synthetic letter of credit CCC/Watch Pos Recovery rating 3 Revolving credit CCC/Watch Pos Recovery rating 3 Second-lien term loan CC/Watch Pos Recovery rating 6 Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings referenced herein can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
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