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TEXT-S&P may still cut Pep Boys-Manny Moe & Jack rating
June 1, 2012 / 4:35 PM / 5 years ago

TEXT-S&P may still cut Pep Boys-Manny Moe & Jack rating

Overview	
     -- U.S. automotive parts retailer Pep Boys-Manny, Moe & Jack  
announced the termination of the merger agreement with The Gores Group.	
     -- The ratings remain on CreditWatch with negative implications because 	
we believe there is still a chance for us to lower the rating given that 	
preliminary first-quarter results were below our expectations.	
     -- We expect to resolve the CreditWatch listing shortly after the 	
company's June 7, 2012 earnings release and conference call to discuss 	
first-quarter earnings.	
	
Rating Action	
On June 1, 2012, Standard & Poor's Ratings Services said that its 'B' 	
corporate credit rating on Philadelphia-based Pep Boys-Manny, Moe & Jack 	
remains on CreditWatch with negative implications.	
	
Rationale	
The ratings on Pep Boys remain on CreditWatch with negative implications 	
despite the termination of a planned leveraged buyout by The Gores Group. We 	
believe there is still a chance for us to lower the rating given that 	
preliminary results for the first quarter ended April 28, 2012 were below our 	
expectations. We expect to resolve the CreditWatch listing following our 	
receipt of more information from Pep Boys' earnings release and conference 	
call to discuss first-quarter earnings, which is scheduled for June 7, 2012.	
	
The rating was originally placed on CreditWatch on Jan. 30, 2012, when The 	
Gores Group announced its intention to acquire Pep Boys. On May 29, 2012, Pep 	
Boys said the agreement has been terminated and that The Gores Group will pay 	
Pep Boys a $50 million settlement fee plus reimbursement of certain 	
merger-related expenses. Pep Boys intends to use existing cash and merger 	
settlement proceeds for term loan reduction this year.	
	
CreditWatch	
Before resolving the CreditWatch negative placement, we will assess recent 	
operating performance to help determine if the company's strategy or financial 	
policies may change in light of the termination of the merger agreement.	
	
Related Criteria And Research	
     -- Methodology And Assumptions: Liquidity Descriptors For Global 	
Corporate Issuers, Sept. 28, 2011	
     -- Business Risk/Financial Risk Matrix Expanded, May 27, 2009	
     -- Corporate Ratings Criteria 2008, April 15, 2008	
	
Ratings List	
	
Ratings Remaining On CreditWatch	
	
Pep Boys-Manny, Moe & Jack	
 Corporate Credit Rating                B/Watch Neg/--     	
 Senior Secured                         BB-/Watch Neg      	
   Recovery Rating                      1                  	
 Subordinated                           B/Watch Neg        	
   Recovery Rating                      3

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