NEW YORK - Standard & Poor's credit rating agency last week assigned B, or speculative, ratings to United Auto Group and to $150 million worth of United's corporate debt.
As a corporation, United Auto group got a B-plus rating.
New York-based United Auto Group is the first publicly traded dealership chain to raise money in the public debt market, so it is the first chain to receive a corporate rating, said Scott Sprinzen, a director of the Standard & Poor's ratings group.
The $150 million debt issue, which was announced June 27, was rated B-minus, or junk-bond status.
'While profit margins have improved over the past two years, they remain thin,' the rating agency said.
United expects to net $143 million from the debt issue. It plans to use $50 million to pay down debt and the rest for 'general corporate purposes,' including acquisitions.
Under S&P's rating system, only the four highest categories -AAA through BBB - are considered 'investment grade.
Debt rated 'BB' and below is considered 'speculative grade' and is commonly referred to as 'junk.'
Moody's Investors Service assigned a 'B3' rating to United Auto Group's debt issue.
Company executives are not allowed to comment on the ratings because of Securities and Exchange Commission rules, a United Auto spokesman said.
The ratings are important because they affect a company's cost of borrowing - the lower the rating, the higher the cost.
In addition, many large institutional investors will not - or cannot because of bylaw restrictions - buy any debt rated below A.
Last July, Standard & Poor's gave a AAA rating to a United issue of asset-backed securities. Payment of principal and interest on those securities carries a virtually air-tight guarantee, including a 'credit enhancement' insurance policy.