AutoZone Inc.'s Proposed Senior Unsecured Notes Rated 'BBB'

SAN FRANCISCO (S&P Global Ratings) March 26, 2020--S&P Global Ratings today assigned its 'BBB' issue-level rating to the proposed senior unsecured notes of Memphis, TN-based AutoZone Inc. (BBB/Stable/A-2). We expect the company will use the net proceeds for general corporate purposes, including to repay outstanding commercial paper and drawings on its revolving credit facility. AutoZone had approximately $5.5 billion of debt outstanding as of Feb. 15, 2020.
Our 'BBB' issuer credit rating on AutoZone reflects its position as the market share leader in the do-it-yourself segment of the aftermarket auto parts industry, providing it with significant scale and bargaining power. It also reflects the company's good cash flow generation and consistent financial policy.
We expect AutoZone's operating results will be pressured over the near term as the spread of the coronavirus weighs on customer traffic and sales volumes. We believe increasing layoffs and social distancing measures to contain the spread will result in a sharp contraction in miles driven, which will likely offset any benefit from lower fuel prices. However, we believe AutoZone is better positioned than companies in most other retail subsectors given the relatively non-discretionary nature of its merchandise. Approximately 85% of its merchandise is failure or maintenance related auto parts. The company has performed well during past economic downturns and we expect it would benefit in the event the U.S enters a recessionary period as consumers hold on to their existing vehicles for longer, requiring increased maintenance.
We believe AutoZone maintains strong liquidity and has cushion in its credit metrics for the current rating and outlook. We view the proposed issuance and future plans to add a $750 million 364-day revolving credit facility as prudent steps to strengthen liquidity during a time of heightened uncertainty. We also believe the company has financial flexibility to manage credit measures within our range of expectations, including suspending share repurchases, deferring capital expenditures, and expense reduction.
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