Fitch Rates AutoZone's $750MM Notes 'BBB'; Outlook Stable

Business Wire, July 30, 2008

CHICAGO -- Fitch Ratings has assigned 'BBB' ratings to AutoZone, Inc.'s (AutoZone) new $500 million 6.5% senior unsecured notes due January 2014 and $250 million 7.125% senior unsecured notes due July 2018. The proceeds from the offering will be used for general corporate purposes, which include repaying, redeeming or repurchasing existing debt, repurchasing common stock, and for working capital uses and capital expenditures. The notes include change of control and coupon step-up provisions. The Rating Outlook is Stable.

The ratings reflect AutoZone's leading position in the retail auto parts and accessories aftermarket and its broad geographic reach with 4,032 stores across the continental United States and Puerto Rico and 130 stores in Mexico as of May 3, 2008. The ratings also consider the company's solid operating performance with an industry leading EBIT margin of 17.2% for the latest 12 months (LTM) ended May 3, 2008. Also, LTM free cash flow generation was $642 million, which Fitch expects to remain strong.

This is balanced, however, by the challenging operating environment. Higher gasoline prices have had a negative effect on the number of miles driven, with miles driven declining 3.7% in May 2008. In the event the number of miles driven continues to fall, Fitch expects AutoZone's same store sales performance could be pressured. In addition, AutoZone's proposed recapitalization will result in weaker than historical credit metrics. However, Fitch expects the company to manage to its leverage ratio target of around 2.5 times (x) (2.8x based on Fitch's calculation of (total debt 8x rent)/operating EBITDAR) and reduce the level of share repurchases accordingly if operating results are weaker than expected.

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