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Moody's Raises Penske Automotive Group (PAG) to 'Ba2'

September 26, 2014 3:15 PM EDT

Moody's Investors Service today upgraded all ratings of Penske Automotive Group, Inc. (NYSE: PAG), including the Corporate Family rating, which was upgraded to Ba2 from Ba3, and continued the stable outlook.

Issuer: Penske Automotive Group, Inc.

..Upgrades:

.... Probability of Default Rating , Upgraded to Ba2-PD from Ba3-PD

.... Corporate Family Rating (Local Currency) , Upgraded to Ba2 from Ba3

....US$550M 5.75% Senior Subordinated Regular Bond/Debenture (Local Currency) , Upgraded to B1 from B2

..Outlook Actions:

....Outlook, Remains Stable

"Penske's diverse business model, which includes meaningful businesses in the UK and continental Europe, as well as Australia, provide it with a segment-leading competitive profile," stated Moody's Vice President Charlie O'Shea. "In addition, credit metrics have improved to around our upgrade trigger levels, and Moody's believe this upward performance trend will continue for at least the next 12-18 months."

RATINGS RATIONALE

The Ba2 Corporate Family Rating considers Penske's formidable and diverse market and competitive position, with leading positions in both Europe and the key US markets in which it has chosen to operate. The rating also considers the favorable relationship the company has with key OEM's such as BMW, which provides it with advantages from a new dealership perspective, and the company's brand mix, which is skewed towards premium and luxury. Moody's views the company's expansion into ancillary businesses such as its commercial vehicle distribution business in Australia and its growing US car rental business as being sensible extensions. Moody's expects Penske to continue to make acquisitions across its various segments and geographies, with the belief they will be prudently sourced and priced, with minimal integration disruption. Moody's also expects Penske to continue to utilize cash flow from operations to provide additional returns to its shareholders through its dividend policy. In addition, the rating considers the company's improving credit metrics, with debt/EBITDA on an 8 times rent adjusted basis approaching 4.5 times, and EBITA/interest of around 4 times. The stable outlook reflects our expectation that financial policy will continue to be relatively benign such that this improvement in credit metrics is sustained. Ratings could be upgraded if credit metrics further improve such that debt/EBITDA on an 8 times rent adjusted basis was maintained below 4 times for an extended period and EBITA/interest was sustained above 5 times. Ratings could be downgraded if debt/EBITDA on an 8 times rent adjusted basis exceeded 5 times or if EBITA/interest fell below 2.75 times.

The principal methodology used in this rating was the Global Retail Industry published in June 2011. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.



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