RVR Dealership Holdings, LLC -- Moody's upgrades RVR Dealership's CFR to B1; outlook stable

Rating Action: Moody's upgrades RVR Dealership's CFR to B1; outlook stableGlobal Credit Research - 04 Jan 2022New York, January 04, 2022 -- Moody's Investors Service, ("Moody's") today upgraded its ratings for RVR Dealership Holdings, LLC ("RVR"), including the corporate family rating (CFR) to B1 from B2 and probability of default rating (PDR) to B1-PD from B2-PD. Concurrently, Moody's upgraded the rating on the company's senior secured term loan maturing 2028 to B1 from B2. The outlook is stable."The upgrade to B1 reflects RVR's significant growth in scale, solid operating performance and improved credit metrics along with our expectation of continued strength in retail demand for recreational vehicles in 2022, as evidenced by record industry order backlogs, which supports continued solid operating performance, good free cash flow generation, and moderate leverage over the next 12-18 months," stated Moody's Vice President Stefan Kahandaliyanage.Upgrades:..Issuer: RVR Dealership Holdings, LLC.... Corporate Family Rating, Upgraded to B1 from B2.... Probability of Default Rating, Upgraded to B1-PD from B2-PD....Senior Secured Term Loan B, Upgraded to B1(LGD4) from B2 (LGD4)Outlook Actions:..Issuer: RVR Dealership Holdings, LLC....Outlook, Remains StableRATINGS RATIONALERV Retailer's B1 CFR reflects its solid credit metrics, with debt/EBITDA of 2.0x and EBIT/interest coverage of 15.6x for the LTM period ending Q3 2021. Leverage has improved from over 4x in the prior year period. Although the current credit metrics are strong, Moody's expects that the company will continue to enhance scale largely through debt-financed acquisitions of predominately family-owned RV dealerships, which will pressure credit metrics in the short to medium term. However, leverage is expected to remain moderate. The B1 CFR also acknowledges RVR's good liquidity. At September 30, 2021 RVR had cash of $147 million, floorplan and ABL availability of $500 million and $105 million, and its debt maturities are long-dated. RVR's floorplan facility and ABL each expire in February 2026 and its term loan matures in February 2028.However, there are risks inherent in RVR's acquisition-based growth strategy. Presently, the operating environment for acquisitions is favorable, characterized by a high degree of fragmentation amongst RV dealerships in the US, few well-capitalized consolidators, and, importantly, low-to-mid single digit acquisition multiples. Further, since the onset of the pandemic, there has been a shift in consumer spending towards outdoor activities that has driven a significant increase in demand for RVs. This trend may not persist in a post-pandemic operating environment as other forms of leisure spending recover leading to a normalization in demand for RVs. Product cost inflation caused by supply constraints and labor availability may also contribute to diminished demand in the future.Ratings are constrained by the company's relatively small scale, geographic concentration, the cyclicality of the RV industry, and the material contribution of dealership acquisitions to overall growth. RVR's private ownership by a "family office" is a rating consideration given the potential implications from both a capital structure and operating perspective. Financial strategy is always a key concern of privately-owned companies given the potential for higher leverage, extractions of cash flow via dividends, or more aggressive growth strategies.The stable outlook reflects Moody's view that the recent strong industry cycle driven by shift in consumer spending will largely continue into 2022, after which more normalized consumer spending patterns will return, resulting in lower demand for RVs. Moody's expects RV Retailer to maintain solid credit metrics over the next 12-18 months as it closes and integrates planned acquisitions. The stable outlook also reflects flexibility in the company's new and used vehicle revenue mix and profit streams as well as the variable portion of its cost structure which can flex to limit downside caused by demand normalization.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSRatings could be upgraded if operating performance continues its positive trend with the majority of the growth generated by organic revenue and earnings streams, resulting in debt/EBITDA sustained below 3.5 times and EBIT/interest being sustained above 4 times, while maintaining at least good liquidity, and an overall balanced financial strategy that ensures maintenance of this profile no matter the industry environment, including a cyclical downturn.Ratings could be downgraded if debt/EBITDA increased to over 4.5 times, or if EBIT/interest dropped below 3 times, if liquidity were to weaken, or if financial strategy became more aggressive.RV Retailer, with headquarters in Florida, operates over 80 dealerships in 26 states under 9 different brand names and has significant presence in Texas and Florida. The company is among the top two RV dealership groups in the country with Q3 2021 LTM revenues of over $2.2 billion. The company is majority owned by Redwood Capital.The principal methodology used in these ratings was Retail published in November 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1296095. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. 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Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Stefan Kahandaliyanage, CFA Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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