Investing.com -- S&P Global Ratings has assigned a 'BBB-' issue-level rating to the proposed senior unsecured notes due 2035 of AutoNation Inc (NYSE: AN )., the Fort Lauderdale, Florida-based auto retailer. The announcement was made on February 19, 2025.

AutoNation plans to use the proceeds from the debt issuance to pay down outstanding commercial paper and for general corporate purposes. Initially, S&P Global Ratings views the debt issuance as largely leverage neutral as the proceeds will be used to pay down borrowings and build cash on the balance sheet.

In November 2024, AutoNation borrowed under its commercial paper program to repay a $450 million senior note. More recently, the company's EBITDA margins have moderated due to the normalization of new vehicle gross profit per unit and increased floorplan costs. In 2024, the company also allocated significant capital towards share repurchases.

S&P Global Ratings estimates that AutoNation's adjusted leverage was around 3x for fiscal 2024. The company is expected to continue allocating excess free cash flow toward opportunistic share repurchases, although these are likely to decrease as margins and cash flows return to more normal levels. S&P Global Ratings also anticipates minor tuck-in acquisitions throughout the year.

As a result, the ratings agency forecasts that leverage will be maintained below 3x and its free operating cash flow to debt will stay at least about 15% in 2025 and over the longer term. However, if AutoNation were to issue debt to fund share repurchases or acquisitions such that leverage remained above 3x, S&P Global Ratings could reassess its evaluation of the company’s longer-term leverage target and financial policy.

The proposed senior notes will rank equally with all existing and future senior unsecured debt. AutoNation's 'BBB-' issuer credit rating remains unchanged, and the outlook continues to be stable, according to S&P Global Ratings.

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