Moody's Upgrades Mister Car Wash Outlook to Positive

Key Summary of Rating Action

Moody's Ratings has revised the outlook for Mister Car Wash Holdings, Inc. to positive from stable, while affirming its B2 corporate family rating. The decision reflects the company's improved operational performance and effective debt management strategies.

Overall Financial Situation

The ratings agency highlighted Mister Car Wash's better operating performance, evidenced by positive same-store sales growth, an increasing number of club memberships, and an expanding EBITDA margin. A significant factor was a voluntary $92 million term loan repayment over a recent twelve-month period, which successfully reduced the company’s debt/EBITDA ratio to 4.3x from 4.8x. During the same timeframe, the EBITA/interest ratio improved to 2.0x from 1.8x.

Economic and Market Impact

Moody's projects further financial strengthening, expecting the debt/EBITDA ratio to approach 4.0x and the EBITA/interest ratio to improve to approximately 2.2x over the next 12-18 months. This growth is anticipated from both existing and new locations, alongside continued membership expansion. The company's B2 rating is supported by its leading position in the fragmented U.S. car wash market and a strong base of recurring revenue from its wash club program. Mister Car Wash maintains good liquidity with a $300 million revolving credit facility and a $36 million cash balance.

Conclusion

The positive outlook signals growing confidence in Mister Car Wash's financial stability and market strategy. Future rating upgrades are possible if the company sustains a debt/EBITDA ratio below 5.0x and an EBITA/interest ratio above 2.25x while preserving strong liquidity. Conversely, a downgrade could be triggered if debt-funded activities push the debt/EBITDA ratio towards 6.5x.

FAQ

Q: Why did Moody's change Mister Car Wash's outlook?
A: The outlook was changed to positive due to stronger operating performance, positive sales growth, increased club memberships, improving EBITDA margins, and significant voluntary debt repayment.

Q: What is Mister Car Wash's current debt/EBITDA ratio?
A: The company's debt/EBITDA ratio was reduced to 4.3x after a recent $92 million voluntary loan repayment.

Q: What could lead to a credit rating upgrade for Mister Car Wash?
A: An upgrade could happen if the company sustains a debt/EBITDA ratio below 5.0x and an EBITA/interest ratio above 2.25x, all while maintaining good liquidity.

Source: Investing.com