New York, December 03, 2012 -- Moody's Investors Service has lowered the Corporate Family Rating ('CFR') of Kenan Advantage Group, Inc. ('Kenan') to B1 from Ba3, affirmed Kenan's probability of default rating ('PDR') of B1, and changed the ratings outlook to negative from stable. At the same time, Moody's has assigned a B3 rating to Kenan's proposed $200 million senior unsecured notes due 2018. The rating actions are in consideration of increasing leverage that will result from the company's planned use of a substantial portion of the proceeds from the recent notes offering to fund a distribution to its shareholders.

RATINGS RATIONALE

Kenan's ratings and outlook were lowered, reflecting the material increase in debt that the company will undertake to fund a sizeable cash distribution to shareholders. On November 30, 2012, Kenan announced its plans to issue $200 million in senior unsecured notes, with approximately $175 million of the proceeds to be used to fund a distribution to shareholders. This transaction, which raises total debt (including Moody's standard adjustments) by approximately 25%, demonstrates a willingness by the company to undertake a more aggressive financial strategy which is better reflected in the lower CFR of B1. We estimate Kenan's leverage to increase from 4.0 times Debt to EBITDA (as of September 30, 2012, pro forma for full year of operations from 2012 acquisitions) to approximately 4.8 times based on FY 2012 pro forma estimated operating results. Retained Cash Flow to Debt (not including the planned distribution) similarly deteriorates, from approximately 18% to 15%. These leverage metrics are more typically associated with B1 rated entities.

The ratings also positively consider Kenan's leading position as a truck transporter of bulk fuel and chemicals with nationwide service, and the relative stability of earnings and cash flow that the company has experienced throughout the economic cycle. Kenan's strategy of growth through acquisitions continues to be an important rating constraint. Moody's recognizes that Kenan has been successful in integrating recent acquisitions in a manner that grows its business while maintaining margins. Nonetheless, we believe that any sizeable debt funded acquisitions that Kenan undertakes would involve additional challenges for the company.

In applying Moody's Loss Given Default Methodology to determine the ratings of the debt instruments, we have assigned a 50% Family Recovery Rate, as Kenan's debt structure now consists of both senior secured bank debt as well as unsecured notes. Because of this, Kenan's Probability of Default Rating is the same as its Corporate Family Rating (B1). This results in the senior secured ratings at Ba3, which is one notch above the CFR, and senior unsecured notes rated B3, which is two notches below the CFR.

Kenan's negative ratings outlook reflects the weakening in the company's credit metrics due to the recent increase in debt. Moody's believes that the company would need to fully meet its operating plan in order to restore its credit profile to a level that would leave Kenan well positioned in the B1 rating category. With the heavier debt burden from the dividend, the adverse effects of any performance shortfalls would be magnified in financial metrics.

Ratings or their outlook could be revised downward if market conditions were to substantially deteriorate over the near term, or if the company were to undertake a large leveraged acquisition involving an undue level of additional debt. Ratings could be lowered if Debt to EBITDA were to exceed 5.0 times, if EBIT to Interest falls below 1.5 times, or if availability under the revolving credit facility were to diminish due to high usage or covenant restrictions.

Since debt is not likely to be reduced materially during the next few years, ratings are not expected to be upgraded over the near term. However, over the longer term, ratings could be adjusted upward if, after taking into account acquisitions, the company could demonstrate improving margins and leverage through earnings growth or reduction of debt through use of free cash flow. EBIT to Interest would need to exceed 3 times with Debt to EBITDA sustained below 4.0 times to warrant an upgrade of the CFR.

Issuer: Kenan Advantage Group, Inc.

..Downgrades:

.... Corporate Family Rating, Downgraded to B1 from Ba3

..Assignments:

....Senior Unsecured Regular Bond/Debenture, Assigned B3 (LGD5, 86%)

..Outlook Actions:

....Outlook, Changed To Negative From Stable

Kenan Advantage Group, Inc., headquartered in North Canton, OH, is a provider of liquid bulk transportation services and logistics to the fuels, chemical and food markets.

Kenan Advantage Group, Inc's ratings were assigned by evaluating factors that Moody's considers relevant to the credit profile of the issuer, such as the company's (i) business risk and competitive position compared with others within the industry; (ii) capital structure and financial risk; (iii) projected performance over the near to intermediate term; and (iv) management's track record and tolerance for risk. Moody's compared these attributes against other issuers both within and outside Kenan Advantage Group, Inc's core industry and believes Kenan Advantage Group, Inc's ratings are comparable to those of other issuers with similar credit risk. 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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David Berge VP - Senior Credit Officer Corporate Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Michael J. Mulvaney MD - Corporate Finance Corporate Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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