Valvoline Inc.'s Amended And Extended Senior Secured Bank Credit Facilities Rated 'BBB-' (Recovery Rating: '1')

NEW YORK (S&P Global Ratings) April 17, 2019--S&P Global Ratings today 
assigned its 'BBB-' issue-level rating and '1' recovery rating to Valvoline 
Inc.'s amended and extended senior secured bank credit facilities, which 
comprise a $475 million revolver due 2024 and a $575 million term loan due 
2024. The '1' recovery rating indicates our expectation for very high 
(90%-100%; rounded estimate: 95%) recovery in the event of a payment default. 
We expect the company to use the net proceeds from the upsized term loan to 
repay the outstanding balance under its existing revolver and account 
receivable facility, pay associated fees and expenses, and for general 
corporate purposes. Pro forma for the leverage-neutral transaction, Valvoline 
has about $1.3 billion of total debt outstanding.

All of our existing ratings, including our 'BB+' issuer credit rating on the 
company and our 'BB+' issue-level rating on its senior unsecured notes, remain 
unchanged following this transaction. The recovery rating on the senior 
unsecured notes remain at '4', reflecting our expectation for average 
(30%-50%) recovery in the event of a payment default. However, rounded 
estimate dropped to 30% from 45% previously due to more secured first-lien 
debt claims, leading to less value available to unsecured claims. Additional 
first-lien debt will push recovery rating on the unsecured notes to '5'. The 
outlook is negative.

Our ratings on Valvoline continue to reflect the company's well-known and 
reputable brand name, its defensible position as the third-largest competitor 
in the do-it-yourself (DIY) lubricants market by volume, its satisfactory 
margins, and its relatively stable profitability. Our ratings also incorporate 
Valvoline's substantial brand concentration and moderate customer 
concentrations with several large automotive parts retailers and installers. 
We also factor in the intense competition the company faces from several large 
competitors with substantially greater financial and marketing resources and 
its participation in a low-growth industry that is subject to volatile 
base-oil prices, the amount of vehicle miles driven, and potential 
improvements in engine technology, which could further reduce oil usage. We 
also think Valvoline could face pressure from private-label competitors. In 
addition, the growth of hybrid electric and electric cars may present a 
long-term risk to its business. We forecast that Valvoline's debt to EBITDA 
will be approximately 3.3x and its funds from operations (FFO) to debt will be 
in the low-20% area by the end of fiscal year 2019.
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