Valvoline Inc. Downgraded To 'BB' On Weak Operating Performance; Outlook Stable; Debt Ratings Also Lowered


  • U.S.-based Valvoline Inc. lowered its 2019 EBITDA and free cash flow guidance due to the increase in raw material costs.
  • In addition, we continue to expect the competitive environment its in Core North America segment to remain challenging this year and we forecast adjusted debt to EBITDA in the mid-3x area by the end of fiscal year 2019.
  • We are lowering our issuer credit rating on Valvoline to 'BB' from 'BB+' and our issue-level rating on the senior unsecured notes to 'BB' from 'BB+'. At the same time, we are affirming our 'BBB-' issue-level rating on the company's senior secured bank credit facilities. The recovery ratings remain '1' for the senior secured bank credit facilities and '4' for the unsecured notes.
  • The stable outlook reflects our expectation that Valvoline Inc. will maintain leverage in the low- to mid-3x area and continue to modestly grow revenue and profit, driven by continued momentum in its Quick Lube business while working to stabilize its Core North America business.
NEW YORK (S&P Global Ratings) May 17, 2019—S&P Global Ratings today took the rating actions listed above. The downgrade reflects our forecast for continued weak operating performance, particularly in its Core North America business, offset by good momentum in its Quick Lubes business, and our expectation that adjusted debt to EBITDA will remain above 3x.
The stable outlook reflects our expectation that Valvoline Inc. will maintain leverage in the low- to mid-3x area, and continue to modestly grow revenue and profit, driven by continued momentum in its Quick Lube business while working to stabilize its Core North America business.
We could lower the ratings over the next year if operating performance and margins decline considerably, leading to weaker profitability and cash flows, resulting in adjusted debt to EBITDA sustained above 4x. This could occur from further weakening of the Core North America segment, lower demand for the company's lubricant products, fewer vehicle miles driven, intensifying competition from larger players, or greater sales of electric vehicles than we expect. We could also lower the ratings if the company's financial policy in respect to shareholder returns becomes more aggressive, such that leverage is sustained above 4x.
Although unlikely within the next 12 months, we could raise the ratings if we have a more favorable view of the business. This could happen if the company significantly expands, while diversifying its product offerings, geographic exposure, and customer base. A higher rating is also predicated on a more conservative financial policy in respect to shareholder returns and a demonstration of a commitment to sustain debt to EBITDA below 3x.
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