Research Update: Valvoline Inc. Outlook Revised To Negative On Operating Underperformance And Aggressive Financial Policies

U.S.-based Valvoline Inc.'s 2018 operating performance fell short of our expectations due to softness in its Core North America segment and the company meaningfully increasing share repurchase activity during the year, resulting in adjusted debt to EBITDA increasing to 3.3x at Sept. 30, 2018. We expect the competitive environment in Core North America to remain challenging this year and believe the company's shareholder returns could become more aggressive such that it will be unable to restore debt leverage to below 3x. We are affirming our ratings on the company, including our 'BB+' issuer credit rating, 'BBB-' issue-level rating on the senior secured bank credit facilities, and 'BB+' rating on the senior unsecured notes, and revising the outlook to negative from

...+ U.S.-based Valvoline Inc.'s 2018 operating performance fell short of our expectations due to softness in its Core North America segment and the company meaningfully increasing share repurchase activity during the year, resulting in adjusted debt to EBITDA increasing to 3.3x at Sept. 30, 2018. + We expect the competitive environment in Core North America to remain challenging this year and believe the company's shareholder returns could become more aggressive such that it will be unable to restore debt leverage to below 3x. + We are affirming our ratings on the company, including our '##+' issuer credit rating, '###-' issue-level rating on the senior secured bank credit facilities, and '##+' rating on the senior unsecured notes, and revising the outlook to negative from stable. + The negative outlook reflects the potential for a lower rating over the next 12 months if Valvoline does not moderate its financial policy, strengthen operating performance and adjusted debt to EBITDA remains...

Research Update