S&P Affirms Ratings on Ashland (ASH) Amid Split Plans; Outlook Lowered to Negative

Standard & Poor's Ratings Services affirmed its 'BB' corporate credit rating on Ashland Inc. (NYSE: ASH) and revised the rating outlook to negative from stable. At the same time, we affirmed all of our debt ratings on the company.

"The outlook revision follows Ashland's announcement that it intends to spin-off its Valvoline business into a separate public company," said Standard & Poor's credit analyst Daniel Krauss. "We believe that the Valvoline business provided Ashland with a fair degree of diversity, scale, and solid profitability," he added.

The spin-off of this sizable business could lead us to re-assess Ashland's business risk profile at a level lower than "satisfactory." As a result, we believe there is at least a one-in-three chance for a downgrade over the next 12 months or so. We expect Ashland to maintain a financial risk profile in line with our "aggressive" assessment. We consider Ashland's liquidity to be "adequate," and expect cash sources to comfortably exceed cash uses by more than 1.2x over the next one to two years. We expect the company will continue to maintain sufficient cushion under its maximum leverage and minimum interest coverage covenants.

The negative rating outlook on Ashland Inc. reflects our view that the spin-off of the Valvoline business could lead us to re-assess the company's business risk profile at a level lower than "satisfactory." We believe that management will remain committed to maintaining financial policies that support an improving financial risk profile. Specifically, we expect that management will meaningfully reduce debt in an effort to maintain credit measures at, or slightly above, current levels. Given the company's current satisfactory business risk profile, we consider a pro forma FFO to debt ratio of between 15% and 20% as appropriate for the current rating.

We could lower the ratings if we believe that a weakening in our assessment of the company's business risk profile is unlikely to be offset with an improvement in its financial risk profile assessment. Specifically, if the business risk profile is re-assessed at a lower level, we could lower the ratings if we consider it unlikely that the pro forma FFO to debt ratio would improve to about 20% on a weighted-average basis. We could also consider a modest downgrade if, contrary to our expectations, the company does not meaningfully reduce debt.

We could revise the outlook to stable if we believe that, despite the loss of diversity and profitability from the Valvoline spin-off, the company's business risk profile will remain what we consider "satisfactory." We could also consider an outlook revision to stable, if we believe the company's pro forma FFO to debt ratio is likely to strengthen to about 20%.

You May Also Be Interested In

• Ashland sets date for fiscal 2024 second-quarter earnings release and conference call webcast
• Ashland Board appoints Scott A. Tozier as new director
• Mizuho Upgrades Linde (LIN) to Buy citing recent pullback