MOODY'S ASSIGNS A2 TO NOTES OF LUBRIZOL CORPORATION (THE)
Moody's Investors Service assigned an A2 rating to the $200 million senior unsecured notes of The Lubrizol Corporation due 2008. These ratings are based on Lubrizol's global manufacturing and technology leadership positions in the market for transportation lubricant and fuel additives. While the recent acquisition of British Petroleum's ("BP's") Adibis business has substantially increased Lubrizol's leverage, it represents another significant step in the consolidation of this market and enhances Lubrizol's leadership position.
Ratings assigned are:
Senior unsecured notes due 2008 at A2
Moody's said the A2 rating is supported by Lubrizol's leading technology and market positions in additives for transportation lubricants and fuels (e.g., additives for gasoline and diesel engine oils, automatic transmission fluids, gear oils, gasoline and diesel fuels, etc.) and is tempered by the declining fundamentals of this industry, including minimal sales volume growth combined with increasing competitive pressure and the resulting impact on margins. The rating also reflects the expectation that management will maintain leverage at current levels and avoid increasing leverage further to support additional acquisitions or share repurchases.
The recent acquisition of BP's Adibis business adds to Lubrizol's product portfolio and both further consolidates the industry and increases Lubrizol's market share in transportation lubricant and fuel additives, to nearly 40%. Moody's believes this business will continue to generate a relatively stable earnings and cash flow stream due to Lubrizol's market share and its position as an independent supplier to the industry (i.e., not a subsidiary of an oil company).
The long-term outlook for the transportation lubricant additives business has caused Lubrizol to look for growth in new markets. Lubrizol's other acquisitions, including Carroll Scientific, have demonstrated a discipline for selecting businesses with some technology or technical overlap with its core transportation lubricant additives business. These businesses are in relatively small and fragmented markets; however, customer qualification costs are substantially lower than in the transportation lubricants market. Notwithstanding the medium-term detrimental effect on cash flow, Moody's believes that further diversification into the industrial lubricants will ultimately provide increased stability to Lubrizol's earnings and cash flow.
The Lubrizol Corporation, which is headquartered in Wickliffe, OH, is a leader in the worldwide market for additives used in transportation lubricants including gasoline and diesel engine oils, automatic transmissions fluids and gear oils. Lubrizol also manufactures additives for gasoline and diesel fuels and industrial lubricants. Lubrizol reported $1.7 billion in sales for fiscal 1997.
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