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Rating Action:

Moody's assigns Ba1 to Ashland's new $1.1 billion senior unsecured Term Loan A and the $1.2 billion senior unsecured revolver.

24 Jun 2015

New York, June 24, 2015 -- Moody's Investor's Service assigned Ba1 ratings to Ashland Inc.'s new five year $1.1 billion senior unsecured Term Loan A and the new $1.2 billion senior unsecured revolver. The proceeds from the term loan are expected to be used to fund contributions to the company's U.S pension plans and to finance the tender offer, which was announced June 16, 2015, for the company's $600 million in 3.0% Senior Notes due March 15, 2016, and for general corporate purposes. Some or all of the 2016 notes are likely to be tendered in the near term, while the balance not tendered is expected to be repaid at maturity. Moody's also affirmed the company's Corporate Family Rating and senior unsecured ratings at Ba1 and the Probability of Default rating at Ba1-PD; the SGL rating is affirmed at SGL-1. The outlook for the ratings is stable.

Affirmations:

..Issuer: Ashland Inc.

.... Corporate Family Rating (Local Currency), Affirmed Ba1

.... Probability of Default Rating, Affirmed Ba1-PD

.... Speculative Grade Liquidity Rating, Affirmed SGL-1

....Senior Unsecured Medium-Term Note Program (Local Currency), Affirmed (P)Ba1

....Senior Unsecured Regular Bond/Debenture (Local Currency), Affirmed Ba1, LGD4

Assignments:

..Issuer: Ashland Inc.

....Senior Unsecured Term Loan A (Local Currency), Assigned Ba1, LGD4

....Senior Unsecured Revolver (Local Currency), Assigned Ba1, LGD4

Outlook Actions:

..Issuer: Ashland Inc.

....Outlook, Remains Stable

Affirmations:

..Issuer: Hercules Incorporated

....Junior Subordinated Regular Bond/Debenture (Local Currency), Affirmed Ba2, LGD6

....Senior Secured Regular Bond/Debenture (Local Currency), Affirmed Ba1, LGD4

Outlook Actions:

..Issuer: Hercules Incorporated

....Outlook, Remains Stable

RATINGS RATIONALE

"While the effect of this tender and financing will increase reported leverage to 3.3 from 2.8 times, Moody's adjusted leverage, which includes the unfunded pension liability as a standard adjustment to debt, will remain unchanged on a pro forma basis," according to Joseph Princiotta, Moody's Vice President and the lead analyst for Ashland.

The tendor and related financing provide several meaningful benefits to Ashland, including reducing its pension liability and improving the pension plans funded status, which is likely to reduce annual contributions to the plan over the next few years. The refinancing also serves to extend Ashland's debt maturity profile and lower its average cost of debt, Moody's noted.

Ashland's Ba1 Corporate Family Rating (CFR) is supported by a portfolio of specialty chemical businesses serving diverse end markets in the US and internationally, a large revenue base with 2014 revenues of $6.1 billion, meaningful market shares in key businesses (e.g., #1 globally in Specialty Ingredients and Composites (non-aerospace) and #2 in the U.S. franchised quick lube chain), and good geographic and operational diversity. The rating is also supported by strong and improving EBITDA margins, particularly in Specialty Ingredients (21.2% EBITDA margin in 2014, on a company presented basis) and in Valvoline (17.6%).

Although the announced financing and related actions don't change the Moody's-adjusted leverage -- 4.2x in the fiscal second quarter ending March 31, 2015 -- leverage remains high for the rating category (including Moody's adjustments that add $1.73 billion, or $1.23 billion pro forma for the refinancing, to debt for unfunded pension liabilities and operating leases). As a temporary counterbalance, Moody's notes Ashland's cash balances of $911 million results in adjusted net debt/EBITDA in the March quarter of 3.4x, which is more supportive of the Ba1 rating.

The CFR also reflects asbestos-related litigation and environmental liabilities from both the legacy Ashland business and the Hercules business. However, the recent settlement with certain insurers yielded nearly $400 million in cash to Ashland, most of which was used to fund a restricted trust which will be used to pay ongoing and future asbestos costs.

A discussion of Ashland's rating would not be complete without a review of the recent history, Moody's noted. Following the August 2011 debt-financed acquisition of International Specialty Products Inc. (ISP), in a transaction valued at $3.2 billion, Ashland's management expressed a desire to de-lever, targeting a debt to EBITDA ratio of 2.0x, and to achieve investment grade metrics. Towards that goal, the company refinanced its debt in February 2013 such that its debt capital structure was primarily unsecured, which would be consistent with an investment grade rating.

However, shareholder pressure (Jana Partners became an Ashland stockholder in 2013) led Ashland to focus on using discretionary cash flows for shareholder remuneration, and a shift in financial policy was evident in May 2013 when the company increased the dividend more than 50%, implemented a $150 million accelerated share repurchase (ASR) program and announced a $600 million share repurchase program expiring December 31, 2014. This program was later upsized to $1.35 billion when the compnay announced its intention to divest Water Technologies in February, 2014, and, over the four quarters that followed, nearly all of the net proceeds from this asset sale were used to repurchase shares.

In January of this year, the last $270 million of the $1.35 billion program was deployed into an ASR program, and In April, 2015 Ashland's Board approved a new $1 billion share repurchase authorization that expires December 31, 2017.

While Jana is no longer an Ashland stockholder (as of May 12, 2015), it is uncertain at this time when the company's focus will revert to debt reduction. We believe that management will eventually seek to lower its leverage, however, between now and December 2017, a large portion of free cash flow, together with some of Ashland's balance sheet cash, are expected to be used to complete the $1 billion share repurchase program. Consequently, a declining leverage trend over the next two years relies heavily on growth in margins and EBITDA, Moody's noted.

Ashland's SGL-1 Speculative Grade Liquidity rating reflects its very good liquidity position, which is supported by $911 million in cash balances, its $1.2 billion senior unsecured revolving credit facility, which has recently been extended to 2020 (availability of $1.09 billion as of March 31, 2014), and expectations for positive free cash flow generation.

The stable rating outlook anticipates an improving trend in leverage to levels more supportive of the Ba1 ratings, while some tangible improvement is important ahead of a meaningful decline in cash balances. Moody's would expect to see gross leverage in the low-to-mid 3x to be more supportive of the Ba1 ratings.

The ratings could be downgraded if Ashland does not meaningfully improve its profitability and EBITDA such that leverage exhibits a declining trend over the next 12-18 months to levels more supportive of the Ba1 CFR, and before using most or all its excess cash balances on share repurchase. Additionally, we could downgrade the ratings if the company generates negative free cash flow or pursues large debt-funded acquisitions or share repurchases.

There is limited upward pressure on the ratings at this time. However, Moody's could consider an upgrade if management reaffirms its targeted leverage at 2x and commences a meaningful debt reduction plan.

The principal methodology used in these ratings was Global Chemical Industry Rating Methodology published in December 2013. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Ashland Inc. (Ashland), headquartered in Covington, Kentucky, is focused on growing its specialty chemicals businesses globally. Ashland Specialty Ingredients and Ashland Performance Materials from its core specialty chemicals businesses and through its Valvoline brand, it is also a marketer of premium-branded automotive and commercial lubricants. Ashland had revenues from continuing operations of $6.1 billion for the twelve months ended December 31, 2014.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The following information supplements Disclosure 10 ("Information Relating to Conflicts of Interest as required by Paragraph (a)(1)(ii)(J) of SEC Rule 17g-7") in the regulatory disclosures made at the ratings tab on the issuer/entity page on www.moodys.com for each credit rating as indicated:

Moody's was not paid for services other than determining a credit rating in the most recently ended fiscal year by the person(s) that paid Moody's to determine this credit rating.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Joseph Princiotta
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Brian Oak
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns Ba1 to Ashland's new $1.1 billion senior unsecured Term Loan A and the $1.2 billion senior unsecured revolver.
No Related Data.
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