Valvoline targets leverage ratio of between 2.5x and 3.5x, long-term

By Devika Patel

Knoxville, Tenn., Nov. 16 – Valvoline Inc. management hopes to shrink its leverage ratio to between 2.5x and 3.5x net debt to last 12 months EBITDA, long-term, in order to secure better credit ratings and lower the company’s cost of capital.

Initially, Valvoline is expected to have leverage on the high end or a little bit over that range.

“From an ongoing capital structure perspective, we will target a net leverage ratio of 2.5x to 3.5x last 12 months EBITDA, including leases and pension obligations,” chief financial officer Mary Meixelsperger said on the company’s fourth quarter and year ended Sept. 30 earnings conference call on Tuesday.

“As we look at the long-term leverage ratio, we’re weighing the prudence of managing the business and the balance sheet, in what is kind of an economically uncertain time, with return of capital to the shareholders and investments in the business, and we also are looking at just from an overall credit rating perspective, what we think where we’d like to see our debt capital credit rating, such that we’re able to keep a very reasonable overall cost of capital in the overall business, so the combination of those things basically triangulated us to believing that 2.5x to 3.5x kind of a fully loaded leverage ratio, including capital leases and pension, unfunded pension liabilities, was the right way for us to position the balance sheet,” Meixelsperger said.

“I will tell you, coming right out of the gate, we’ll be at the higher end of that ratio, maybe a little bit over it because of the share repurchase activity, while we’re seeing EBITDA grow in terms of the return of capital from the transaction to shareholders, but, over time, I expect, over the long term, that we’ll manage well within that 2.5x to 3.5x and we think that’s a prudent place for us to manage the balance sheet,” she said.

Cash and cash equivalents were $23.4 million as of Sept. 30, 2022, compared to $122.6 million as of Sept. 30, 2021.

Long-term debt was $1,525,100,000 as of Sept. 30, 2022, compared to $1,639,700,000 as of Sept. 30, 2021.

Current portion of long-term debt was $162.5 million as of Sept. 30, 2022, compared to $15 million as of Sept. 30, 2021.

The Lexington, Ky.-based company is supplier of lubricants and automotive services.

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