Fitch Rates Pennzoil-Quaker State's $150MM Sr Nts 'BBB-'
1 December 2000
Fitch Rates Pennzoil-Quaker State's $150MM Sr Nts 'BBB-'
NEW YORK--Dec. 1, 2000--Fitch rates Pennzoil-Quaker State Company's new 8.65% $150 million senior unsecured notes due 2002 'BBB-'. Proceeds from the issuance will be used to refinance existing debt. Pennzoil-Quaker State's existing senior unsecured notes and commercial paper program are affirmed at 'BBB-' and 'F3', respectively. The Rating Outlook is Stable.The rating reflects Pennzoil-Quaker State's leading market positions in motor oil and automotive consumer care products, significant fast oil change operations, and geographic diversity of sales. The rating also considers the company's highly leveraged capital structure and appetite for debt financed acquisitions as well as increased raw material costs which have been passed on to consumers on a delayed basis.
Following the 1998 combination of Pennzoil Company's automotive, consumer products and services business with Quaker State Corporation, the company has achieved better than expected savings. Continued expense reduction and recent price increases have helped to offset high raw material costs resulting in modest EBITDA margin improvement to 9.0% for the twelve months ended Sept. 30, 2000 from 8.4% in fiscal 1999. Further improvements in margins and cash flow may be realized through the company's initiatives to increase supply chain efficiency. Nevertheless, debt increased to $1.2 billion at Sept. 30, 2000 and leverage (total debt/EBITDA) remained high at 4.3 times (x) for the twelve months ended Sept. 30, 2000. The company's EBITDA coverage of interest was 3.1x for the period.
Credit protection measures should improve as low margin businesses are divested and additional cost savings are achieved. Credit protection measures also could be positively impacted as a portion of sale proceeds from Pennzoil-Quaker State's base oil and specialty products operations are applied toward debt reduction. However, this improvement may be somewhat offset by continued high raw material cost and possible acquisition spending.
Pennzoil-Quaker State maintains a strong market position in motor oil with the Pennzoil and Quaker State brands, the no. 1 and no. 2 motor oil brands in North America, respectively. Well known consumer products include Gumout, Fix-A-Flat, Rain-X, Slick 50, Black Magic and Pennzoil Roadside Rescue and are sold in over 50 countries throughout the world. In the fast oil change business Pennzoil-Quaker State maintains the no. 1 market position throughout the U.S. with its Jiffy Lube service centers. The company is in the process of exiting the base oils and specialty products business however it will maintain its interest in Excel Paralubes.