Chemical maker Ashland Inc. is poised to generate positive free cash flow and maintain strong liquidity in 2010, a ratings analyst said as he upgraded the company's outlook and affirmed its debt ratings.
"This follows almost a year of relatively strong financial performance and improving credit metrics since the acquisition of Hercules Inc.," said Moody's Investors Service analyst Steven Wood. He raised his view of the company's outlook to "Stable" from "Negative."
A year ago, it was a different story, Wood explained. Ashland had taken on $2.3 billion of debt to fund the Hercules acquisition. The economy was severely crippled by the global credit crisis and the demand outlook for chemicals remained foggy.
But since that time, the company turned around to generate positive free cash flow, achieve small asset sales and cut debt by about $1 billion, while maintaining strong liquidity, said Wood. Additionally, he noted that expanding margins in the Valvoline oil business, gains from Hercules businesses and cost reduction efforts strengthened the company's bottom line.
Wood affirmed a Ba1 rating _ a junk grade rating a step below investment grade _ for Ashland's senior secured debt.
"Ashland's good liquidity position has been a positive attribute while credit markets have remained uncertain," Wood said.
Shares of the company fell 6 cents to $35.61 in afternoon trading.