New York, March 16, 2023 — Moody’s Investors Service (“Moody’s”) has assigned a Baa2 rating to NewMarket Corporation’s (“NewMarket”) $900 million unsecured revolving credit facility due 2025. The Baa2 long-term issuer rating and Baa2 rating on senior unsecured notes remain unchanged. The outlook is stable.
“NewMarket is obtaining a rating on its senior unsecured revolving credit facility to reduce borrowing costs in this high-rate environment,” said Domenick R. Fumai, Moody’s vice president and principal analyst at NewMarket Corporation.
Duties:
..Issuer: NewMarket Corporation
….Senior Unsecured Revolving Credit Facility, assigned Baa2
JUSTIFICATION OF THE ASSESSMENT
NewMarket’s Baa2 rating reflects a stable earnings profile, conservative financial policies and credit metrics that support the rating. The company’s position in an established industry and long-term customer relationships are also reflected in its credit profile. In addition, substantial formulation expertise derived from additive research and development capabilities for passenger car fuels, transmissions and motor oils represents a significant barrier to entry for new competitors.
The rating is balanced by a relatively narrow business profile characterized by a lack of end-market diversity, a modest asset base, limited organic growth prospects and delays in maintaining margins during periods of rising commodity prices . Additionally, NewMarket’s relatively small scale is another consideration, as it competes primarily with subsidiaries or affiliates of much larger and better capitalized companies. In the longer term, NewMarket faces competitive threats from the growth of the electric vehicle market, which could force the company to look for other revenue streams.
ESG CONSIDERATIONS
Environmental, social and governance factors are important considerations in NewMarket’s credit rating, not a factor in current action. NewMarket’s credit impact score is moderately negative (CIS-3), but has limited impact on the current rating. ESG considerations reflect the company’s high exposure to environmental risks as well as social risks mitigated by neutral to low governance risks.
Environmental risks are very negative (E-5) and are consistent with the broader chemical industry, driven by high physical climate risk given where several of its major manufacturing plants are located on the Gulf Coast, which is prone to hurricanes and severe floods. Exposure to social risks is highly negative (S-4), which is in line with most commodity chemical companies due to risks related to health and safety as well as responsible production. NewMarket’s governance risks (G-2) are characterized as neutral to low, reflecting management’s conservative financial and risk management policies, including neutral to low exposure to financial strategy and risk management , as evidenced by the commitment to a net leverage target and management credibility. and trajectory
The stable outlook reflects expectations of debt/adjusted EBITDA below 2.0x, the continued ability to successfully maintain its market share in transportation lubricant additives and its conservative financial policies.
FACTORS THAT MAY LEAD TO AN UPDATE OR DOWNLOAD OF THE SCORE
An upgrade is unlikely due to the company’s small scale and final market concentration. However, we could upgrade the rating if revenue exceeds $4 billion, debt/EBITDA, including Moody’s standard adjustments, remains below 1.5x and retained cash flow/debt (RCF /debt) remained above 40%. An upgrade would also require further diversification of the company’s business.
Moody’s could downgrade if debt/adjusted EBITDA remains above 2.0x, cash flow/debt retained below 25% for a sustained period, or an inability to maintain EBITDA margins after ‘a period of increase in raw material. prices. While the rating incorporates built-in acquisitions in the $50 million to $450 million range, a larger debt-financed turnaround transaction without clear deleveraging expectations would also put downward pressure on the outlook or rating.
NewMarket Corporation (NewMarket) develops, manufactures and markets petroleum additives through its principal operating subsidiary, Afton Chemical Corporation. Afton’s oil additives are primarily used in the formulation of transportation fuels and lubricants (eg gasoline, diesel, motor oils, transmission fluids, gear oil, etc.) to improve fuel performance , base oils or polyalphaolefins (synthetic base oil), upgrading to meet industry or original equipment manufacturer (OEM) specifications. Based in Richmond, VA, NewMarket generated approximately $2.8 billion in revenue for the year ending December 31, 2022.
The main methodology used in this rating was Chemicals published in June 2022 and available at https://ratings.moodys.com/api/rmc-documents/389870. Alternatively, see the Valuation Methodologies page a https://ratings.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody’s key rating assumptions and sensitivity analysis, see the Methodology Assumptions and Sensitivity to Assumptions sections of the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.
For ratings issued in one program, series, category/class of debt or security, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived solely from existing ratings in accordance with Moody’s rating practices. For ratings issued to a support provider, this announcement provides certain regulatory disclosures in connection with the credit rating action of the support provider and in connection with each particular credit rating action for the securities that derive their credit ratings from the credit rating of the support provider. With respect to provisional ratings, this announcement provides certain regulatory information in relation to the provisional rating assigned, and in relation to a definitive rating that may be granted subsequent to the definitive issuance of the debt, in each case in which the structure and the conditions of the operation have not changed. before the assignment of the final grade in a way that would have affected the grade. For more information, see the relevant Issuer/Issuer Agreement page https://ratings.moodys.com.
For the affected securities or rated entities that receive direct credit support from the lead entity or entities of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures they will be those of the guarantor. There are exceptions to this approach for the following disclosures, if applicable in the jurisdiction: Ancillary Services, Disclosure to Qualified Entity, Disclosure from Qualified Entity.
The rating has been disclosed to the rated entity or its designated agents and has been issued without any modification resulting from such disclosure.
This rating is requested. See Moody’s Policy for Designation and Assignment of Unsolicited Credit Ratings available on its website https://ratings.moodys.com.
The regulatory disclosures contained in this press release apply to the credit rating and, where applicable, the rating outlook or rating review.
Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.
The global credit rating in this credit rating announcement was issued by one of Moody’s subsidiaries outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with article 4, paragraph 3 of the Law. Regulation (EC) no. 1060/2009 on credit rating agencies. You can find more information about the EU approval status and about the Moody’s office that issued the credit rating at https://ratings.moodys.com.
The global credit rating in this credit rating announcement was issued by one of Moody’s subsidiaries outside the United Kingdom and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA pursuant to the law applicable to UK credit rating agencies. . More information on the status of the UK guarantee and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.
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Domenick R Smoke
Vice President – Senior Analyst
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