Ashland repays $206 million of debt in second quarter, further reductions planned

By Jennifer Lanning Drey

Portland, Ore., April 30 - Ashland Inc. reduced its total debt to less than $2.3 billion at March 31 after repaying $206 million of debt during the second quarter, Eric Boni, the company's director of investor relations, reported Thursday during its quarterly earnings conference call.

The debt reduction consisted of $160 million paid toward Ashland's accounts receivable securitization program with the remainder being applied toward term debt, he said.

Boni also noted that the spread on Ashland's term loan B will increase by 40 basis points in the June quarter in exchange for the removal of a prior option allowing Ashland's lenders to move some of the term loan B obligations to its bridge loan facility, which was acquired in connection with its acquisition of Hercules Inc. in November.

Debt reduction priority

Ashland's top priorities in 2009 are to generate cash and reduce debt, James O'Brien, the company's chief executive officer, said during the call. Over time, the company would like to get its debt below $2.0 billion, which it believes would provide sufficient cushions against its bank covenants as well as remove risk perceptions related to its ability to meet its requirements, he said.

"Our focus on paying down debt moves us closer to our goal of achieving an investment-grade credit rating within the next three years," O'Brien said.

Ashland ended the quarter with a debt-to-EBITDA ratio of 2.8 times, versus a required covenant ratio of no more than 3.75 times.

$631 million liquidity

Ashland had total liquidity of $631 million at March 31, which included $203 million of cash, $280 million available on the company's revolving credit facility and $148 million available on its accounts receivable securitization facility.

During the second quarter, Ashland generated $220 million of cash flows from operating activities, helped by reductions in assets and liabilities. The company believes it has opportunities to further improve working capital, Boni said.

The company will also look to improve cash generation through margin management, cost and capital expenditure reductions and the sale of non-strategic assets. In addition, Ashland is pursuing recovery of its investments in auction-rate securities, O'Brien said.

"We continue to actively position the company to perform within the current economic environment and to improve profitability and growth when the economy turns," he said.

Ashland's pro forma sales and operating revenue declined by 24% in the second quarter, while adjusted pro forma EBITDA increased by 16%.

Ashland is a Covington, Ky., chemical company. Hercules is a Wilmington, Del., manufacturer and marketer of specialty chemicals.

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