Moody's zaps Zep ratings

Moody's Investors Service said it downgraded Zep Inc.'s corporate family rating to Caa2 from Caa1, its probability of default rating to Caa2-PD from Caa1-PD, the company's senior secured first-lien revolving credit facility and senior secured first-lien term loan ratings to B3 from B2, and its senior secured second-lien term loan rating to Caa3 from Caa2.

“The downgrades reflect that Zep's high financial leverage and negative free cash flow will make it challenging to refinance the 2024 revolver and term loan maturities. Zep's financial leverage is elevated at above 10x debt-to-EBITDA as of fiscal 2022 ending August 31, 2022. The leverage is significantly higher than Moody's previous expectation a year ago, hurt by declines in biosecurity product sales, as well as a lower EBITA margin due to significant raw materials cost increases and supply chain disruptions,” the agency said in a press release.

Moody’s noted Zep has taken actions to turn its situation around; however, it considers the company’s leverage unsustainable.

The outlook is negative.

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