S&P cuts Zep; rates facilities B-, CCC

S&P said it lowered the corporate credit rating on Zep Inc. to B- from B.

The outlook is stable.

At the same time, the agency assigned B- issue-level and 3 recovery ratings to the company's proposed $550 million first-lien term loan and $45 million credit facility. The 3 recovery rating indicates an expectation for meaningful (50%-70%; rounded estimate: 65%) recovery in the event of payment default.

S&P also assigned CCC issue-level and 6 recovery ratings to the company's proposed $175 million second-lien term loan. The 6 recovery rating indicates our expectation for negligible (0%-10%; rounded estimate: 0%) recovery in the event of payment default.

S&P said it based these ratings on the proposed debt on preliminary terms and conditions. The agency expects Zep will repay its existing $355.5 million (face value) first-lien and replace its existing $42.5 million credit facility. It will withdraw the ratings on that debt at close of this transaction.

The downgrade reflects weakened credit metrics as a result of the proposed debt issuance and the expectation that debt to EBITDA will be in the 7 times to 8 times range for the next 12 months, the agency explained.

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