S&P Global Ratings lowered its debt ratings outlook on Olin Corp. to negative due to weakness across its vinyls, epoxy and Winchester Ammo’s commercial businesses.
S&P said, “We forecast Olin Corp.’s credit metrics will end the year below our downside trigger and remain there for at least the next few quarters due to poor downstream vinyl’s demand, weak supply and demand fundamentals in epoxy, and a deterioration in Winchester’s commercial business. We expect funds from operations (FFO) to debt will be about 12 percent at the end of 2025, below our 20 percent downgrade threshold, before improving in 2026 closer to our expectation at the rating. However, we anticipate the company will continue to generate positive free cash flow of about $200 million.”
S&P revised its outlook on Olin to negative from stable. At the same time, it affirmed its ‘BB+’ issuer credit rating on the company, as well as its ‘BB+’ issue-level ratings on the company’s unsecured notes, term loan, and revolving credit facility (RCF).
S&P said in its analysis, “The revised outlook reflects our expectation that Olin’s credit metrics will remain below our downgrade threshold over the next 12 months. We now expect Olin will end the year with FFO to debt well under 20 percent and debt to EBITDA in excess of 4x. All three of the company’s business segments face a challenging demand environment, and we do not expect market conditions to improve materially in the coming quarters.
“EBITDA in the company’s largest segment, chlor alkali products and vinyls (CAPV), is down about 9 percent year to date (excluding one-time items) due to lower pricing ($98 million) and higher raw material costs ($67 million), offset by higher volumes ($66 million) from improved operating rates. While Olin has substantial operating leverage in this segment and higher capacity utilization (10 percent or more) could result in a material improvement in EBITDA, we believe operating rates are unlikely to rise in the near term, given our assumptions for a continued slowdown in housing starts and our expectation for weak demand in key end markets such as vinyls, TiO2, and urethanes.
“Epoxy EBITDA will remain negative for a second straight year in 2025 as the segment manages through weaker coatings demand and Asian overcapacity. However, we expect EBITDA will improve year over year in 2026 from contractual cost savings at Stade ($40 million), potential benefits from supply rationalization by competitors in Europe, and incremental tariffs and duties (the removal of epoxy from annex II, for example).
“Olin’s Winchester [Ammo] segment has seen the most dramatic deterioration thus far in 2025 (EBITDA down 58 percent). The sector has faced weak consumer demand and high channel inventory, making it difficult for ammunition producers to pass on the rising cost of copper and propellant. While Olin’s military ammunition sales have remained strong and it continues to benefit from military project revenue, these are both much lower margins than commercial ammunition sales. EBITDA margins in the segment have declined to the mid-single-digit percent area from over 20 percent, and we expect them to stay at this level at least into 2027 due to negative mix and higher copper costs (Olin hedges its commodity copper cost, so higher costs flow through cost of goods sold with a lag).
“Overall, we expect S&P Global Ratings-adjusted EBITDA of about $775 million in 2025 and just over $800 million in 2026. We assume electro chemical (ECU) profitability remains relatively stable year over year with weakness in chlorine and derivatives offset by solid caustic soda pricing. Our forecast for marginal EBITDA growth is underpinned by improved epoxy profitability (cost reductions and higher pricing) and continued strength in Winchester’s military business.
“Olin has prioritized share repurchases over debt reduction even as credit metrics weakened materially. Over the past three years, Olin has generated about $1.3 billion of cumulative free cash flow and returned about $1.4 billion to shareholders. During that same time, gross debt increased $400 million and debt to EBITDA steadily deteriorated from 1.3x to our forecast of about 4.3x at year-end 2025. Management has publicly stated its desire to achieve and defend investment-grade credit metrics while also setting a target to maintain conservative credit metrics throughout the cycle, even at trough earnings. However, credit metrics are currently well below the level needed to achieve these goals. Additionally, given our muted demand forecast, we do not expect credit metrics to materially improve barring future debt repayment.
“Olin’s ability to generate free cash flow throughout the cycle could support metrics consistent with our ‘BB+’ rating, but the future ratings trajectory depends upon management’s financial policies. Despite the tough conditions facing the company’s chemicals and ammunition businesses, Olin continues to generate free cash flow. Additionally, the company expects to pay about $175 million in cash taxes in 2025, partially due to an international tax payment deferred from prior years. This is a material drag on free cash flow generation (and FFO to debt) in 2025.
“We expect cash taxes to be materially lower in 2026, mechanically improving free cash flow and FFO to debt even without an improvement in earnings. We expect the company’s capital expenditure (capex) will remain around a maintenance level ($200 million-$275 million) over the next few years, and we do not expect Olin will allocate capital to large-scale, capital-intensive investments to expand its existing asset base. However, the company could make smaller bolt-on acquisitions similar in size to White Flyer and AMMO Inc. We anticipate Olin will maintain its dividend (about $90 million annually) while continuing to return discretionary cash to shareholders via share repurchases. This should leave a moderate amount of cash for potential debt reduction, although significant debt repayment is not considered in our base case.
“The negative outlook reflects the macroeconomic challenges currently facing the chlor alkali, epoxy, and commercial ammunition markets. These include weaker end-market demand for vinyls, TiO2, urethanes, and epoxy due to a slowdown in global building and construction activity, as well as an inventory overhang, pressure on consumer budgets, and rising input costs, which have reduced Winchester’s profitability.”
Image courtesy Winchester Ammo
