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I AGREE
23 Dec 2009
Approximately $7.9 billion of rated debt affected
New York, December 23, 2009 -- Moody's Investors Service affirmed Freescale Semiconductor, Inc.'s
("Freescale") corporate family (CFR), probability of
default (PDR), long-term debt and speculative grade liquidity
ratings, and changed the outlook to stable from negative.
The change in rating outlook reflects the company's improved operating
performance in the most recent fiscal quarter (September 2009) as a result
of the recovery in the global demand environment and Freescale's
progress in eliminating $650 million of annualized costs (full
$800 million cost savings expected during 2010). The change
in outlook incorporates our belief that semiconductor end market demand
has stabilized and will demonstrate growth in 2010. Freescale's
product portfolio is expected to benefit from organic growth as buying
patterns in the automotive sector improve, demand from networking
infrastructure OEMs rebound and design win activity continues to accelerate.
The outlook anticipates gross margin and cash flow expansion will be supported
by improving product mix, cost savings and higher capacity utilization.
The stable rating outlook also reflects Moody's expectation that
Freescale will maintain its leadership position in automotive ICs (MCUs,
analog and sensors) and networking ICs (communications MPUs, wireless
infrastructure and industrial networking), and expand share in new
consumer product platforms (e.g., SmartBooks and eBooks)
and industrial applications (e.g., metering,
smart grids, appliance control and medical), which should
provide modest incremental revenue in 2010.
Freescale's Caa1 CFR is constrained by the company's substantial
leverage and thin interest coverage, as well as our expectation
of very modest free cash flow generation. The CFR also reflects
a significantly reduced earnings contribution from the company's
cellular segment, which was considerably downsized, offset
by modest earnings from Freescale's recent entrée into higher
growth sub-segments within consumer and industrial markets.
A pending lawsuit related to the company's February/March debt exchange
is an additional rating constraint. An unfavorable ruling against
Freescale in this case could pressure the rating.
While the company has adequate liquidity to service its funding needs
over the next 12 months, as reflected in its SGL-3 liquidity
rating, Moody's believes the company will eventually need
to extend or refinance its debt maturity schedule ($644 million
secured revolver due 2012; $3.3 billion secured term
loan due 2013; and various debt obligations totaling $3.1
billion due 2014) given Freescale's limited ability to de-lever
from internal sources. Since Freescale is exposed to the cyclical
and volatile semiconductor industry, with concentrations in automotive
and networking sub-segments, Moody's is concerned that
Freescale's highly leveraged capital structure may prove unsustainable
if profitability were to deteriorate for an extended period.
The following ratings were affirmed and assessments revised:
Corporate Family Rating (New) -- Caa1
Probability of Default Rating - Caa1
$ 690 Million (originally $750 Million) Senior Secured Revolving
Credit Facility due 2012 - B2, LGD assessment revised to
(LGD-3, 30%) from (LGD-2, 29%)
$3.380 Billion (originally $3.5 Billion) Senior
Secured Term Loan B Facility due 2013 - B2, LGD assessment
revised to (LGD-3, 30%) from (LGD-2,
29%)
$ 924 Million Senior Secured Incremental Term Loan due 2014 --
B2, LGD assessment revised to (LGD-3, 30%) from
(LGD-2, 29%)
$1.414 Billion (originally $2.35 Billion)
Senior Unsecured Notes due 2014 - Caa2, LGD assessment revised
to (LGD-5, 80%) from (LGD-5, 79%)
$ 194 Million (originally $500 Million) Senior Unsecured
Floating Rate Notes due 2014 - Caa2, LGD assessment revised
to (LGD-5, 80%) from (LGD-5, 79%)
$ 559 Million (originally $1.5 Billion) Senior Unsecured
Toggle Notes due 2014 - Caa2, LGD assessment revised to (LGD-5,
80%) from (LGD-5, 79%)
$ 764 Million (originally $1.6 Billion) Senior Subordinated
Unsecured Notes due 2016 - Caa3 (LGD-6, 94%)
Speculative Grade Liquidity Rating - SGL- 3
For more information concerning Freescale please see Moody's Credit
Opinion at www.moodys.com.
The last rating action was on March 27, 2009, when Moody's
affirmed Freescale's CFR at Caa1 and raised the PDR to Caa1 from
Ca to reflect the final closing of the debt exchange transaction.
Concurrently, we downgraded the senior secured bank facilities to
B2 from B1 and assigned a B2 rating to the new senior secured incremental
term loan.
The principal methodology used in rating Freescale was Moody's Global
Semiconductor, published in November 2009 and available on www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating this issuer can also be found in the
Rating Methodologies sub-directory on Moody's website.
Headquartered in Austin, TX, Freescale Semiconductor,
Inc. designs and manufactures embedded semiconductors for the transportation,
networking and wireless markets. The company was separated from
Motorola via IPO in July 2004 and taken private in a leveraged buyout
in December 2006. Revenues for the twelve months ended October
2, 2009 were $3.5 billion.
New York
Gregory A. Fraser
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Alexandra S. Parker
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's affirms Freescale's Caa1 CFR; outlook changed to stable
No Related Data.
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