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Rating Action:

Moody's assigns B2 to Freescale's proposed amended credit facility and secured notes

04 Feb 2010

Approximately $7.9 billion of debt rated

New York, February 04, 2010 -- Moody's Investors Service assigned a B2 rating to Freescale Semiconductor, Inc.'s proposed senior secured extended term loan maturing 2016 and $750 million senior secured notes. Concurrently, Moody's affirmed Freescale's corporate family (CFR), probability of default (PDR), long-term debt and speculative grade liquidity ratings. These actions follow the company's recently launched proposed amendment of its credit agreement. The assigned ratings are subject to review of final documentation and no material change in the terms and conditions of the transactions as advised to Moody's. The extended term loan and senior secured notes ratings are also contingent on passage of the amendment.

The proposed amendment is designed to extend the maturity date of all or a portion of the company's existing $3.4 billion term loan B as well as give Freescale the ability to issue secured notes. Proceeds from the secured notes will be used to reduce the term loans (i.e., 2013 and 2014 maturities plus the new 2016 maturity) and revolver. Any reduction in the revolver would constitute a commitment reduction from lenders. Any remaining amounts of the term loan B not extended will mature at the pre-existing maturity date. As a result of the two proposed transactions, we expect the company's annual interest expense to increase slightly.

Freescale's Caa1 CFR continues to be constrained by the company's substantial leverage and thin interest coverage, as well as our expectation of very modest free cash flow (FCF) generation. The CFR also reflects a significantly reduced earnings contribution from the company's cellular segment, offset by modest earnings from Freescale's recent entrée into higher growth sub-segments within consumer and industrial markets. Since Freescale is exposed to the inherently cyclical and volatile semiconductor industry, Moody's is concerned that Freescale's highly leveraged capital structure may prove unsustainable if cash flows were to deteriorate for an extended period. A pending lawsuit by lenders related to the company's 2009 debt exchange is an additional rating constraint since Freescale's potential liability is unknown.

The rating is supported by Freescale's strong market leadership positions and rich product portfolio characterized by technological breadth; its somewhat favorable revenue diversification across products, geographies and customers; its refocused R&D program to drive future revenue growth in extended market segments; and its "asset-light" model that allows it to reduce expenses and capex in response to weak market conditions.

The rating outlook is stable and reflects our expectation that after a severe downturn in profits and cash flow caused by the recession, the company's operating performance will continue to improve as a result of the recovery in the global demand environment and Freescale's progress in eliminating $700 million of annualized costs (full $800 million cost savings expected during 2010). The stable outlook incorporates our belief that semiconductor end market demand will demonstrate growth in 2010 and that Freescale's revenue growth will be in line with its addressable markets.

Freescale's liquidity is adequate as reflected in its SGL-3 speculative grade liquidity rating. The liquidity assessment is principally driven by the company's $1.4 billion of cash balances given that over the next four quarters, we expect Freescale to generate modest FCF relative to its large debt load. Despite no financial covenants, financial flexibility remains diminished, in our opinion, since the company has drawn $644 million under its revolver, which has a committed capacity of $690 million.

The following new ratings and assessments were assigned:

Up to $3.371 Billion Senior Secured Extended Maturity Term Loan due 2016 -- B2 (LGD-3, 30%)

$750 Million Senior Secured Notes -- B2 (LGD-3, 30%)

The following ratings were affirmed (Moody's will subsequently revise the amounts outstanding under the secured revolver and existing term loans following final disclosure of the amounts retired):

Corporate Family Rating (New) -- Caa1

Probability of Default Rating - Caa1

$ 690 Million (originally $750 Million) Senior Secured Revolving Credit Facility due 2012 - B2 (LGD-3, 30%)

$3.371 Billion (originally $3.5 Billion) Senior Secured Term Loan B Facility due 2013 - B2 (LGD-3, 30%)

$ 917 Million Senior Secured Incremental Term Loan due 2014 -- B2 (LGD-3, 30%)

$1.382 Billion (originally $2.35 Billion) Senior Unsecured Notes due 2014 - Caa2 (LGD-5, 80%)

$ 194 Million (originally $500 Million) Senior Unsecured Floating Rate Notes due 2014 - Caa2 (LGD-5, 80%)

$ 558 Million (originally $1.5 Billion) Senior Unsecured Toggle Notes due 2014 - Caa2 (LGD-5, 80%)

$ 764 Million (originally $1.6 Billion) Senior Subordinated Unsecured Notes due 2016 - Caa3 (LGD-6, 94%)

Speculative Grade Liquidity Rating - SGL- 3

Moody's subscribers can find additional information in the Freescale Credit Opinion published on www.moodys.com.

The last rating action was on December 23, 2009 when Moody's affirmed Freescale's Caa1 CFR and revised the outlook to stable from negative.

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 December 31, 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 assigns B2 to Freescale's proposed amended credit facility and secured notes
No Related Data.
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