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Rating Action:

Moody's assigns Celestica Ba2 CFR, credit facilities Ba1; stable outlook

05 Jun 2018

$800 million of new credit facilities rates

NOTE: On June 6, 2018, the press release was corrected as follows: In the second paragraph, Celestica's rating was changed to Ba2. Revised release follows.

Toronto, June 05, 2018 -- Moody's Investors Service (Moody's) assigned a Ba2 corporate family rating, a Ba2-PD probability of default rating, and a stable ratings outlook to Celestica Inc. (Celestica). In conjunction with the company's launch of a refinancing of its existing credit facilities, Moody's also assigned a Ba1 (LGD3) rating to Celestica's new $800 million credit facilities, comprised of a $350 million term loan B due 2025 and a $450 million revolving credit facility due 2023. Moody's also assigned Celestica an SGL-1 speculative grade liquidity rating, indicating very good liquidity arrangements, and a stable ratings outlook. These are new ratings and are contingent upon Moody's review of the final transaction and satisfaction that all parameters substantially conform to pre-closing expectations.

"Celestica's Ba2 rating contextualizes Moody's adjusted leverage of debt/EBITDA of 1.5X with very low, 5% EBITDA margins that result from the company's participation is the hyper-competitive and low growth electronics manufacturing services sector, along with elevated concentration of revenues with a few key customers," said Bill Wolfe, a Moody's senior vice president.

The following summarizes Celestica's ratings and today's actions:

Rating and Outlook Actions:

..Issuer: Celestica Inc.

....Corporate Family Rating, Assigned Ba2

....Probability of Default Rating, Assigned Ba2-PD

....Speculative Grade Liquidity Rating, Assigned SGL-1

....Gtd Senior Secured Credit Facilities (Celestica Inc. is the parent borrower; Celestica International LP and Celestica (USA) Inc. are co-borrowers), Assigned Ba1 (LGD3)

....Outlook, Assigned Stable

RATINGS RATIONALE

Celestica Inc.'s (Celestica) Ba2 CFR stems primarily from Moody's adjusted leverage of debt/EBITDA of ~1.5x, ~5% EBITDA margins and modest growth prospects stemming from the company's participation in the hyper-competitive electronics manufacturing services sector, as well as event risks related to elevated concentration of revenues with a small number of large customers. The company's credit profile benefits from significant free cash generation that provides debt reduction flexibility, very good liquidity, a long track record, and being well positioned to augment growth and profitability over the next several years by pivoting to adjacent markets.

Celestica has a SGL-1 speculative grade liquidity rating (indicating very good liquidity) as a result of approximately $130 million of annual free cash flow generation, ~$465 million in cash (pro forma for the refinancing transaction at 31Mar18), and the new unused $450 million revolving credit facility maturing in 2023. Other than nominal amortization under its new term loan B, Celestica has no maturing debts, but because the company's $200 million uncommitted accounts receivable securitization facility is not committed, Moody's assumes that the $113 million of outstandings are due within our four quarter liquidity horizon. Even with that, however, the quantum of liquidity remains solid, and Moody's does not expect financial covenant compliance issues. There are two financial covenants; Moody's estimates cushions in excess of 70%, even with the securitization facility backing-up into the revolving credit facility (covenants of 4x total leverage and 3.25x interest coverage).

Rating Outlook

The stable outlook is based on expectations of a stable business platform, with leverage of debt/EBITDA remaining at about 1.5x (1.6x at 31Mar18, pro forma for the refinance transaction; Moody's adjustments add about 0.3x to reported figures).

What Could Change the Rating -- Up

Upwards rating pressure is contingent upon positive industry fundamentals, solid operating performance evidenced by growing margins, cash flow and scale and much improved customer concentration, along with adjusted debt/EBITDA being maintained below 2x on a sustained basis (1.6x at 31Mar18), pro forma for the refinance transaction.

What Could Change the Rating -- Down

Celestica's rating could be downgraded if adjusted debt/EBITDA leverage is expected to be sustained above 3x (1.6x at 31Mar18), pro forma for the refinance transaction, if liquidity deteriorates markedly, or if financial policies become more aggressive.

Company Profile

Headquartered in Toronto, Ontario and with annual sales of about $6.2 billion, publicly traded Celestica Inc. is an electronics manufacturing services (EMS) company providing a full range of integrated, value-added solutions to original equipment manufacturers (OEMs).

The principal methodology used in these ratings was Distribution and Supply Chain Services Industry published in December 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entities or their designated agent(s) and issued with no amendment resulting from that disclosure.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Bill Wolfe
Senior Vice President
Corporate Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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