Approximately $500 million of new debt rated
New York, February 24, 2011 -- Moody's Investors Service assigned to MEMC Electronic Materials,
Inc. ("MEMC") a first-time B1 Corporate Family
Rating (CFR), B1 Probability of Default Rating (PDR) and SGL-2
Speculative Grade Liquidity Rating. The outlook is stable.
Concurrently, Moody's assigned a B1 rating to MEMC's
proposed $500 million senior notes maturing 2019. Net proceeds
will be used for general corporate purposes including working capital,
capital expenditures, construction of solar power projects and acquisitions.
The assigned ratings are contingent on the review of final documentation
and no material change in the terms and conditions of the debt transaction
as advised to Moody's.
The following first-time ratings/assessments were assigned:
Corporate Family Rating -- B1
Probability of Default Rating -- B1
$500 Million Senior Notes due 2019 -- B1 (LGD-4,
Speculative Grade Liquidity Rating -- SGL-2
The B1 CFR is supported by MEMC's leadership position as the third
largest global semi wafer manufacturer, fifth largest solar wafer
manufacturer and largest North American solar power developer.
The B1 rating considers MEMC's broad Materials product portfolio
supported by a strong history of R&D and technical expertise and low-cost
polysilicon feedstock and manufacturing facilities that are located near
customers' fabs. The company maintains good geographic diversity,
a high quality customer base and an increasingly integrated solar business,
which are also factored in the rating.
At the same time, the B1 CFR considers that MEMC operates in the
polysilicon semiconductor and solar wafer industry segments (i.e.,
Materials segments), which are characterized by strong competition,
intense pricing pressures, polysilicon supply/demand dynamics and
dependence on the volatile and cyclical semiconductor and photovoltaic
markets. These concerns are further exacerbated by MEMC's
high customer concentration (i.e., top ten customers
account for 60% of total revenues) and potential volume shortfall
payments to suppliers on take-or-pay contracts. The
rating also captures the ongoing challenges to develop new products,
improve manufacturing processes and reduce unit production costs given
the high fixed costs associated with MEMC's integrated and capital
The rating incorporates MEMC's transitioning business model which
stems from the 2009 acquisition and continuing integration of SunEdison
(SE), a developer/operator that constructs solar energy projects
(i.e., Solar segment), and the potential risk
that MEMC may need to support SE's non-recourse project finance
debt for reputational reasons. Moody's recognizes that the
fast growing and sizable solar market provides an opportunity to create
a "pull-through" by SE to drive demand for MEMC's
solar wafer production and a potential annuity-like income stream
to offset the more volatile Materials segments. However,
SE is expected to be a drag on MEMC's operating performance in FY11
as a result of operating losses and negative free cash flow (FCF) generation.
In order for SE to achieve the appropriate scale to contribute meaningful
EBITDA, MEMC will need to make sizable preliminary investments at
SE. The rating recognizes that SE's solar projects will require
careful capital and risk management given that its project financing strategies
rely greatly on attracting third party capital from a limited number of
financial institutions and private equity sponsors.
MEMC's SGL-2 speculative grade liquidity rating reflects
the company's good liquidity position supported by approximately
$850 million of pro forma cash balances (after expected working
capital and capex usage in Q1FY11) and a $250 million credit facility
maturing December 2012 ($138 million available as of December 2010
net of outstanding L/Cs). Our expectation for negative FCF generation
in FY11 is mitigated by our expectation that MEMC will maintain at least
$750 million of balance sheet cash in Q1FY11 ramping to $1.0
billion in Q4FY11, plus access to its revolver. In addition,
Moody's assumes that from time to time, SE may rely on MEMC's
cash and revolver to finance its solar projects on an interim basis.
We expect MEMC to remain in compliance with its bank financial covenants
over the next 12 months.
The stable outlook reflects our expectation that over the next 12--18
months, MEMC will maintain its position as a leading semiconductor
and solar wafer manufacturer. It also anticipates that operating
earnings and cash flows over the next year in the Materials segments will
continue to improve from 2009-10 levels offset by operating losses
and negative FCF in the Solar segment as SE's solar power project
business experiences rapid expansion.
Ratings could be upgraded if MEMC were to realize solar wafer demand "pull-through"
benefits from the integration of its solar project development business,
realize deferred revenue and cash flow from prior solar system sales and
increase SE's scale resulting in meaningful positive EBITDA and
FCF contribution, improve MEMC's operating margins to a higher
sustainable range and/or reduce financial leverage to under 4.5x
total debt to EBITDA (Moody's adjusted to include non-recourse
debt, capitalized operating leases and underfunded pension) on a
Ratings may be downgraded if MEMC's revenues, margins and
profitability eroded as a result of a weakened competitive position,
contraction in industry demand, and/or deterioration in polysilicon
prices without a concomitant reduction in MEMC's manufacturing costs.
Additionally, to the extent MEMC's Moody's adjusted
total debt to EBITDA rose above 6.0x for an extended period,
ratings could experience downward pressure.
Moody's subscribers can find additional information in the MEMC Credit
Opinion published on www.moodys.com.
The principal methodologies used in this rating were Global Semiconductor
Methodology published in November 2009, Global Construction Methodology
published in November 2010, and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009.
Headquartered in St. Peters, Missouri, MEMC is a leading
supplier of polysilicon semiconductor and solar wafers to semiconductor
foundries, IDMs (integrated device manufacturers) and solar cell/module
manufacturers. Through its SunEdison subsidiary, MEMC also
develops, constructs and operates solar energy power projects.
Revenues and EBITDA (Moody's adjusted) for the twelve months ended
December 31, 2010 (LTM) were approximately $2.2 billion
and $203 million, respectively.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service's information.
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on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
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independent third-party sources. However, Moody's
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Gregory A. Fraser
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns first-time B1 CFR to MEMC; outlook stable
250 Greenwich Street
New York, NY 10007