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Rating Action:

Moody's assigns first-time Ba3 CFR to Brightstar; outlook stable

Global Credit Research - 15 Nov 2010

Approximately $250 million of new debt securities rated

New York, November 15, 2010 -- Moody's Investors Service assigned to Brightstar Corp. ("Brightstar") a first-time Ba3 Corporate Family (CFR) and Probability of Default Rating. The outlook is stable. Concurrently, Moody's assigned a B1 rating to Brightstar's proposed offering of $250 million senior unsecured notes maturing 2016. Proceeds will be used to prepay various existing loan facilities. 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 -- Ba3

Probability of Default Rating -- Ba3

$250 Million Senior Unsecured Notes due 2016 -- B1 (LGD-4, 64%)

RATING RATIONALE

Brightstar's Ba3 CFR reflects its presence and leadership position as a global services company providing distribution and supply chain solutions to key participants in the wireless telecommunications industry. Ratings support is provided by Brightstar's infrastructure, channel reach and capabilities as a principal supplier of distribution, logistics, inventory management and supply-chain services with high entry/exit barriers in the mobility space. Brightstar's Ba3 rating also reflects the challenges posed by the company's low margin business profile, significant supplier/product-line, customer and regional (Latin America) concentrations, and limited pricing power. It also captures exposure to the highly cyclical and volatile wireless telecommunications industry, which is characterized by very short product lifecycles, rapid pace of technological change and considerable share shifts among wireless manufacturers. Additionally, the rating recognizes Brightstar's sizable working capital needs and reliance on external financing during periods of significant revenue growth, which can result in extended periods of negative free cash flow (FCF) (e.g., 2005 through 2007). Lastly, the rating embeds Moody's expectations that acquisition and/or investment activity over the near-to-intermediate term could increase as Brightstar pursues growth opportunities within regional markets.

The rating captures the company's focused distribution services, good internal execution, and meaningful profit contribution from its faster growth and higher margin fee-based supply chain optimization business. The supply chain business represents about one-third of Brightstar's total gross profit dollars despite accounting for about 6% of total revenue. The success of its business model has led to strong revenue growth reflecting the company's growing relevance among customers who increasingly rely on outsourced providers like Brightstar to expand their presence in faster growth market segments, reduce operating costs and enhance their supply chain.

The CFR considers the company's solid financial performance and ability to quickly eliminate costs in recessionary periods, as well as the countercyclical nature of its low-capex model, which results in positive FCF and very good liquidity during cycle downturns. The Ba3 CFR incorporates our expectation that Brightstar may experience periods of rising debt levels due to revolver draws to fund rapid growth. Despite this, we anticipate stable-to-improving financial leverage (as measured by total adjusted debt to EBITDA) over the near-to-intermediate term principally from EBITDA expansion.

Pro forma for the new debt transaction, total debt to EBITDA (Moody's adjusted) of roughly 3.5x for the LTM period is appropriate for the Ba3 rating in light of Brightstar's smaller scale relative to its Baa3-rated IT distribution peers as well as the potential for greater EBITDA volatility and outsized working capital requirements associated with a product portfolio consisting primarily of wireless, consumer electronics and mobile devices that churn very quickly.

The company maintains adequate liquidity. Though the business model requires minimal capex, which generally supports positive FCF generation, we expect negative FCF over the next twelve months due to higher working capital usage for receivables and inventory given the recent outsized revenue growth from new customer signings and penetration into existing client accounts. Additional liquidity support is expected to be provided by an existing $400 million ABL revolver maturing August 2012 (which we anticipate Brightstar to rely on quite heavily), roughly $335 million of credit and trade facilities, and pro forma cash balances of approximately $100 million at closing.

The stable rating outlook reflects our expectation that Brightstar's vendor/customer relationships will remain relatively steady, operating margins will be maintained in the 2-4% range, retained cash flow to debt (Moody's adjusted) will stay at or above 20% and liquidity will remain adequate. The potential for moderate spending on acquisitions and investments is also captured in the stable outlook.

Brightstar's Ba3 rating could experience upward pressure if the company's revenue and operating profits continue to grow as a result of market share gains, higher revenue and gross profit contribution from the supply chain business, and improvement in vendor, product-line and geographic diversification. Quantitatively, positive rating pressure could occur if the company expands operating margins above 4.5% (Moody's adjusted) on a sustained basis, reduces operating and FCF margin volatility, generates consistently positive FCF leading to improved internal liquidity and reduces leverage to under 2.5x (Moody's adjusted) on a sustained basis.

Downward rating pressure could result if Brightstar witnessed material vendor losses or intense competition from distributors and vendors/OEMs were to cause market share losses, pricing pressure and/or substantial margin erosion as well as a significant decline in FCF and internal liquidity. Additionally, if the company incurs a disproportionate amount of debt relative to additive EBITDA to pursue an acquisition or investment, the rating could be negatively affected.

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

The principal methodologies used in this rating were Global EMS and IT Distribution Industries published in December 2008, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

Headquartered in Miami, Florida, Brightstar Corp. is a leading global distributor of wireless handsets, smart phones, IT devices and consumer electronics serving major technology OEMs, network operators and retailers. Consolidated revenues for the twelve months ended September 30, 2010 (LTM) were approximately $3.8 billion.

REGULATORY DISCLOSURES

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.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

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
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
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Moody's assigns first-time Ba3 CFR to Brightstar; outlook stable
No Related Data.
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