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13 Apr 2009
Approximately $2.1 billion of rated debt affected
New York, April 13, 2009 -- Moody's Investors Service confirmed Seagate Technology HDD Holdings' corporate
family rating (CFR) of Ba2 and downgraded the senior unsecured notes and
convertible senior notes ratings to Ba3 from Ba2. Moody's
also assigned a first-time rating of Ba1 to the company's
$430 senior secured notes offering announced today. Concurrently,
Seagate's speculative grade liquidity (SGL) rating was upgraded to an
SGL-2 from an SGL-3. The rating outlook is negative.
Today's rating actions conclude the review for further possible
downgrade initiated on January 15, 2009.
Today, the company announced that it will offer $430 million
aggregate principal amount of senior secured second-priority notes
due 2014 in a private placement. The secured notes are expected
to be issued by Seagate Technology International, an indirect wholly-owned
subsidiary of Seagate Technology, and guaranteed by Seagate Technology,
Seagate Technology HDD Holdings and all of Seagate Technology's subsidiaries
that guarantee its senior secured credit facility.
The confirmation of the CFR and the upgrade of the SGL are supported by
the company's strengthened liquidity following resolution of its
near-term covenant compliance issues and our expectation that the
$430 million new notes offering will close. Excluding proceeds
from the new debt, Seagate's current cash balance is $1.5
billion. While the revolver capacity was reduced from $500
million to $350 million under the amended credit agreement,
the facility's net leverage and minimum liquidity covenants through
calendar year 2009 were modified to provide additional flexibility for
the remainder of the year as the company transforms its cost structure.
The reduction of the facility to $350 million leaves the company
with no availability under its revolver. Although free cash flow
may be negative in 2009 and the company faces debt maturities of approximately
$435 million through the end of 2010, the company's
sizable cash balances should be sufficient to meet its cash needs through
The Ba2 CFR continues to reflect the company's leading position in the
disc drive industry and its proven ability to generate significant amounts
of profits and free cash flow during peak cycles that provide cushion
to withstand cyclical downturns. Our rating also incorporates the
inherent volatility of the disc drive sector, which is characterized
by capital intensity, short product life cycles, commoditization,
and maturation-linked average selling price declines. While
we believe that industry volatility may have become less severe as a result
of the sector's on-going consolidation, the industry is currently
facing a steep pullback in demand as a result of the weak macroeconomic
environment, which is forcing Seagate to rationalize production
capacity as in past downturns.
The downgrade of the unsecured and convertible senior notes reflects their
un-guaranteed and junior position within the company's capital
structure following the amendment of the credit facility (whereby the
revolver is now secured) and completion of the proposed issuance of $430
million secured notes.
The negative outlook reflects ongoing concerns over the company's
ability to generate meaningful profitability and free cash flow in FY2010
and FY2011 following the steep pullback in demand for storage products
and the major restructuring initiatives that the company has announced.
While the recently-amended credit facility and the new note offering
resolve uncertainty over near-term liquidity and provide the company
with flexibility to manage its restructuring cost programs, the
company must still contend with covenant compliance issues after January
1, 2010, when the covenants revert back to original requirements
as well as nearly $1 billion of debt maturities in 2011 and 2012.
The company's ability to manage its long-term liquidity could
be impaired by a prolonged global recession, delays in realizing
the benefits of its massive restructuring efforts, and continuing
weak execution evidenced by further market share losses to Western Digital,
especially in the faster-growing notebook segment.
Corporate Family Rating of Ba2
Probability of Default Rating of Ba2
$60 million of 5.75% subordinated debentures due
2012 (remaining balance of $40 million) at B1 (LGD6, 96%)
Rating / assessment assigned:
$430 million senior secured notes due April 2014 -- Ba1 (LGD
Ratings downgraded / assessments revised:
$300 million floating rate senior notes due October 2009 to Ba3
(LGD4, 67%) from Ba2 (LGD4, 56%)
$600 million of 6.375% senior unsecured notes due
2011 to Ba3 (LGD4, 67%) from Ba2 (LGD4, 56%)
$600 million of 6.8% senior unsecured notes due 2016
to Ba3 (LGD4, 67%) from Ba2 (LGD4, 56%)
$230 million of 6.8% convertible senior notes due
2010 (remaining balance of $136 million) to Ba3 (LGD4, 67%)
from Ba2 (LGD4, 56%)
Speculative Grade Liquidity (SGL) rating to SGL-2 from SGL-3
Moody's subscribers can find additional information in the Seagate Credit
Opinion published on Moodys.com.
The principal methodology used in rating Seagate was Global Technology
Hardware, which can be found at www.moodys.com in
the Credit Policy & Methodologies directory, in the Ratings
Methodologies subdirectory. Other methodologies and factors that
may have been considered in the process of rating this issuer can also
be found in the Credit Policy & Methodologies directory.
The last rating action was on January 15, 2009 when Moody's downgraded
Seagate's corporate family, senior unsecured notes,
and convertible senior notes ratings to Ba2 from Ba1, its subordinated
debentures to B1 from Ba2, and its speculative grade liquidity (SGL)
rating to SGL-3 from SGL-1. In addition, Moody's
kept the ratings under review for further possible downgrade.
Seagate, with revenues of $11.3 billion for the twelve
months ended January 2, 2009, is the worldwide leader in the
design, manufacture and marketing of disk drive products used as
the primary medium for storing electronic information in systems ranging
from personal computers and consumer electronics to data centers.
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Moody's confirms Seagate's Ba2 CFR, outlook is negative
Alexandra S. Parker
Corporate Finance Group
Moody's Investors Service
No Related Data.
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