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Rating Action:

Moody's downgrades Lantiq's CFR to Caa2; rating is placed on review for downgrade

Global Credit Research - 03 Sep 2012

Approximately USD 111 million syndicated loan facilities affected

Frankfurt am Main, September 03, 2012 -- Moody's Investors Service has today downgraded Lantiq Deutschland GmbH's (Lantiq) corporate family rating to Caa2, the probability of default rating to Caa3, the rating on the US$110.75 million senior secured term loan to Caa2 and placed all ratings on review for further downgrade.

Downgrades:

..Issuer: Lantiq Deutschland GmbH

.... Probability of Default Rating, Downgraded to Caa3 from Caa2

.... Corporate Family Rating, Downgraded to Caa2 from Caa1

....Senior Secured Bank Credit Facility, Downgraded to Caa2 from Caa1

On Review for Possible Downgrade:

..Issuer: Lantiq Deutschland GmbH

....Senior Secured Bank Credit Facility, Placed on Review for Possible Downgrade, currently Caa2, LGD3 - 33 %

Outlook Actions:

..Issuer: Lantiq Deutschland GmbH

....Outlook, Changed To Rating Under Review From Stable

RATINGS RATIONALE

The downgrade follows weaker than expected operating performance in the third quarter of fiscal year 2012 (fiscal year ends 30 September) with limited prospects for short term improvements. As a result, Moody's deems a breach of covenants under the senior secured term loan on 30 September 2012 and the restructuring of the current capital structure as likely.

Revenues and earnings fell significantly short of expectations in the third quarter of fiscal year 2012 as result of reduced investment spending by telecom carriers in a muted macroeconomic environment, lower than expected revenues generated by new product launches and lower demand for older generation products. This negative deviation from budget has also resulted in continued negative free cash flow generation in the third quarter of 2012.

An improvement in Lantiq's earnings and cash flow generation is very much dependent on future investments of telecoms carriers in applications and increasing market acceptance of new product launches.

The rating review will focus on (1) Lantiq's ability to restore headroom under financial covenants and to avoid a payment default on the US$110.75 million senior secured term loan, (2) the prospects of a recovery in Lantiq's operating performance in the near term against muted investment spending by carriers and weak macroeconomic environment, (3) the group's ability to maintain an adequate liquidity cushion and sufficient financial flexibility which remains dependent on the continued support from its owner Golden Gate Capital.

WHAT COULD CHANGE THE RATING UP/DOWN

The ratings could be downgraded further in case of a near-term default on Lantiq's US$110.75 million senior secured credit agreement or any transaction that could qualify as a distressed exchange with a lower than currently expected recovery rate for lenders in such a scenario, or if turnover, EBITDA and free cash flows fail to improve again to levels which would prove the long-term sustainability of Lantiq's business model.

Rating upward pressure could arise in case the company successfully restored headroom under financial covenants or successfully refinanced the current US$110.75 million credit agreement with limited losses to existing lenders.

The principal methodology used in rating Lantiq Deutschland GmbH was the Global Semiconductor Industry Methodology published in November 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Lantiq Deutschland GmbH, headquartered in Neubiberg (Munich, Germany), is a leading designer of communications semiconductors deployed by major carriers in traditional voice and broadband access networks around the world. Lantiq generated revenues of around US$430 million in fiscal year ending 30 September 2011.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant 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.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare the rating are the following : parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a 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.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

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

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's 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 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.

Kathrin Heitmann
Analyst
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Matthias Hellstern
Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades Lantiq's CFR to Caa2; rating is placed on review for downgrade
No Related Data.

 

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