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By clicking “I AGREE” [at the end of this document], you indicate that you understand and intend these terms and conditions to be the legal equivalent of a signed, written contract and equally binding, and that you accept such terms and conditions as a condition of viewing any and all Moody’s inform​ation that becomes accessible to you [after clicking “I AGREE”] (the “Information”).   References herein to “Moody’s” include Moody’s Corporation, Inc. and each of its subsidiaries and affiliates.

 

Terms of One-Time Website Use

 

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2.            You acknowledge and agree that Moody’s credit ratings: (i) are current opinions of the future relative creditworthiness of securities and address no other risk; and (ii) are not statements of current or historical fact or recommendations to purchase, hold or sell particular securities.  Moody’s credit ratings and publications are not intended for retail investors, and it would be reckless and inappropriate for retail investors to use Moody’s credit ratings and publications when making an investment decision.  No warranty, express or implied, as the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any Moody’s credit rating is given or made by Moody’s in any form whatsoever.          

 

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Related Issuers
Rating Action:

Moody's downgrades Seagate's senior unsecured rating to Ba1; outlook stable

02 Dec 2020

$4.7 billion of rated debt affected

New York, December 02, 2020 -- Moody's Investors Service ("Moody's") downgraded Seagate HDD Cayman's (Seagate) senior unsecured ratings to Ba1 from Baa3. Moody's concurrently assigned a Ba1 Corporate Family Rating (CFR), a Ba1-PD Probability of Default Rating, and an SGL-1 Speculative Grade Liquidity rating. The outlook remains stable. The ratings action was prompted by Seagate's plans to issue $1 billion of senior notes, the proceeds of which Moody's expects will primarily be used to fund share repurchases.

Moody's analyst Raj Joshi said, "The downgrade reflects Seagate's increasingly aggressive shareholder-friendly financial policy and our view that the company will operate at a higher financial leverage and its cash balances will likely decline relative to debt over the next 12 to 24 months."

Assignments:

..Issuer: Seagate HDD Cayman

.... Probability of Default Rating, Assigned Ba1-PD

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

.... Corporate Family Rating, Assigned Ba1

....Senior Unsecured Regular Bond/Debenture, Assigned Ba1 (LGD4)

Downgrades:

..Issuer: Seagate HDD Cayman

....Senior Unsecured Regular Bond/Debenture to Ba1 (LGD4) from Baa3

Outlook Actions:

..Issuer: Seagate HDD Cayman

....Outlook, Remains Stable

RATINGS RATIONALE

Pro forma for the $1 billion increase in debt, Seagate's total debt to EBITDA (Moody's adjusted) will increase from 2.4x at the end of fiscal 1Q 2021 to 3x. In October 2020, Seagate increased its share repurchase program by $3 billion to $4.2 billion. The company's dividend payout ratio is high (about 60% of pre-dividend free cash flow) and since the increase in share repurchase authorization in October 2018, share buybacks have significantly exceeded free cash flow while operating profits have remained meaningfully below their peak in FY '18. Given management's track record of capital returns and Moody's expectations for free cash flow of approximately $500 million over the next 12 to 24 months, there is a risk of further erosion in cash position and incremental borrowings to fund share repurchases. Moody's expects Seagate's EBITDA to decline modestly in FY '21, and grow in the high single digit in FY '22, if Seagate's HAMR drives are successful and shipments grow in scale. The downgrade reflects Moody's revised expectation that notwithstanding the improvements in profitability, Seagate will operate with leverage of about 3x and its cash balances will likely decline relative to debt over the next 12 to 24 months.

The Ba1 CFR is supported by Seagate's good operating scale with over $10 billion in revenues, market position as one of the two leading suppliers of Hard Disk Drive-based storage solutions, and very good long-term demand for data storage capacity. Increasing operating efficiencies have supported profitability but Seagate has high business risks from the high revenue concentration in the HDD product category, sustained pricing pressure in the HDD industry, substitution risks from flash memory in a meaningful portion of its business, and high demand volatility. Product cycles are short and execution risk in managing technology transitions with increasingly complex storage technologies is high. The Ba1 rating reflects Moody's expectations that Seagate will maintain very good liquidity and moderate leverage and generate free cash flow of 8% to 10% of adjusted debt over the next 12 to 24 months. The strong growth prospects for high capacity drives should offset sustained pricing pressure and limit downside risks to Seagate's profitability. At the same time, the growing revenue concentration in the hyperscale cloud market will amplify business volatility.

The stable ratings outlook reflects Moody's expectations that Seagate will maintain very good liquidity, generate free cash flow of about 8% to 10% of total adjusted debt over the next 12 to 24 months, and maintain leverage below the low 3x (Moody's adjusted).

The SGL-1 liquidity rating reflects Seagate's very good liquidity profile supported by its $1.7 billion of cash balances, an undrawn $1.5 billion revolving credit facility, and Moody's expectations for about $500 million in free cash flow over the next 12 months. Furthermore, an unsecured capital structure provides Seagate additional flexibility to raise liquidity.

Seagate's senior unsecured notes are rated Ba1, the same as CFR, as the entire debt capital structure consists of unsecured debt. The ratings for senior unsecured notes will be susceptible to downward ratings pressure if meaningful amounts of senior secured debt are added in the capital structure.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Seagate's shareholder-oriented financial policy and high business risks make it unlikely that the ratings will be upgraded over the next 12 to 24 months. Over time, the ratings could be upgraded if the company establishes a track record of highly conservative financial policies and generates sustained growth in profits. Conversely, the ratings could be downgraded if execution challenges, competitive challenges, weak operating performance, or elevated shareholder returns result in total debt to EBITDA above 3.25x and free cash flow below the high single digit percentages of total adjusted debt on a sustained basis.

Seagate HDD Cayman ("Seagate") is a subsidiary of Seagate Technology plc and is leading provider of data storage solutions.

The principal methodology used in these ratings was Diversified Technology published in August 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1130737. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Raj Joshi
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Lenny J. Ajzenman
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

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MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​
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