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Rating Action:

Moody's lowers ratings of Advanced Micro Devices (CFR to B3); senior unsecured to Caa1; outlook negative

21 Apr 2015

Approximately $2.0 billion of debt securities affected

New York, April 21, 2015 -- Moody's Investors Service ("Moody's") lowered Advanced Micro Devices, Inc's ("AMD") corporate family rating to B3 from B2, and the ratings on the senior unsecured notes to Caa1 from B2. The speculative grade liquidity rating was affirmed at SGL-2. The outlook was changed to negative from stable.

The downgrade of the corporate family rating to B3 reflects AMD's prospects for operating losses over the next year and negative free cash flow, in contrast to our previous expectations of modest profitability and positive free cash flow. Moody's performance outlook for AMD is driven by ongoing revenue declines and operating losses in its PC-related business (microprocessors and graphics chips) that will more than offset the expected profitability (albeit lower than last year) in the company's embedded and semi-custom chip business, which makes up roughly half of revenue. "Weak demand conditions in the personal computer space, particularly in the desktop and lower end segments, will persist over the next few quarters", said Moody's Richard Lane. Combined with efforts to reduce channel inventory ahead of Microsoft's launch of the Windows 10 operating system this summer, Moody's expects "AMD will continue to lose money in this shrinking part of the business", said Lane.

RATINGS RATIONALE

The B3 corporate family rating reflect AMD's weaker operating performance prospects, high financial leverage, prospects for operating losses and an expectation for negative cash flow generation over the next year. Revenue declines (we estimate 25% to 30%) and operating losses in the company's core microprocessor business as well as market share losses in its graphics business will result in segment operating losses throughout 2015, and in Moody's view, significantly diminished prospects for profitability going forward given its declining scale and share loss. Moody's expects AMD's embedded and semi-custom chip business will remain profitable, but insufficiently to offset losses in the rest of its business. While AMD has reported design wins, including two large (unnamed) wins in late 2014 that could have combined revenue in excess of $1 billion, the company recently noted that revenue is not likely to build until the second half of 2016.

As a result of projected operating losses, credit metrics will be very weak, with adjusted debt to EBITDA over 10x over the during 2015, up from 6.1 times at December 2014.

AMD reported $906 million of cash and marketable securities as of March 2015 (the vast majority of which is domestic), down from $1.04 billion at December 2014. The company is now targeting to maintain cash and marketable securities of between $600 million and $1 billion, down from previous targets of around $1 billion. AMD maintains a $500 million asset based revolving credit facility (ABL) under which $188 million was drawn as of March 2015. With cash balances, access to the ABL, and no material debt maturities until May 2019, near term liquidity is currently good. However, we expect AMD will consume $100 million to $200 million of cash over the next year. As a result, we expect AMD's 2015 year- end cash balances to approximate $700 million to $850 million.

Ratings downgraded:

Corporate family rating to B3 from B2

Probability of default rating to B3-PD from B2-PD

$600 million senior unsecured notes due 2019 to Caa1 (LGD4-62%) from B2 (LGD4-57%)

$450 million senior unsecured notes due 2020 to Caa1 (LGD4-62%) from B2 (LGD4-57%)

$500 million senior unsecured notes due 2022 to Caa1 (LGD4-62%) from B2 (LGD4-57%)

$500 million senior unsecured notes due 2024 to Caa1 (LGD4-62%) from B2 (LGD4-57%)

Ratings affirmed

Speculative grade liquidity rating at SGL-2

The negative outlook considers the execution challenges facing AMD, the likelihood of ongoing losses, and, while currently adequate, prospects for a weakening liquidity profile, although there are no debt maturities until 2019 (aside from $42 million of notes due this May).

What Could Change the Rating - Down

The rating could be lowered if AMD's cash and liquid investments are likely to drop below $750 million or if the company is unlikely to achieve breakeven operating profit over the next year and sustain modest profitability and positive free cash flow over the intermediate term.

What Could Change the Rating - Up

The rating is not likely to be raised over the near term. Longer term, the rating could be raised if AMD is able to sustain revenue growth with Moody's adjusted EBITDA margins above 8%, while maintaining cash and liquid investments in excess of $1 billion and achieving adjusted debt to EBITDA below 4 times.

The principal methodology used in these ratings was Global Semiconductor Industry Methodology published in December 2012. 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.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain 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 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 rating action, and whose ratings may change as a result of this 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.

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

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.

Richard J Lane
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Lenny J. Ajzenman
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's lowers ratings of Advanced Micro Devices (CFR to B3); senior unsecured to Caa1; outlook negative
No Related Data.
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