New York, October 28, 2020 -- Moody's Investors Service (Moody's) placed the A3 long-term
ratings of Xilinx, Inc. under review for downgrade following
the company's announcement that it agreed to be acquired by Advanced Micro
Devices, Inc. ("AMD" Baa3 Ratings Under Review)
in an all-stock transaction, valued at approximately $35
billion. Both boards of directors have approved the transaction
and, subject to regulatory and other approvals, the transaction
is expected to close in the second half of calendar 2021.
Ratings placed under review for downgrade:
..Issuer: Xilinx, Inc.
.... Issuer Rating, Placed on Review
for Downgrade, currently A3
....Senior Unsecured Regular Bond/Debenture,
Placed on Review for Downgrade, currently A3
Outlook Actions:
..Issuer: Xilinx, Inc.
....Outlook, Changed To Rating Under
Review From Stable
RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE
OF THE RATINGS
The review will focus on whether AMD is likely to consummate the acquisition
of Xilinx, the legal structure of the acquired entity, and
the credit rating of AMD at the time of closing. The rating could
be lowered by one or more notches.
Xilinx's credit profile reflects its leading position in the $6
billion programmable logic device (PLD) market where Xilinx has over 55%
market share and competes mostly with just one other company (Altera,
owned by Intel). Although PLD's are a small portion of the semiconductor
market, they provide end users product design flexibility and time
to market advantages over other semiconductor devices and there are high
barriers to entry for new competitors. Xilinx has generated positive
free cash flow each year for more than a decade, and we expect ongoing
strong credit metrics even in the currently challenging macro environment.
Long product design and lifecycles and stable pricing contribute to strong
profitability (mid-30% EBITDA margins) and stable operating
performance through business cycles. Despite the very challenging
macro environment, we expect Xilinx will produce solidly positive
free cash flow, even through a stress environment, given the
company's strong profit margins, low capital expenditures,
and very strong conversion (88%) of EBITDA into cash flow after
capital spending.
Xilinx's gross adjusted debt to EBITDA at June 2020 was 2.5x,
or 2.0x excluding a tax repatriation liability of about $504
million. Adjusting for a $500 million debt maturity in March
2021 that we expect will be repaid, leverage is half a turn lower
on both measures. Xilinx has two other public debt instruments,
a $750 million note maturing in 2024 and a $750 million
note maturing in 2030. Reflecting the company's low capital
intensity and efficient business model, Xilinx converts about 90%
of its EBITDA into cash flow from operations less capex, leading
to a strong ability to repay debt.
The principal methodology used in these ratings was Semiconductor Industry
published in July 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1130733.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Xilinx, Inc., designs and markets a semiconductor called
programmable logic device. The company sells directly and through
distributors to a broad range of customers, end markets and applications,
including the wireless handset, industrial, communications,
computing, consumer, and automotive markets. We expect
Xilinx will generate revenue of approximately $3 billion over the
next year.
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.
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: 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
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JOURNALISTS: 1 212 553 0376
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