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Rating Action:

Moody's raises ON Semi's CFR to Ba1; assigns Ba2 to convertible notes; outlook stable

02 Sep 2010

Approximately $79 million of debt rated

New York, September 02, 2010 -- Moody's Investors Service upgraded the Corporate Family (CFR) and Probability of Default (PDR) Ratings of ON Semiconductor Corporation ("ON Semi") to Ba1 from Ba3, assigned a Ba2 rating to the company's convertible senior subordinated notes maturing 2025 and affirmed its SGL-1 speculative grade liquidity rating. The rating outlook is stable.

The following ratings were upgraded:

Corporate Family Rating -- Ba1

Probability of Default Rating -- Ba1

The following ratings/assessments were assigned:

$79.3 million ($95 million par value net of $15.7 million accounting treatment discount) Convertible Senior Subordinated Notes due 2025 -- Ba2 (LGD-4, 69%)

RATINGS RATIONALE

The upgrade of ON Semi's CFR to Ba1 reflects the company's good execution of its business strategy, enhanced free cash flow (FCF) generation and improved financial leverage as a result of recent debt reduction and expanded EBITDA. The upgrade is further solidified by the longer-term benefits expected from the Sanyo acquisition (anticipated to close by year end), which include enhanced scale, increased diversification and an expanded product portfolio, which offset Sanyo's near-term operating weakness.

The rating revision also takes into consideration the company's continued improvement in factory utilization and shift in the portfolio mix to high performance proprietary products with higher and more stable average selling prices (ASPs). This has produced expanded gross margins as well as share gains in the automotive, industrial and computing segments. ON Semi maintains strong intellectual property, which has led to solid market positions in power regulation, automotive and computing power management segments. As a result of a string of successful acquisitions with accompanying rich technologies combined with effectively targeted R&D investments, the company has advanced its competitive position across new markets and applications. This has led to a continuous pipeline of innovative, leading-edge products, strong design wins and solid revenue growth.

The upgrade incorporates our expectation that ON Semi's revenues will continue to outpace or at least grow in line with overall semiconductor market growth given the company's increasing focus on proprietary products and exposure to higher-growth end markets, which include: rising Asian automotive demand, particularly in China; Android-based mobile devices, which continue to witness strong market adoption; strengthening worldwide PC/notebook market; fast-growth smart phones; LED backlighting in TVs; and power management inverters and low-voltage MOSFETs.

The stable rating outlook reflects Moody's expectations that ON Semi will maintain its solid market positions and continue to expand share as a result of strong customer acceptance of new products from the company's core business and recent acquisitions, production ramps from design win activity and new uses for its devices.

An upgrade is unlikely over the near-term given the potential integration risks associated with the Sanyo acquisition and expected softness in the business environment. However, longer-term, ratings could experience upward pressure to the extent ON Semi continues to demonstrate good execution of its business model resulting in share gains across key end markets, restoration of margins to historical levels following integration of Sanyo, strong FCF generation, avoidance of sizable debt-funded acquisitions and maintenance of prudent financial policies.

Ratings or the outlook could migrate lower if ON Semi experienced: declines in revenue and operating margins, materially impairing interest coverage and other credit protection measures; a sustained contraction in gross and free cash flows below anticipated levels (for example, due to larger-than-anticipated restructuring costs for Sanyo); a material increase in financial leverage; and/or deviation from prudent financial policies.

ON Semi's SGL-1 speculative grade liquidity rating recognizes the company's very good liquidity position. This is based on cash balances of roughly $467 million and anticipated generation of solid FCF levels over the next twelve months, albeit slightly weaker than recent levels given the expected cash restructuring costs associated with the Sanyo Semiconductor acquisition. Moody's notes that ON Semi does not have a revolving credit facility, which somewhat restrains its liquidity profile.

The principal methodologies used in rating ON Semi were Global Semiconductor Industry published in November 2009, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website. Moody's subscribers can find additional information in the ON Semiconductor Corporation Credit Opinion published on www.moodys.com.

Headquartered in Phoenix, AZ, ON Semi is a premier supplier of high performance, energy efficient, semiconductor products for green electronics. The company manufactures a broad portfolio of power and signal management, logic, discrete and custom devices that are used in automotive, communications, computing, consumer, industrial, LED lighting, medical, military/aerospace and power applications. ON Semi, which operates throughout North America, Europe and Asia-Pacific, recorded revenues and EBITDA (Moody's adjusted) for the twelve months ended July 2, 2010 (LTM) of $2.1 billion and $497 million, respectively.

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

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New York
Gregory A. Fraser
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
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New York, NY 10007
USA

Moody's raises ON Semi's CFR to Ba1; assigns Ba2 to convertible notes; outlook stable
No Related Data.
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