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Rating Action:

Moody's rates Freescale's new senior secured notes B2

07 Apr 2010

Approximately $750 million of new debt rated

New York, April 07, 2010 -- Moody's Investors Service assigned a B2 rating to Freescale Semiconductor, Inc.'s proposed $750 million senior secured notes due 2018. The rating outlook is stable. Net proceeds are expected to be used to retire the remaining $472 million outstanding under the senior secured term loan B facility due 2013, and repay a portion of the $917 million senior secured incremental term loan due 2014. The assigned ratings are subject to review of final documentation and no material change in the terms and conditions of the transactions as advised to Moody's. We expect to withdraw the ratings on the senior secured term loan B facility upon their full retirement.

Moody's views constructively this latest refinancing and extension of Freescale's approximate $7.8 billion of LBO debt. In February, Freescale amended its credit agreement to extend the maturity date to 2016 on $2.265 billion of term loan B facility debt. Concurrently, the company issued $750 million 10.125% senior secured notes due 2018. Approximately $112 million was used to pay down a portion of the revolver to $532 million outstanding and $634 million was used to pay down the non-extended portion of the term loan B facility to $472 million. The current transaction, which eliminates the remaining 2013 maturity, will somewhat alleviate the concentration of debt maturing in 2014, given Freescale's inability to de-lever from internal sources. Following this refinancing, Freescale will have roughly $2.8 billion of debt due in 2014. The maturity extension also buys the company additional time to transform new product categories into meaningful contributors of profitable growth.

Freescale's Caa1 CFR continues to be constrained by the company's substantial leverage and thin interest coverage, as well as our expectation of very modest free cash flow (FCF) generation relative to its large debt load. The CFR also reflects a significantly reduced earnings contribution from the company's cellular segment, offset by modest earnings from Freescale's recent entrée into higher growth sub-segments within consumer and industrial markets. Since Freescale is exposed to the inherently cyclical and volatile semiconductor industry, we are concerned that Freescale's highly leveraged capital structure may prove unsustainable if cash flows were to deteriorate for an extended period.

The rating is supported by Freescale's strong market leadership positions and rich product portfolio characterized by technological breadth; its somewhat favorable revenue diversification across products, geographies and customers; its refocused R&D program to drive future revenue growth in extended market segments; and its "asset-light" model that allows it to reduce expenses and capex in response to weak market conditions.

The stable rating outlook reflects our expectation that after a severe downturn in profits and cash flow caused by the recession, the company's operating performance will continue to improve as a result of the recovery in the global demand environment and Freescale's progress in eliminating $700 million of annualized costs (full $800 million cost savings expected during 2010). The stable outlook incorporates our belief that semiconductor end market demand will demonstrate growth in 2010 and Freescale's revenue growth will be in line with its addressable markets.

Freescale's liquidity is adequate as reflected in its SGL-3 speculative grade liquidity rating. The liquidity assessment is principally driven by the company's $1.4 billion of cash balances given that over the next four quarters, we expect Freescale to generate very modest FCF relative to its large debt load. Despite no financial covenants, financial flexibility remains diminished, in our opinion, since the company has drawn $532 million under its revolver, which has a committed capacity of $578 million.

The following new rating and assessment was assigned:

$750 Million Senior Secured Notes due 2018 -- B2 (LGD-3, 30%)

The following rating will be withdrawn upon retirement:

$472 Million (originally $3.5 Billion) Senior Secured Term Loan B Facility due 2013 - B2 (LGD-3, 30%)

Moody's subscribers can find additional information in the Freescale Credit Opinion published on www.moodys.com.

The last rating action was on February 4, 2010 when Moody's affirmed Freescale's Caa1 CFR and assigned a B2 rating to the company's $2.265 billion senior secured extended term loan due 2016 and $750 million 10.125% senior secured notes due 2018.

The principal methodology used in rating Freescale was Moody's Global Semiconductor, published in November 2009 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Headquartered in Austin, TX, Freescale Semiconductor, Inc. designs and manufactures embedded semiconductors for the transportation, networking and wireless markets. The company was separated from Motorola via IPO in July 2004 and taken private in a leveraged buyout in December 2006. Revenues for the twelve months ended December 31, 2009 were $3.5 billion.

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
Alexandra S. Parker
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's rates Freescale's new senior secured notes B2
No Related Data.
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