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28 Oct 2010
Approximately $300 million of new debt rated
New York, October 28, 2010 -- Moody's Investors Service assigned a Ba1 rating to Jabil Circuit,
Inc.'s ("Jabil") proposed $300 million
senior unsecured notes due 2020. The rating outlook is stable.
Net proceeds are expected to be used to repay a portion of the $340
million outstanding under the term loan portion of the company's
credit facility. The assigned ratings are subject to review of
final documentation and no material change in the terms and conditions
of the transaction as advised to Moody's.
The following is a summary of today's rating actions and Moody's
current ratings for Jabil:
$300 Million Senior Unsecured Notes due 2020 -- Ba1 (LGD-4,
Corporate Family Rating -- Ba1
Probability of Default Rating - Ba1
$312 Million Senior Unsecured Notes due July 2016 - Ba1
$400 Million Senior Unsecured Global Notes due March 2018 -
Ba1 (LGD-4, 51%)
Speculative Grade Liquidity Rating - SGL-1
The Ba1 corporate family (CFR) and senior notes rating is supported by
Jabil's status as a preferred Tier 1 EMS provider, with expanding
core competencies and increasing customer penetration across a broad mix
of complex products, including higher margin industrial/instrumentation,
medical and defense/aerospace. The rating also reflects solid cash
flow generation, conservative financial policies and a strong liquidity
position. The rating is constrained by the company's weak
historical free cash flow (FCF) compared to its EMS peers, operating
performance volatility and low ROA. In addition, the Ba1
rating reflects Jabil's smaller scale relative to larger and diversified
EMS players, limited demand visibility, significant customer
concentration, and high fixed costs associated with its vertical
operations. Finally, the Ba1 rating captures the company's
increasing exposure to the more volatile consumer segment, heightened
competition from Asian outsourcers and increasing presence of other EMS
providers in higher margin vertical segments.
The stable rating outlook reflects our expectation that Jabil will continue
to demonstrate measured operating performance improvement and solid cash
flow generation as a result of good execution on customer penetration
and new program wins in segments that carry richer margins. Though
the demand environment is expected to soften in the coming quarters as
the global recovery loses steam, we anticipate that Jabil's
credit profile will benefit from the continued ramp of vertical,
higher margin programs leading to improved cash flow generation.
The rating could experience upward pressure upon evidence of higher sustainable
levels of free cash flow and continued improvement in working capital
management resulting in reduced FCF volatility. Ratings could also
migrate higher to the extent: Jabil's expanded manufacturing
and vertical capabilities led to new mandates and market share gains,
especially in non-traditional EMS segments; revenue contribution
from value-added EMS activities resulted in higher sustainable
operating margins in the 3-4% range (Moody's adjusted);
adjusted operating income ROA (net cash) improved to at least 7%;
and adjusted total debt/EBITDA declined below 2.5x on a sustained
Ratings could be negatively influenced if the company experiences:
material customer/program losses without offsetting increases in new customer
wins/program ramps; a sustained decline in core operating margins
(excludes restructuring/impairment costs and amortization of intangibles)
below 1.5% (Moody's adjusted); sustained reduction
in retained cash flow to debt below 20% or consistently negative
FCF; or a notable increase in financial leverage, as measured
by adjusted total debt/EBITDA above 3.7x.
Jabil's SGL-1 rating reflects its very good liquidity position.
This is supported by balance sheet cash of $744 million and our
expectation of continued improvement in FCF generation due to better working
capital management. Jabil can exhibit several consecutive quarters
of negative FCF due to working capital usage associated with inventory-build
for new customer programs ramping simultaneously when manufacturing volumes
and yields are typically lower. In its fourth fiscal quarter (ended
August 2010), the company generated positive FCF of $186
million (Moody's adjusted), which offset prior quarters of
negative FCF. As manufacturing efficiencies improve and working
capital needs subside combined with increasing cash flow from inter-quarter
receivable collections, we expect higher levels of FCF over the
coming year. The liquidity rating is also supported by Jabil's
access to an $800 million unsecured revolver maturing 2012 and
Moody's expectation the company will remain covenant compliant over the
next twelve months.
Moody's subscribers can find additional information in the Jabil Credit
Opinion published on www.moodys.com.
The last rating action was on October 21, 2009 when Moody's affirmed
Jabil's Ba1 CFR and revised the outlook to stable from negative.
The principal methodologies used in rating Jabil were Global EMS &
IT Distribution Industries published in December 2008, 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.
Headquartered in St. Petersburg, Florida, Jabil Circuit,
Inc., is an electronic product solutions company providing
comprehensive electronics design, manufacturing and product management
services to global electronics and technology companies in the networking,
telecommunications, computing and storage, peripherals,
consumer products, automotive and instrumentation and medical industries.
Revenues for the fiscal year ended August 31, 2010 were $13.4
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service's information, and confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
MOODY'S adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
MOODY'S considers to be reliable including, when appropriate,
independent third-party sources. However, MOODY'S
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Gregory A. Fraser
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's rates Jabil's new senior unsecured notes Ba1; outlook stable
250 Greenwich Street
New York, NY 10007
No Related Data.
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