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Rating Action:

Moody's reviews Broadcom's ratings for downgrade on announced bid for Symantec's Enterprise Security segment

08 Aug 2019

New York, August 08, 2019 -- Moody's Investors Service ("Moody's") placed Broadcom Cayman Finance Ltd.'s ("Broadcom Cayman") senior unsecured ratings and Broadcom Inc.'s ("Broadcom") P-3 short term rating and Baa3 senior unsecured ratings, on review for downgrade following Broadcom's (the publicly-traded parent company of Broadcom Cayman) announcement that it has agreed to acquire Symantec Corporation's ("Symantec") Enterprise Security segment ("Enterprise") in a debt-free cash-free asset acquisition for about $10.7 billion in cash. Broadcom plans to fund the acquisition with new debt.

RATINGS RATIONALE

The acquisition will diversify Broadcom's product exposure, expanding the company into the enterprise cyber security market. Enterprise will provide a very strong portfolio of cyber security products, including products for endpoints, networks, email, and cloud applications.

Funding this acquisition will clearly result in higher leverage. Moody's expects that debt to combined company EBITDA will be about 4.3x (proforma, Moody's adjusted, twelve months ended May 5, 2019, excluding targeted synergies). This re-leveraging of the balance sheet follows the acquisition of CA, Inc. in November 2018 by only nine months, suggesting that Broadcom may maintain leverage above 3.5x debt to EBITDA (Moody's adjusted) on an ongoing basis. Moreover, Broadcom intends to reduce the cost structure of the business by $1 billion over the year following closing. This introduces significant potential execution risks depending on the business functions bearing the cost reductions, particularly to the extent these reduction focus on the sales force, product support, and research and development operations.

Still, based on Moody's expectation that Broadcom will fund the acquisition with prepayable unsecured bank debt, Broadcom's stated intention to curtail share repurchases in order to direct cash toward debt repayment, and strong free cash flow generation, Moody's expects a rapidly improving leverage profile, with debt to EBITDA (Moody's adjusted) declining by over 0.5 turns over the year following closing as debt is repaid and cost synergies are realized.

The review will focus on: (1) detail on cost synergies, including targeted areas, timing, and costs to achieve; (2) detail on Broadcom's sales and research and development strategy for the Enterprise business; (3) the specific plans for deleveraging, including the timing of debt reduction; (4) the strategic fit of the Enterprise acquisition to Broadcom's overall enterprise software business; (5) the pace of future acquisitions and the use of financial leverage; and (6) prospects for Broadcom's Semiconductor Solutions business in light of current market softness. Based on current information, at the conclusion of the review, Moody's expects that a downgrade, if any, would be limited to one notch.

On Review for Downgrade:

Issuer: Broadcom Inc.

.Senior Unsecured Notes, Placed on Review for Downgrade, currently Baa3

.Senior Unsecured Commercial Paper, Placed on Review for Downgrade, currently P-3

Issuer: Broadcom Cayman Finance Ltd.

....Senior Unsecured Notes, Placed on Review for Downgrade, currently Baa3

Outlook Actions:

..Issuer: : Broadcom Cayman Finance Ltd.

....Outlook, Changed To Rating Under Review From Stable

Broadcom Cayman Finance Ltd. ("Broadcom") is an indirect subsidiary of Broadcom Inc. Broadcom Cayman, co-headquartered in San Jose, California and Singapore, designs, develops, manufactures and sells a broad array of analog/mixed-signal semiconductor components for wireless communications, storage, wired infrastructure, and industrial and automotive electronics.

On November 5, 2018, Broadcom acquired CA, Inc. ("CA"), based in New York, New York. CA is a leading provider of information technology ("IT") management software. The company's legacy positioning in the mainframe software business was built over many years providing the company with a large, highly recurring installed base. The company also built a non-mainframe (or distributed computing) IT management software business largely through acquisitions.

The principal methodology used in these ratings was Semiconductor Industry published in July 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

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.

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.

Terrence Dennehy, CFA
VP - Senior Credit Officer
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

Stephen Sohn
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
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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