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Global Credit Research - 20 Oct 2010
Approximately $600 million in debt affected
New York, October 20, 2010 -- Moody's Investors Service upgraded Amphenol Inc.'s
unsecured rating to Baa2 from Baa3. Moody's placed Amphenol's
ratings under review for possible upgrade on July 23, 2010.
The upgrade was driven by the company's maintenance of strong credit
metrics throughout the severe downturn, relatively quick sales and
income recovery and industry leading operating performance in addition
to the expectation that they will continue to maintain conservative metrics
going forward. While Amphenol was clearly impacted by the severe
downturn, their ability to retain a healthy capital structure,
strong cash flow and strong metrics supports the higher rating.
The company recently renewed and upsized its revolving credit agreement
which improves its liquidity, further supporting the upgrade.
The ratings outlook is stable.
Consistent with its behavior in prior recessionary periods, the
company reacted quickly to the downturn by adjusting its cost structure
to accommodate reduced revenue levels and was able to generate healthy
levels of free cash flow. Through this period the company's
leverage did not exceed 1.9x on a Moody's adjusted basis
and free cash flow was a strong $489 million for the fiscal year
ended December 31, 2009, particularly in relation to their
$1.2 billion of debt (all figures on a Moody's adjusted
basis). The company was also able to generate industry leading
margins, with operating margins of over 18% for the same
period. In addition the company saw approximately 28% year
over year revenue growth in first 9 months of 2010 although free cash
flow declined due to (as expected) growth related working capital swings.
While Amphenol's revenues declined 13% in 2009, their
connector industry peers declined in excess of 20%. Amphenol's
two largest end markets, IT/data communications and aerospace/defense
represented approximately 42% of sales, contributed to its
less than industry cyclicality. Amphenol's industry peers,
Tyco Electronics, Molex and Belden experienced greater cyclicality
largely due to their higher exposure to more volatile sectors such as
automotive, consumer electronics and industrial markets.
The company has good liquidity as reflected by its approximate $481
million of cash as of September 30, 2010 and estimated $700
million of availability under its unrated $1 billion revolver which
matures in 2014.
Amphenol's Baa2 issuer rating reflects the company's leading market positions
across multiple market segments. The company's strong financial
profile, as evidenced by low leverage, solid interest coverage,
and strong cash flow generating capabilities, helps mitigate volatility
in revenues and operating profit that arises from the cyclical nature
of connector and cable markets and the company's exposure to unpredictable
commodity and energy prices. The ratings are limited by management's
aggressive acquisition strategy but also recognize the company's
success integrating past acquisitions and management's focus on
quickly reducing acquisition-driven leverage. Moody's
expects management will target long term leverage levels of less than
2x with occasional acquisition related increases.
The following ratings were upgraded:
Issuer rating to Baa2 from Baa3
$600 million senior unsecured notes due 2014 to Baa2 from Baa3
Ratings Outlook: stable
The stable ratings outlook reflects the expectation of moderate organic
growth, and maintenance of conservative financial policies.
The outlook incorporates the company's acquisition appetite and
potential resultant temporary increases in leverage. The ratings
could face downward pressure if leverage were to exceed 2.5x on
a sustained basis or liquidity were to be materially impacted.
The principal methodology used in rating Amphenol was Moody's Global Manufacturing
Industry Methodology, published in December 2007 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
Amphenol Corporation is one of the world's largest designers, manufacturers
and marketers of electrical, electronic and fiber optic connectors,
interconnect systems and coaxial and flat-ribbon cable.
For the twelve months ended September 30, 2010, the company
reported revenues of approximately $3.4 billion.
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.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
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
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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.
Matthew B. Jones
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's upgrades Amphenol to Baa2
250 Greenwich Street
New York, NY 10007
No Related Data.
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