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27 Mar 2009
Approximately $11.1 billion of rated debt affected
New York, March 27, 2009 -- Moody's Investors Service today raised Freescale Semiconductor,
Inc.'s ("Freescale") probability of default rating
(PDR) to Caa1/LD (Limited Default) from Ca reflecting the final closing
of Freescale's debt exchange transaction (Exchange Transaction).
Moody's also downgraded the rating on the senior secured bank facilities
to B2 from B1 and assigned a B2 rating to the new senior secured incremental
term loan. Moody's affirmed Freescale's corporate family,
unsecured long-term debt and speculative grade liquidity ratings,
and adjusted the loss given default (LGD) assessments to reflect the new
post-debt exchange capital structure. In approximately three
business days, Moody's will remove the LD designation from the PDR.
The outlook remains negative. To the extent that senior lender
plaintiffs are successful in their pending lawsuit against Freescale to
block the debt exchange, Moody's could lower the ratings.
The Exchange Transaction resulted in a swap of senior unsecured and junior
debt (at a substantial discount) for a new first lien term loan.
Existing noteholders that elected to participate in the Exchange Transaction
accepted principal reductions of between 62% - 75%,
depending upon the class of notes. Moody's views the exchange as
a distressed exchange for the particular securities involved, and
reflects that a limited default has occurred through the assignment of
the probability of default rating of Caa1/LD (Limited Default).
The rating on the senior secured bank credit facilities was lowered to
reflect a higher expected loss driven by the reduced senior and junior
unsecured positions (support) in the capital structure as well as the
expanded size of the senior secured creditor class.
The debt exchange was funded with $923.6 million of a new
incremental term loan maturing 2014, accessed via the accordion
feature under the existing secured bank facilities. Freescale received
commitments representing approximately $2.8 billion face
amount of unsecured notes. As of March 17, 2009, the
debt exchange closed with respect to the senior floating rate notes,
senior fixed rate notes and senior subordinated notes. However,
Freescale extended the commitment date for the senior toggle notes to
March 24th to allow greater participation in the incremental term loan.
With the senior toggle notes closing on March 26th, the debt exchange
resulted in an approximate $1.9 billion net reduction in
debt and roughly $140 million of annual interest expense savings.
The Exchange Transaction produced a modest improvement in leverage and
interest coverage. However, the company's Caa1 CFR and Caa1/LD
PDR as well as its negative rating outlook reflect Freescale's very weak
credit metrics, and the prospect that a further debt restructuring
could occur within the next two years. Moody's believes that demand
for automotive embedded processors will continue to drop in 2009 given
deteriorating macro-economic conditions, and that Freescale's
operating performance will continue to suffer, especially since
the company has materially downsized its cellular business. Although
Freescale maintains adequate liquidity, its capital structure appears
unsustainable over the medium term unless global automotive volumes rebound
significantly. Consolidated debt/EBITDA and EBITDA less capex/interest
metrics (incorporating Moody's standard analytic adjustments), are
approximately 9.0 times and 1.2 times respectively,
and are likely to deteriorate in 2009.
Freescale's speculative grade liquidity rating of SGL-3 reflects
adequate liquidity. The company is expected to generate negative
free cash flow over the next four quarters offset by $1.6
billion of cash balances. Despite no debt maturities over the next
three years and no financial covenants, financial flexibility has
markedly diminished, in our opinion, given that the company
has drawn $644 million under its $750 million revolver (which
is effectively a $690 million revolver given that the $60
million commitment from Lehman Commercial Paper, Inc. is
not expected to be honored).
The following rating was upgraded:
Probability of Default Rating to Caa1/LD from Ca
The following ratings were downgraded:
$ 750 Million Senior Secured Revolving Credit Facility due 2012
to B2 (LGD-3, 30%) from B1 (LGD-2, 17%)
$3.5 Billion Senior Secured Term Loan B Facility due 2013
to B2 (LGD-3, 30%) from B1 (LGD-2, 17%)
The following rating was assigned:
$923.6 Million Senior Secured Incremental Term Loan due
2014 -- B2 (LGD-3, 30%)
The following ratings were affirmed and assessments changed:
Corporate Family Rating (New) -- Caa1
$2.35 Billion Senior Unsecured Notes due 2014, currently
Caa2, LGD assessment revised to (LGD-5, 80%)
from (LGD-4, 65%)
$ 500 Million Senior Unsecured Floating Rate Notes due 2014,
currently Caa2, LGD assessment revised to (LGD-5, 80%)
from (LGD-4, 65%)
$1.5 Billion Senior Unsecured Toggle Notes due 2014,
currently Caa2, LGD assessment revised to (LGD-5, 80%)
from (LGD-4, 65%)
$1.6 Billion Senior Subordinated Unsecured Notes due 2016,
currently Caa3, LGD assessment revised to (LGD-6, 94%)
from (LGD-6, 92%)
Speculative Grade Liquidity Rating - SGL- 3
The last rating action was on February 19, 2009, when Moody's
downgraded Freescale's PDR to Ca to reflect Moody's view that
the debt exchange offer was a distressed exchange.
Freescale's ratings were assigned by evaluating factors we believe are
relevant to the credit profile of the issuer, such as: (i)
the business risk and competitive position of the company versus others
within the industry; (ii) the capital structure and financial risk
of the company; (iii) the projected performance of the company over
the near-to-intermediate term; and (iv) management's
track record and tolerance for risk. These attributes were compared
against other issuers both within and outside of Freescale's core industry
and Freescale's ratings are believed to be comparable to those of other
issuers of similar credit risk. Moody's subscribers can find additional
information in the Freescale Credit Opinion published on www.moodys.com.
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, 2008 were $5.2 billion.
Gregory A. Fraser
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Moody's upgrades Freescale's PDR to Caa1/LD, affirms Caa1 CFR
Alexandra S. Parker
Corporate Finance Group
Moody's Investors Service
No Related Data.
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