NXP B.V. -- Moody's upgrades NXP to B1; stable outlook
Frankfurt am Main, November 07, 2012 -- Moody's Investors Service has today upgraded to B1 from B2 the corporate family rating (CFR) and probability of default rating (PDR) of NXP B.V. At the same time, Moody's upgraded NXP's senior secured debt ratings to B2 (with a loss given default assessment (LGD) of 4, 62%) from B3 (LGD4, 63%). The rating outlook is stable.
Upgrades: ..Issuer: NXP B.V..... Probability of Default Rating, Upgraded to B1 from B2
.... Corporate Family Rating, Upgraded to B1 from B2
....Senior Secured Bank Credit Facility, Upgraded to a range of B2, LGD4, 62 % from a range of B3, LGD4, 63 %
....Senior Secured Regular Bond/Debenture, Upgraded to a range of B2, LGD4, 62 % from a range of B3, LGD4, 63 %
..Issuer: NXP B.V.
....Outlook, Changed To Stable From Positive
"The ratings upgrade reflects NXP's progress in generating material amounts of positive free cash flow and in sustaining solid levels of operating performance in the current financial year", says Kathrin Heitmann, Moody's lead analyst for NXP. The rating upgrade incorporates Moody's expectation that NXP has some cushion in the B1 rating category to withstand a degree of earnings volatility stemming from continued weak semiconductor markets and macroeconomic uncertainty . Positive free cash flow of USD233 million in the first nine months of 2012 and credit metrics such as debt/EBITDA of 3.7x and EBIT/interest expense of 2.3x on a last 12 months (LTM) basis per 30 September 2012 position NXP solidly in the B1 rating category.
In addition, the B1 ratings take comfort from NXP's solid short-term liquidity profile and additional steps over the last three quarters to lengthen the group's debt maturity profile with the issuance of new term loans and early redemption of super priority notes. These efforts have reduced the 2013 debt maturities to around USD242 million at 24 October 2012 from USD507 million at end of first quarter of 2012, which are expected to be repaid by future free cash flow generation. Current cash balances of USD702million and access to a EUR620 million super senior revolving credit facility due March 2017, which does not contain any financial covenants, provide NXP with sufficient liquidity cushion to weather the next industry downturn.
The ratings anticipate that management remains committed to further reduce the company's high gross debt burden of around USD4.1 billion as adjusted by Moody's at 30 September 2012.
Other factors considered in the ratings are (1) NXP's established leadership positions in different markets with different underlying growth drivers and supported by recent design wins and broadening range of innovative products. These leadership positions are underpinned by substantial barriers to entry, customer loyalty and a diversified customer base in the identification, automotive and consumer electronics industries. In addition, (2) the ratings factor in NXP's improved operating flexibility and USD928 million cost reductions achieved through its Redesign Restructuring program completed in 2011. However, the ratings remain constrained by (3) the high technology risk inherent to the semiconductor industry and the customized nature of NXP's products; (4) the company's significant cash burn and volatile performance in the years 2007-2009 and (5) the group's relatively high leverage compared to other rated semiconductor companies.
NXP's senior secured term loans and senior secured notes are rated B2 (LGD4, 62%). The one notch lower rating compared to the B1 CFR reflects that NXP's senior secured term loans and senior secured notes share the security arrangements with NXP's EUR620 million revolving credit facility due 2017 but rank behind the revolving credit facility in a liquidation scenario. NXP's senior secured debt is secured by first-priority liens on (a) substantially all assets except cash of the issuer and its guarantor (material wholly owned subsidiaries); (b) the issuer's equity interests in all material wholly owned subsidiaries; and (c) any intercompany loans. Moody's has ranked $549 million of trade payables as per 30 September 2012 with the revolving credit facility in Moody's Loss Given Default Assessment.
The stable rating outlook reflects Moody's expectation that despite the more challenging market conditions and macroeconomic weakness in Europe, NXP will maintain a healthy liquidity profile and generate positive free cash flow through the cycle which will be applied to debt reduction. This should enable the company to maintain debt/EBITDA around 3.5x and EBIT/interest expense above 2.0x through the cycle.
WHAT COULD CHANGE THE RATING UP/DOWN
Rating upward pressure would require sustained profitable growth of NXP's major division, its HPMS business, while maintaining or growing market shares and continued positive free cash flow generation being applied to debt reduction. The rating could be upgraded if this leads to debt/EBITDA of around 3.0x through the cycle and if NXP can maintain an ample liquidity cushion to weather any deep industry slowdown.
The ratings could be downgraded if NXP experienced sustained erosion in its revenues, loss of market share as indicated by revenues growing at a rate less than the industry, and erosion in its operating margins for a protracted period, returned to material negative free cash flow and debt/EBITDA above 4.5x. In addition, deterioration in liquidity could result in a rating downgrade.
The principal methodology used in rating NXP B.V. was the Global Semiconductor Industry Methodology published in November 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
Headquartered in Eindhoven, Netherlands, NXP Semiconductors is a leading semiconductor company. Its High Performance Mixed Signal and Standard Product solutions are used in a wide range of applications, including automotive, identification, wireless infrastructure, lighting, industrial, mobile, consumer and computing. NXP generated revenues of $4.2 billion in 2011.
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Kathrin Heitmann Analyst Corporate Finance Group Moody'sDeutschland GmbH An der Welle 5 Frankfurt am Main 60322 Germany JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Matthias Hellstern Managing Director Corporate Finance Group JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Releasing Office: Moody's Deutschland GmbH An der Welle 5 Frankfurt am Main 60322 Germany JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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