S&P Places Avgo Tech (AVGO) on CredtiWatch Negative (LSI)
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Price: $401.16 +0.01%
Overall Analyst Rating:
SELL (= Flat)
Dividend Yield: 0.6%
Revenue Growth %: +83.2%
Overall Analyst Rating:
SELL (= Flat)
Dividend Yield: 0.6%
Revenue Growth %: +83.2%
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Standard & Poor's Ratings Services today placed its 'BBB-' corporate credit rating on Singapore-based Avago Technologies Finance Pte. (Nasdaq: AVGO) on CreditWatch with negative implications.
"The CreditWatch listing follows Avago's announcement today that it will acquire LSI Corp. (NYSE: LSI) for $6.6 billion," said Standard & Poor's credit analyst Andrew Chang.
Avago will fund the acquisition with a $4.6 billion term loan, a $1 billion convertible note issued to Silver Lake Partners, and $1 billion of the combined companies' cash on hand. Pro forma for the acquisition, we believe Avago's pro forma adjusted leverage will increase from minimal levels to the high-3x area, excluding any assumed synergies.
"We believe the acquisition will strengthen Avago's competitive position in its served markets by enhancing its scale and end-market diversification. Operating efficiency could also be improved if synergies are realized as expected. Still, pro forma adjusted leverage is likely to be in the high-3x area over the near term, and integration may be a challenge given the similar size of the companies. However, the company expects synergies of about $200 million; both companies generate good free cash flow; and earnings prospects are favorable for Avago over the coming year," added Mr. Chang.
We will resolve the CreditWatch listing following our review of the business and financial impact of the transaction on the company's credit profile. We will meet with management to discuss their integration plans, as well as their long-term financial policies, specifically regarding debt reduction. Upon completion of our review, rating changes, if any, are not likely to be more than one notch.
"The CreditWatch listing follows Avago's announcement today that it will acquire LSI Corp. (NYSE: LSI) for $6.6 billion," said Standard & Poor's credit analyst Andrew Chang.
Avago will fund the acquisition with a $4.6 billion term loan, a $1 billion convertible note issued to Silver Lake Partners, and $1 billion of the combined companies' cash on hand. Pro forma for the acquisition, we believe Avago's pro forma adjusted leverage will increase from minimal levels to the high-3x area, excluding any assumed synergies.
"We believe the acquisition will strengthen Avago's competitive position in its served markets by enhancing its scale and end-market diversification. Operating efficiency could also be improved if synergies are realized as expected. Still, pro forma adjusted leverage is likely to be in the high-3x area over the near term, and integration may be a challenge given the similar size of the companies. However, the company expects synergies of about $200 million; both companies generate good free cash flow; and earnings prospects are favorable for Avago over the coming year," added Mr. Chang.
We will resolve the CreditWatch listing following our review of the business and financial impact of the transaction on the company's credit profile. We will meet with management to discuss their integration plans, as well as their long-term financial policies, specifically regarding debt reduction. Upon completion of our review, rating changes, if any, are not likely to be more than one notch.
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