Microchip Technology (MCHP) Assigned 'BB+' Rating by S&P

Standard & Poor's Ratings Services today said it assigned its unsolicited 'BB+' corporate credit rating to Chandler, Ariz.-based Microchip Technology Inc. (Nasdaq: MCHP). The rating outlook is stable.

At the same time, we assigned our unsolicited 'BBB-' issue-level rating and unsolicited '2' recovery rating to the company's $2.5 billion senior credit facility. The '2' recovery rating indicates our expectation for substantial recovery (70% to 90%; upper half of the range) for lenders in the event of a payment default.

Additionally, we assigned our unsolicited 'BB-' issue-level rating and unsolicited'6' recovery rating to the company's 1.625% senior subordinated convertible notes due 2025 and 2.125% junior subordinated convertible notes due 2037. The '6' recovery rating indicates our expectation for negligible recovery (0% to 10%) for noteholders in the event of payment default.

"The ratings reflect Microchip's modest overall market position within the highly fragmented microcontrollers and analog markets, and the significant competition it faces against larger semiconductor firms with greater financial resources," said Standard & Poor's credit analyst David Tsui.

The stable outlook on Microchip reflects our view that the company will continue to experience revenue growth over the next 12 months while maintaining EBITDA margins in the mid- to high-30% area, benefitting from mid-single-digit percentage revenue growth in embedded processing and analog markets during the period.

We would consider a lower rating if the company pursues debt-financed acquisitions or engages in shareholder-friendly activities, resulting in leverage that exceeds 3x on a sustained basis.

Although unlikely over the near term, given the company's acquisitive growth strategy, we could raise the rating if the company reduces and sustains its debt leverage ratio below the 1.5x level, while clarifying that doing so would still enable the company to pursue its business and growth strategies.

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