Moody's Assigns 'Ba2' CFR to Plantronics (PLT), Outlook Stable

Moody's Investors Service ("Moody's") has assigned a corporate family rating ("CFR") and probability of default rating ("PDR") of Ba2 and Ba2-PD, respectively, to Plantronics (NYSE: PLT). Moody's also assigned an SGL-1 speculative grade liquidity ("SGL") rating and Ba2 ratings to PLT's proposed $500 million senior unsecured notes (Notes). The ratings outlook is stable.

The proceeds from the Notes will be used to i) terminate and repay the approximate $151 million balance outstanding under PLT's $200 million senior unsecured revolver (Old Revolver) and ii) repurchase PLT's common stock with the remaining net proceeds. Separately, the company will enter into a new $100 million senior unsecured revolver (New Revolver), which will be undrawn at closing.

RATINGS RATIONALE

PLT's Ba2 CFR reflects its leading position in providing audio communications headsets to businesses, particularly in the growing Unified Communications (UC) subsector that has high barriers to entry, moderate pro forma debt to EBITDA (Moody's adjusted) of about 3x, and very good liquidity anchored by substantial cash and investment balances. The rating also reflects its modest scale, limited product diversification, and execution risk associated with an evolving business model driven by technological changes in the industry. Revenue growth opportunities are expected to be weak for Core Enterprise, temperate for Consumer, but strong for UC.

The SGL-1 speculative grade liquidity rating reflects very good liquidity. At March 31, 2015, PLT had about $482 million of cash, cash equivalents and short and long term investments (with the majority held internationally) and Moody's expects free cash flow of about $100 million over the next year. Under a recently announced company plan, a substantial amount (about 60%) of future free cash flow is committed to share buybacks and dividends. Moody's expects significant availability under PLT's New Revolver, with adequate cushion under the financial covenants of the New Revolver. There are no required debt payments until the Notes mature in about 8 years from closing.

The stable rating outlook reflects Moody's expectation for revenue growth of about 5%, adjusted EBITDA margins of about 18% and steady cash flow generation over the next 12 months.,

PLT's rating could be upgraded if it demonstrates sustained material growth in revenues, profitability and market share, such that FCF to debt exceeds 20% and Debt to adjusted EBITDA (Moody's basis) declines to under 2.0x, while maintaining modest net leverage.

PLT's rating could be downgraded if revenues and profitability decline or financial policies become more aggressive such that cash balances are substantially reduced, leverage is sustained above 3.5x or FCF to debt is sustained at 10% or less. Also, the rating could be downgraded if there is an outcome from headset competitor GN Netcom's anti-trust lawsuit against PLT that materially impacts PLT's business or financial profile.

The following ratings were assigned:

Issuer - Plantronics, Inc.

Corporate Family Rating -- Ba2

Probability of Default Rating - Ba2-PD

Speculative Grade Liquidity Rating - SGL-1

Senior Unsecured Notes - Ba2 (LGD4)

Outlook - Stable

You May Also Be Interested In

• Wooptix Collaborates with poLight ASA on Their Phase RT1000 Camera
• Moody's Raises Meta Platforms' (META) Senior Unsecured Notes Rating to Aa3 From A1
• Cleveland Research Upgrades Dynatrace Inc. (DT) to Buy, 'optimism underlying fundamentals are likely to support upside'