S&P Assigns 'BB-' Rating to Lattice Semi (LSCC); No Issues with Silicon Image Integration Expected

Standard & Poor's Ratings Services today said it assigned its 'BB-' corporate credit rating to Hillsboro, Ore.-based Lattice Semiconductor Corp. (Nasdaq: LSCC). The outlook is stable.

At the same time, we assigned our 'BB-' issue-level rating and '3' recovery rating to the company's proposed $350 million senior secured term loan due 2021. The '3' recovery rating indicates our expectation for meaningful (50% to 70%) recovery of principal in the event of payment default.

"The ratings on Lattice reflect our view of the company's challenging business conditions in 2015, competitive programmable logic devices (PLD) landscape, and near-term integration risk, which our expectation for consistently positive free operating cash flow (FOCF) and debt reduction through excess cash flow sweep partially offset," said Standard & Poor's credit analyst Andrew Chang.

The stable outlook reflects our expectation that Lattice will not encounter major issues as it integrates Silicon Image and as it adheres to its stated goal of reducing leverage through debt reduction.

We would consider a lower rating if Lattice is unsuccessful in integrating Silicon Image's business, leading to margin compression or market share loss in its key products, or if the company doesn't use FOCF for debt repayment, such that adjusted leverage rises above mid-3x.

An upgrade is unlikely over the next 12 months given Lattice's small scale compared to that of its peers, the Silicon Image integration risk, and the near-term revenue risk reflecting vulnerability to industry cycles.

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