S&P Lifts Outlook on Broadcom (BRCM) to Positive; Ratings Affirmed

Highlights:

• Broadcom Ltd., a global provider of analog, digital, and mixed signal semiconductor components, has reduced adjusted leverage to the low-2x area through debt repayment since the acquisition of Broadcom Corp. closed on Feb. 1, 2016.
• The company also plans to refinance the entire existing U.S. term loan B with the proceeds of additional term loan A issuance and a new term loan B-3.
• We are affirming all ratings including our 'BB+' corporate credit rating on Broadcom and revising the outlook to positive from stable.
• We are assigning our 'BBB' issue-level rating to Broadcom's new term loan B3. The recovery rating is '1'.
• The positive outlook reflects Broadcom's de-leveraging to date and our expectation that continuing operating growth will provide opportunities for further de-leveraging and capital deployment flexibility, supporting a higher corporate credit rating over the coming year.

S&P Global Ratings said it affirmed its 'BB+' corporate credit rating on Broadcom Ltd. (Nasdaq: BRCM) and revised the outlook to positive from stable.

We also affirmed the 'BBB' issue-level rating on the company's secured debt. The recovery rating is '1', indicating our expectation for very high recovery (90% to 100%) in the event of a payment default.

At the same time, we affirmed the 'BB+' issue-level rating on the legacy Broadcom Corp. unsecured notes. The recovery rating is '3', indicating our expectation for meaningful recovery (50% to 70%; upper end of the range) in the event of a payment default.

Additionally, we assigned our 'BBB' issue-level rating to the company's new term loan B-3. The recovery rating is '1', indicating our expectation for very high recovery (90% to 100%) in the event of a payment default.

"The outlook revision is based on the company's progress to date on the integration of Broadcom Corp. by maintaining gross margins relatively unchanged and applying a significant portion of its discretionary cash flow toward debt reduction," said S&P Global Ratings credit analyst Jenny Chang.

In addition to approximately $560 million of term loan repayment in the second quarter ending April 30, 2016, we expect the company to repay about another $1 billion by the end of third fiscal quarter resulting in S&P Global Ratings' pro forma adjusted leverage in the low-2x area, ahead of our previous forecast. Our adjusted leverage is net of surplus cash, which we calculate as 75% of reported cash and investments.

The positive outlook reflects ample debt capacity under our assessment of Broadcom's credit profile and our expectation that its continuing growth prospects and strong cash generating ability provides substantial financial flexibility for acquisitions and shareholder returns, which would support a higher corporate credit rating over the coming year.

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