Fitch Ratings Downgrades Sanmina-SCI's (SANM) Issuer Default Rating (IDR) and Debt Ratings

May 18, 2009 10:33 AM EDT

Fitch Ratings has downgraded Sanmina-SCI Corporation's (Nasdaq: SANM) Issuer Default Rating (IDR) and debt ratings as follows: IDR to 'B' from 'B+'; Senior secured credit facility to 'BB/RR1' from 'BB+/RR1'; Senior unsecured notes to 'BB-/RR2' from 'BB+/RR1'; Senior subordinated debt to 'CCC/RR6' from 'B/RR5'. The Rating Outlook is Stable.

The ratings downgrade reflects the following considerations:

Sanmina's revenue declined 34% in Q2 over the prior year period. While largely reflective of the overall macro economic environment this is a greater decline than peers which Fitch believes reflects SANM's continuing loss of market share relative to other tier one electronic manufacturing services (EMS) vendors.

Leverage (total debt to operating EBITDA) has increased to 6.2 times (x) from 5.5x while interest coverage has increased to 2.0x from 1.9x, over the prior year period. This primarily reflects a decline in EBITDA to $234 million in the latest twelve month period (LTM) (ending March 2009) from $272 million in the prior year period. Fitch expects EBITDA to fall further on an LTM basis as the current depressed revenue run rate and margin level becomes annualized by the end of fiscal 2009 (ending September 2009).

While Sanmina retains a significant cash balance and ample liquidity, the company's debt outstanding at $1.5 billion remains in excess of cash plus net working capital with minimal expectations for positive free cash flow excluding contributions from reduced working capital in the foreseeable future.

The Stable Outlook reflects the following considerations: Ample liquidity with only a modest $176 million debt maturity in 2010; Expectations that the company's revenue decline has stabilized for the moment although the timing of any potential return to growth is highly uncertain, and risk of a renewed business decline due to the macro environment or lost market share remains; and Fitch believes that Sanmina should achieve greater stabilization in profitability once the macro economic environment improves as its reorganization actions have reduced excess manufacturing capacity and shifted an increased percentage of operations to low cost regions providing a more competitive cost structure.

Sanmina-SCI Corporation (Sanmina-SCI) is provider of integrated electronics manufacturing services (EMS). [SM]

Related Categories

Downgrades

Stocks Mentioned

Related Entities

• Fitch Ratings

Add Your Comment

Name

Subject

Body

Verification can't see the text?
click here to refresh the image.
what's this?