S&P Rates SunEdison (SUNE) at 'B-'; Notes 'Vulnerable' Business Risk Profile

Standard & Poor's Ratings Services said it assigned St. Peters, Mo.-based SunEdison Semiconductor Ltd. (NYSE: SUNE) a 'B-' corporate credit rating. The outlook is stable.

At the same time, we assigned the company's $210 million first-lien term loan due 2019 and $50 million revolving credit facility due 2017 our 'B' issue-level rating, with a recovery rating of '2', indicating our expectations for substantial (70%-90%) recovery in the event of a payment default.

"The ratings on SunEdison Semiconductor reflect the company's 'vulnerable' business risk profile (as defined by our criteria), incorporating the company's exposure to the highly cyclical semiconductor industry and its high customer concentration," said Standard & Poor's credit analyst James Thomas.

The ratings also reflect an "aggressive" financial risk profile, primarily reflecting our expectation for negative free cash flow over the next 12 months. We view the industry risk as "moderately high," the country risk as "intermediate," and the company's management and governance as "fair."

We adjust the anchor score downward by one notch to the final 'B-' rating, given the company's very weak free cash flow and need to engage in higher capital expenditures in order to remain competitive compared with 'B' rated firms in the semiconductor industry, and our view that standard leverage ratio analysis does not fully capture SunEdison Semiconductor's level of financial risk.

Our outlook is stable, reflecting our expectation that SunEdison Semiconductor will be able to grow margins sufficiently to generate modestly positive free cash flow by 2015, and that the firm has adequate liquidity to finance necessary capital expenditures.

We could lower the rating if a slowdown in the semiconductor wafer market leads to accelerating price declines and reduced revenues, and the firm's cash balance declines to the point that we would consider liquidity "less than adequate."

We could raise the rating if the firm is able to successfully grow operating cash flow through better pricing on polysilicon and an improvement in industry pricing, causing sustained positive free cash flow generation.

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