Fitch Rates Texas Instrument's $500MM Senior Notes 'A+'

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has rated Texas Instruments Incorporated's (TI) issuance of $500 million 1.75% senior notes due 2020 'A+'. TI will use net proceeds for general corporate purposes, potentially including repayment of upcoming debt maturities.

Fitch's actions affect $6.9 billion of debt, including the undrawn revolving credit facility (RCF) and pro forma for the $500 million senior notes issuance and repayment of $250 million of 3.95% senior notes at maturity during the current quarter. A full list of ratings follows at the end of this press release.

The ratings and Outlook reflect Fitch's expectations for solid operating performance through the intermediate term. Increasing content and digitalization in core analog and embedded processor markets should drive low- to mid-single near-term digit revenue growth.

Fitch expects mid-single digit near-term revenue growth from solid automotive and industrial demand, end markets that represents more than 44% of consolidated revenues, and will more than offset ongoing weakness in personal computer markets and delays in communications infrastructure spending.

Over the longer term, Fitch anticipates reduced volatility from longer design cycles for analog and embedded markets will offset greater cyclicality from the higher mix of automotive and industrials markets sales. TI's consignment inventory model also reduces operating volatility by enabling the company to react more immediately to inventory builds through the supply chain.

Profitability will remain strong (operating EBIT margin in the high-20s to low-30s through the cycle), driven by the full realization of cost savings from past restructuring actions and expectations for higher utilization rates from increased volumes.

Solid profitability, in conjunction with healthy inventory levels and lower capital spending through at least the intermediate term, should translate into more than $1.5 billion of annual FCF through the semiconductor cycle.

TI will use FCF for share repurchases, given its current capital allocation plan to return at least 100% of annual FCF plus proceeds from stock option exercises less net debt repayments to shareholders via stock buybacks. Fitch anticipates TI will remain active repatriating cash from overseas, given the majority of FCF is generated outside the U.S., resulting in modestly higher cash tax rates relative to the technology industry average.

Fitch expects total debt-to-operating EBITDA (total leverage) will range from 1.0 times (x) to 1.5x over the longer term. Fitch estimates total leverage was 0.8x for the latest 12 months (LTM) ended March 31, 2015, pro forma for the net debt issuance.

RATING SENSITIVITIES:

Negative rating actions could result from sustained share losses in focus segments leading to:

--Structurally lower revenue resulting in sustained FCF near or below $1 billion;

--Lower base line operating profitability resulting in sustained debt/EBITDA above 1.5x.

Positive rating action is unlikely, given the company's smaller scale for the rating category and cyclicality associated with the semiconductor industry.

KEY RATINGS DRIVERS:

The ratings are supported by TI's:

--Strong financial flexibility supported by solid liquidity and Fitch's expectations that the company's annual FCF will exceed $1.5 billion through the intermediate term;

--Share leadership in analog and embedded processing. Fitch believes TI's scale, acquisition of National Semiconductor, and recent manufacturing capacity additions, position the company to gain share in analog over time;

--More sustainable operating results from an intensified focus on the more fragmented analog and embedded processing markets and diversified customer base;

Ratings concerns center on TI's:

--Substantial R&D investments and capital expenditures required to maintain technology and cost leadership within the semiconductor industry will constitute approximately 15%-18% of revenues on a combined basis over the longer term;

--Potential profitability pressures from TI pricing more aggressively across the analog space to increase utilization rates of excess manufacturing capacity;

--Commitment to more aggressive share repurchases.

TI's liquidity, pro forma for the net debt issuance, was solid as of March 31, 2015, and supported by:

--Approximately $3 billion of cash and short-term investments.

--An undrawn $2 billion credit facility due March 2020.

Liquidity is further supported by Fitch's expectations for annual FCF of more than $1.5 billion through the semiconductor cycle.

Total debt, pro forma for the net debt issuance, was $4.9 billion as of March 31, 2014 and consisted of:

--$750 million of 0.45% senior notes due August 2015;

--$1 billion of 2.375% senior notes due May 2016;

--$250 million of 0.875% senior notes due March 2017

--$375 million of 6.6% NSC issued senior notes June 2017;

--$500 million of 1% senior notes due May 2018;

--$750 million of 1.65% senior notes due August 2019;

--$500 million of 1.75% senior notes due April 2020;

--$250 million of 2.75% senior notes due March 2021;

--$500 million of 2.25% senior notes due May 2023.

Fitch affirms TI and its subsidiary, National Semiconductor Corporation, as follows:

TI

--Long-term Issuer Default Rating (IDR) at 'A+';

--Short-term IDR at 'F1';

--Commercial paper program at 'F1';

--Senior unsecured revolving credit facility at 'A+';

--Senior unsecured notes at 'A+'.

National Semiconductor

--Long-term IDR at 'A+';

--Senior unsecured notes at 'A+'.

The Rating Outlook is Stable.

KEY ASSUMPTIONS

--Low- to mid-single digit revenue growth, driven by solid demand in automotive and industrial.

--Weaker than previously anticipated personal computer (PC) shipments and delays in communication infrastructure build-outs will constrain top line growth.

--Profitability will expand due to higher utilization, benefits from restructuring and richer mix following full exit from the legacy wireless business.

--Despite slightly higher inventory levels associated with the consignment model, annual FCF will exceed $1.5 billion through the cycle, driven by strong profitability and still modest capital spending.

--TI will use FCF for share repurchases and debt reduction over time, potentially requiring repatriation of offshore cash.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (May 28, 2014).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=983877

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Fitch Ratings
Primary Analyst:
Jason Pompeii, +1-312-368-3210
Senior Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst:
David Peterson, +1-312-368-3177
Senior Director
or
Committee Chairperson:
Robert Curran, +1-212-908-0515
Managing Director
or
Media Relations:
Alyssa Castelli, New York, +1-212-908-0540
[email protected]
Elizabeth Fogerty, New York, +1-212-908-0526
[email protected]

Source: Fitch Ratings

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