S&P Affirms Ratings on Micron Technology (MU) Amid Move to Acquire Remaining Inotera Memories
Standard & Poor's Ratings Services today said it affirmed its 'BB' corporate credit rating on Micron Technology Inc. (Nasdaq: MU). The outlook is stable.
At the same time, we affirmed the issue ratings on all of Micron's senior unsecured debt at 'BB'. The recovery rating remains '3', indicating our expectation of meaningful (50% to 70%; upper end of the range) recovery in the event of a payment default.
"The rating affirmation follows the company's announcement that it will acquire the remaining approximately 67% stake in Inotera Memories Inc. for approximately $4 billion," said Standard & Poor's credit analyst Jenny Chang.
We expect the transaction will have minimal impact on pro forma leverage as of fiscal year ended Aug. 31, 2015, in the mid-1x area. However, we expect moderating supply and demand imbalances, weak PC market environment, and an elevated capital investment program to fund various technology migrations will likely result in moderately negative free cash flow in 2016.
The stable outlook reflects our expectation for leverage to remain below 2x over the coming year with a potential to spike temporarily above 2x due to volatile memory market conditions, despite our expectations for moderately negative free cash flow in 2016 driven by high capital expenditures.
We could lower the rating if current challenging operating environment were to persist resulting in lower profitability and leverage sustained above 3x. Although we expect the company to moderate capital spending in the event of a severe slowdown in anticipated demand in order to preserve liquidity, we could also lower the rating if the company is not on a path to improve free cash flow beyond 2016.
Although unlikely over the coming year, we could raise the rating if the company continues to improve its business risk profile through continued execution in new technologies (including 3D NAND), increases revenue diversity (including enterprise solid state design), and maintains its moderate financial policy with debt to EBITDA sustained below 3x.