Bangkok--22 Jun--Moody's Investors Service
Approximately US$1.25 billion of debt affected
Moody's Investors Service has changed the ratings outlook of Global A&T Electronics Ltd ("GATE") to stable from negative.
At the same time, Moody's has affirmed its B1 corporate family rating, its Ba3 first-lien term loan facility and first-lien revolving facility, and its B2 second-lien notes.
"The change in outlook to stable reflects GATE's healthy balance sheet cash level -- US$327 million as of March 2010 -- to support capital expenditure and to buffer it against the cyclicality of the outsourcing assembly and test business ("OSAT")," says Ken Chan, a Moody's Vice President and Senior Analyst.
"It also reflects the company's low level of near-term debt maturities and improved business mix, which includes an increase in its mixed signal logic products ("MSLP") and its reduced reliance on the memory sector," says Chan.
With its acquisition of ASAT Limited in January 2010, GATE's MSLP business now accounts for 51% of its revenue, up from 44%, and its more volatile memory segment accounts for 17%, down from 22%.
"As a result, Moody's expects GATE's credit profile to show some improvement in interest coverage, specifically EBITDA/interest of 3.0 -- 3.5x over the next 2 years," says Chan, adding, "However, its debt/capitalization is expected to remain high above 70%, thereby constraining its rating."
GATE's B1 rating continues to reflect the volatility of its OSAT business, its high degree of customer concentration, and its track record of growing through acquisitions.
It also reflects GATE's global position in the OSAT business and its steps to improve its product mix and liquidity position.
Upward rating pressure would be limited in view of the volatile nature of GATE's business and its high debt to capitalization ratio.
On the other hand, downward rating pressure could arise if (1) GATE's balance sheet liquidity materially deteriorates, either due to higher-than-expected cash burn, or further aggressive acquisitions; and/or (2) GATE loses its market position, or suffers declines in profitability, and which lead to a further deterioration in its financial profile, such that adjusted debt/capitalization exceeds 80% and/or EBITDA/interest coverage falls below 2.0x over the cycle.
The last rating action was on 21 August 2008 when GATE's rating outlook was changed to negative from stable after a weaker-than-expected operating performance was reported in its 1H08 interim results.
The principal methodology used in rating GATE was Moody's Global Semiconductor Industry Methodology, published in November 2009 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab.
Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.
Global A&T Electronics Ltd (GATE) is the holding company of United Test and Assembly Center Ltd (UTAC), a provider of semiconductor assembly and test services with manufacturing facilities in Singapore, Taiwan, Thailand and China. UTAC was privatized through a leverage buy-out by a private equity group led by TPG Capital and Affinity Equity Partners in October 2007.
Hong Kong
Ken Chan
Vice President - Senior Analyst
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Singapore
Philipp L. Lotter
Senior Vice President
Corporate Finance Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308