S&P lowers rating on Spansion after payment delay

S&P lowers rating on Spansion Inc. after company delays interest payment

• On 3:31 pm EST, Thursday January 15, 2009

NEW YORK (AP) -- Standard & Poor's lowered the credit rating for Spansion Inc. after the maker of memory chips said it will delay making an interest payment due Thursday on a senior note and is considering a merger or sale.

S&P lowered its corporate credit rating on Spansion to D from CCC, and the issue-level rating on Spansion LLC's 11.25 percent senior unsecured notes due 2016 to D from CC.

Spansion said it is delaying the payment on the 11.25 percent senior note in anticipation of beginning "an organized process of potential balance sheet restructuring opportunities."

Spansion -- one of the world's largest makers of flash memory chips used in digital cameras and other gadgets -- also said it is considering opportunities to merge with or sell to similar U.S. or foreign businesses.

Such a move would create "significantly greater scale" and provide customers with a broader range of more cost-effective memory products, the company said.

In a news release, S&P said market conditions have been severe across the memory industry.

"Spansion's free cash flows have been substantially negative for an extended time, with little potential for a near-term reversal," S&P said.

S&P also lowered the issue-level rating on Spansion LLC's floating-rate senior secured notes to C from CCC, and the issue-level rating on the company's 2.25 percent exchangeable senior subordinated debentures to C from CC.

In November, Spansion cut its fourth-quarter sales forecast to 20 percent lower than its third-quarter revenue, suggesting revenue of about $505 million. The company previously had said it expected a slight decline in sales.

The Sunnyvale, Calif., company cited a slowdown in demand as customers shut factories for its reduced outlook.

Analysts surveyed by Thomson Reuters estimate revenue for the quarter ended Dec. 28 of $504.2 million.

Spansion also said in November it would cut cost of goods sold by about 25 percent and reduce operating expenses.

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