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Flex Ltd. -- Moody's says Flex's partial monetization of Nextracker brings strategic partner and enhances liquidity

·10 min read

Announcement: Moody's says Flex's partial monetization of Nextracker brings strategic partner and enhances liquidityGlobal Credit Research - 03 Feb 2022New York, February 03, 2022 -- Moody's Investors Service, ("Moody's") said Flex Ltd.'s ("Flex") sale of a roughly 17% interest in Nextracker LLC ("Nextracker") to TPG Rise Climate for $500 million establishes an accretive $3.0 billion valuation for Nextracker as a stand-alone operation in advance of a planned IPO. While the transaction is credit positive as it will enhance liquidity, Flex's Baa3 senior unsecured rating and stable outlook are not affected.Nextracker is the largest provider of solar tracking equipment as well as software and was acquired by Flex in 2015 for $330 million. The transaction adds to Flex's ample cash balances of $2.6 billion at the end of December 2021. The company indicated that net proceeds from the transaction will be allocated according to its balanced financial policy for internal and external growth investments as well as shareholder returns. To the extent proceeds from this initial and longer term monetization of Nextracker are invested in growth investments, as opposed to shareholder distributions, Flex will be able to at least partially offset the loss of Nextracker's higher margin revenues.TPG Rise Climate, a fund established by TPG Capital Advisors, LLC at the beginning of 2021, is focused on clean energy investing. TPG Rise Climate will be a valuable partner for Nextracker given the investment's firm's global network and experience investing in renewable energy companies. Going forward, Flex will report Nextracker as a separate operating segment consistent with the confidential S-1 filing for the planned IPO. Given the strategic benefits of the new partnership with TPG Rise Climate, Flex will gain incremental financial upside as the EMS firm continues to manufacturer equipment for Nextracker's expanding global customer base.Moody's expects that Flex will maintain a leading position in the electronics manufacturing services (EMS) industry particularly as large sectors, including health care and automotive, continue to shift to new manufacturing capabilities with next-generation technology and away from traditional supply chain capabilities. For LTM October 2021, Flex's top line increased 9% over the prior year period with improved adjusted operating margins in the mid 4% range. Profit growth is coming from higher sales volume, improving business mix, and continued focus on productivity gains. Moody's expects Flex's top line will continue to grow over the next year, although the potential for improving operating margins would be partially offset to the extent Nextracker, which generates higher margins, is deconsolidated.Based in Singapore with operating headquarters in San Jose, CA, Flex Ltd. is one of the largest global providers of contract electronics manufacturing services (EMS) to original equipment manufacturers (OEMs) across several industries and end markets. Primary areas of focus include Lifestyle; Communications, Enterprise & Cloud; Consumer Devices; Automotive; Health Solutions; and Industrials. We expect company revenues, including Nextracker, will exceed $26 billion over the next year.This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history. Carl Salas VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Stephen Sohn Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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