U.S. markets open in 4 hours 47 minutes
  • S&P Futures

    4,259.25
    +3.25 (+0.08%)
     
  • Dow Futures

    34,161.00
    +79.00 (+0.23%)
     
  • Nasdaq Futures

    14,371.75
    +17.50 (+0.12%)
     
  • Russell 2000 Futures

    2,333.70
    +2.50 (+0.11%)
     
  • Crude Oil

    73.44
    +0.14 (+0.19%)
     
  • Gold

    1,782.50
    +5.80 (+0.33%)
     
  • Silver

    26.27
    +0.22 (+0.84%)
     
  • EUR/USD

    1.1946
    +0.0011 (+0.10%)
     
  • 10-Yr Bond

    1.4870
    0.0000 (0.00%)
     
  • Vix

    16.08
    -0.24 (-1.47%)
     
  • GBP/USD

    1.3905
    -0.0016 (-0.12%)
     
  • USD/JPY

    110.7300
    -0.1050 (-0.09%)
     
  • BTC-USD

    34,151.24
    +1,106.55 (+3.35%)
     
  • CMC Crypto 200

    817.15
    +30.53 (+3.88%)
     
  • FTSE 100

    7,115.85
    +5.88 (+0.08%)
     
  • Nikkei 225

    29,066.18
    +190.95 (+0.66%)
     

MACOM Technology Solutions Holdings, Inc. -- Moody's upgrades MACOM's CFR to B2 and senior secured to Ba2; outlook positive

·16 min read
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Rating Action: Moody's upgrades MACOM's CFR to B2 and senior secured to Ba2; outlook positiveGlobal Credit Research - 24 Mar 2021New York, March 24, 2021 -- Moody's Investors Service, ("Moody's") upgraded the ratings of MACOM Technology Solutions Holdings, Inc ("MACOM"), including the Corporate Family Rating (CFR) to B2 from B3, the Senior Secured Term Loan (Term Loan) to Ba2 from B3, and the Speculative Grade Liquidity (SGL) rating to SGL-2 from SGL-3. The outlook is positive.The upgrade to the CFR follows MACOM's announced plans to repay about $500 million of the Term Loan using $100 million of balance sheet cash and the net proceeds from the issuance of Convertible Senior Notes due 2026 (Convertible Notes) [1], which will improve free cash flow (FCF) generation due to the reduction in cash interest expense. The upgrade to the CFR and the positive outlook also reflects MACOM's improved operating profile due to strengthening end market demand and the positive impact of MACOM's operational restructuring efforts. Moody's anticipates that the strengthening end market demand and expense discipline will allow MACOM to generate increasing profitability over the near term.Upgrades:..Issuer: MACOM Technology Solutions Holdings, Inc..... Corporate Family Rating, Upgraded to B2 from B3.... Probability of Default Rating, Upgraded to B2-PD from B3-PD.... Speculative Grade Liquidity Rating, Upgraded to SGL-2 from SGL-3....Senior Secured Bank Credit Facility, Upgraded to Ba2 (LGD2) from B3 (LGD3)Outlook Actions:..Issuer: MACOM Technology Solutions Holdings, Inc.....Outlook, Changed To Positive From StableRATINGS RATIONALEThe B2 CFR reflects MACOM's financial leverage, which at 6.5x debt to EBITDA (twelve months ended January 1, 2021, Moody's adjusted) is high given MACOM's small scale and the volatility of demand in most of the end markets it serves. MACOM competes against a number of semiconductor firms that have much greater financial resources and product breadth, such as Broadcom Inc, which Moody's believes places MACOM at a competitive disadvantage and exposes the company to the risk of product displacement. The CFR also reflects MACOM's exposure to the volatile Telecom and Data Center end markets. These two segments account for about 60% of revenues and contribute to revenue volatility as these end markets tend to experience surges and pauses in demand driven by the capital expenditures of the ultimate end market customers, which are comprised of a limited number of very large telecommunications carriers and hyperscale data center owners. Moreover, with about 45% of revenues generated by sales through distributors, and most sales done through purchase orders rather than under long term contracts, MACOM has limited visibility into end market demand.Still, the reduction of the cash interest expense due to the issuance of the Convertible Notes to repay a large portion of the higher cash interest Term Loan, will contribute to an improvement in MACOM's free cash flow generation. Moreover, Moody's expects that revenues will grow in the upper single digits percent, driven by continued strong end market demand in the Industrial & Defense (I&D) segment and a recovery in Data Center demand later in the year. The increasing revenues and MACOM's improved cost structure, should drive further growth in profitability such that Moody's expects that financial leverage will steadily improve, with debt to EBITDA (Moody's adjusted) declining toward 5x over the next 12 to 18 months. The I&D segment, which comprises about 40% of revenues, benefits from generally longer product cycles, providing a base of more stable revenues relative to MACOM's other two segments.As of January 15, 2021, the Ocampo family holds 27.9% of the shares. With this concentrated ownership, we believe that MACOM has the capacity to manage the company more aggressively than if the vast majority of the shares were publicly-traded. We believe that this ownership structure makes it more likely that MACOM could engage in a spirited acquisition program. Nevertheless, we believe that the pool of public shareholders, though limited in number, does limit the risk that MACOM will make significant use of leverage to fund an acquisition program or shareholder returns.The positive outlook reflects Moody's expectation that revenues will grow in the upper single digits percent and that the EBITDA margin (Moody's adjusted) will improve toward the low 20 percent level. This will contribute to deleveraging, with debt to EBITDA (Moody's adjusted) improving toward 5x over the next 12 to 18 months. With the increased EBITDA and the lower cash interest burden, Moody's expects that FCF to debt (Moody's adjusted) will be maintained above the mid-teens percent level over the period.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings could be upgraded if MACOM:** Generates organic revenue growth at least in the upper single digits percent** Sustains the EBITDA margin (Moody's adjusted) of around 20% or higher** Maintains FCF to debt (Moody's adjusted) above 15%** Maintains a conservative financial policyThe ratings could be downgraded if:** Revenues remain flat or decline** The EBITDA margin (Moody's adjusted) declines to below 15%** FCF to debt (Moody's adjusted) declines toward 5%.The Ba2 rating of the Term Loan reflects its seniority in the capital structure, the collateral package, and the large cushion of unsecured liabilities, including the unrated Convertible Notes.The Speculative Grade Liquidity (SGL) rating of SGL-2 reflects MACOM's good liquidity profile. Moody's expects that MACOM will keep at least $100 million of cash and short term investments and will generate FCF of at least $70 million over the next year. Moody's expects that the $160 million senior secured revolver maturing November 2021 (Revolver) will remain undrawn given the strong FCF generation. The Revolver is subject to a net leverage covenant (as defined in the credit agreement), which is tested when usage exceeds 35%. There are no financial maintenance covenants governing the Term Loan.MACOM Technology Solutions Holdings, Inc.("MACOM"), based in Lowell, Massachusetts, produces high performance analog communication semiconductor products across the radiofrequency spectrum. These include integrated circuits and discrete semiconductors used in data center, telecommunications infrastructure, industrial, and defense market applications, such as optical networking, telecom backhaul, and RADAR. MACOM utilizes a fab-lite manufacturing model, outsourcing a large portion of its semiconductor chip manufacturing, which limits capital expenditures.The principal methodology used in these ratings was Semiconductor Methodology published in December 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1248106. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.REFERENCES/CITATIONS[1] Form 8-K (SEC) 22-Mar-2021Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Terrence Dennehy, CFA VP-Sr 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 © 2021 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. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000.MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements. ​