Moody's Rates Qorvo's $1B Proposed Notes Issuance at Ba1
Qorvo, Inc. QRVO, a leading player in the microchip sector, which was shaped from the merger of RF Micro Devices and TriQuint Semiconductor, proposed a $1 billion senior notes offering, subject to market conditions. Moody's Investor Service assigned a Ba1 rating to the senior unsecured notes issuance.
Proceeds from the new issue are expected to be used for general corporate purposes, including share buybacks and repayment of outstanding balance under its revolving credit facility. As senior unsecured obligations of Qorvo, the notes will be initially guaranteed, jointly and severally, by Qorvo's existing and future direct and indirect wholly-owned U.S. subsidiaries.
Ratings Rationale
The proposed $1 billion note issuance comprises 8-year and 10-year senior notes, which will be issued to qualified institutional buyers. The assigned rating for the issue is of speculative grade and indicates the presence of substantial credit risk.
The Ba1 rating reflects the restricted cushion of subordinated liabilities in Qorvo's capital structure, Qorvo's moderate leverage and its powerful position as a leading provider in the smartphone RF filter market. RF filter providers are benefiting from strong secular growth from higher smartphone sales as 4G networks roll out globally. Qorvo also supplies RF chips for cellular base stations and military applications such as radar to the infrastructure and defense markets. These products tend to have very long product life cycles, thus adding predictability to the revenue stream.
On the other hand, revenue concentration, execution risks related to the integration of RF Micro and TriQuint, and the short product life cycles characteristic of the smartphone industry are some of the factors that cast a negative impact on Qorvo’s rating.
On the whole, Qorvo looks set to complete the RF Micro-TriQuint integration without any significant operational disruptions.
Outlook
An upgrade is unlikely for Qorvo's ratings over the next year because of the pending integration. However, the ratings could be upgraded over the medium term if Qorvo reduces its revenue concentration, generates organic revenue growth more than that of its peers, and maintains a conservative leverage profile.
On the other hand, the company’s ratings could receive a downgrade if its debt levels increase without a corresponding boost in earnings, or if its revenue growth comes under pressure.
As a leading provider of core technologies and RF (radio frequency) solutions for mobile, infrastructure and aerospace & defense applications, Qorvo remains focused on developing highly integrated products that leverage its core competencies to enable its customers accelerate the time-to-market of their next-generation products.
Qorvo competes with Parkervision Inc. PRKR, Skyworks Solutions Inc. SWKS and Towerstream Corp. TWER.
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QORVO INC (QRVO): Free Stock Analysis Report
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