Fitch Downgrades Sanmina-SCI's Sr Sub Debt to 'B/RR5'; Remains on Watch Negative.NEW YORK New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has downgraded Sanmina-SCI Corporation (Sanmina) as follows: --Senior subordinated debt Subordinated Debt A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings. Also known as "junior security" or "subordinated loan". to 'B/RR5' from 'B+/RR4'. Fitch also assigns the following rating: --$600 million term loan expiring January 2008 'BB+/RR1'; The ratings on senior secured, senior subordinated and the following ratings remain on Rating Watch Negative: --Issuer Default Rating (IDR IDR In currencies, this is the abbreviation for the Indonesian Rupiah. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. ) 'B+'; --First lien senior secured credit facility 'BB+/RR1'. Fitch's action affects approximately $1.6 billion of total debt securities, pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma for the issuance of the $600 million term loan due January 2008 and redemption of $525 million of subordinated convertible debentures due March 2007. The senior subordinated downgrade reflects Sanmina layering $600 million of senior unsecured debt Unsecured debt Debt that does not identify specific assets that the debtholder is entitled to in case of default. on top of the senior subordinated debt, resulting in lower recovery prospects for the subordinated debt. Fitch estimates recovery for the subordinated notes would decline to 11%-30% from 31%-50% prior to the refinancing, resulting in an 'RR5' recovery rating. The 'BB+/RR1' ratings for the senior unsecured term loan reflect Fitch's estimation that the unsecured debt will recover 100% in a distressed scenario. Fitch believes recovery parity between the senior unsecured and senior secured debt is supported by the fact that the lending group for the term loan is essentially the same as that of the senior secured credit facility and maturity date of the term loan, January 2008, is well ahead of the maturity of the credit facility, December 2008. The Recovery Ratings and notching reflect Fitch's recovery expectations under a distressed scenario, as well as Fitch's expectation that the enterprise value of Sanmina, and hence, recovery rates for its creditors will be maximized in liquidation rather than in restructuring (going concern). In estimating Sanmina's liquidation value Liquidation value Net amount that could be realized by selling the assets of a firm after paying the debt. under a distressed scenario, Fitch applied advanced rates of 80%, 20% and 10% to Sanmina's current balance of accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying , inventory and property, plant and equipment, respectively. That leads to a distressed enterprise value estimate of approximately $1.2 billion, providing the basis for a waterfall analysis to determine recovery ratings. The Negative Rating Watch continues to reflect Sanmina's delayed filing of its 10Q and compliance certificates for the quarter ended July 1, 2006 and corresponding non-compliance with NASDAQ's filing requirements (the company continues to be listed on the exchange pending a decision by NASDAQ's Listing Qualifications Panel) as well as continuing investigations by the SEC and a federal grand jury into the company's stock option administration practices dating back to Jan. 1, 1997. Sanmmina recently announced the conclusion of its own internal investigation, which determined that most options awarded between 1997 and 2006 were not correctly dated and accounted for. Fitch believes that a resolution of the stock option investigations and satisfactory filing of Sanmina's 10Q as well as compliance certificates is likely to resolve the Negative Rating Watch status. Pro forma for the refinancing Fitch believes liquidity was sufficient as of July 1, 2006 and supported by approximately $563 million of cash and equivalents and an undrawn un·draw tr.v. un·drew , un·drawn , un·draw·ing, un·draws To draw to one side, as a curtain. Adj. 1. undrawn - not represented in a drawing undelineated - not represented accurately or precisely $500 million senior secured revolving credit facility due 2008, which is not available for refinancing purposes. Sanmina's $200 million receivables sales facility due 2007 also supports liquidity. Fitch estimates that total debt on a pro forma basis is approximately $1.6 billion and consists primarily of: 1) $600 million senior unsecured term loan due January 2008; 2) $400 million of 6.75% senior subordinated notes due March 2013 (callable Callable Applies mainly to convertible securities. Redeemable by the issuer before the scheduled maturity under specific conditions and at a stated price, which usually begins at a premium to par and declines annually. in 2009); and 3) $600 million of 8.125% senior subordinated notes due March 2016; but excludes $525 million of 3% convertible subordinated notes which are being redeemed (Sanmina has deposited the remaining amount due on these notes with the trustee, thereby completing the discharge of the indenture). Fitch's Recovery Ratings (RR), introduced in 2005, are a relative indicator of creditor recovery on a given obligation in the event of a default. A broad overview of Fitch's RR methodology as it relates to specific sectors, including a Case Study webcast, can be found at www.fitchratings.com/recovery. Fitch's rating definitions and the terms of use Terms of Use are rules set up by the owner of an intellectual property or service to govern how they may be legally used. In many cases, terms of service are used as a contractual agreement between a company and users of a service they provide. of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental are also available from the 'Code of Conduct' section of this site. |
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