Fitch Revises Celestica Inc.'s Outlook to Negative; Affirms Ratings.

NEW YORK -- Fitch Ratings has changed its Ratings Outlook for Celestica Inc. (Celestica) to Negative from Stable and affirmed the following ratings:

-- Issuer default rating (IDR) at 'BB-';

-- Unsecured credit facility at 'BB-';

-- Senior subordinated debt at 'B+'.

Fitch's action affects approximately $750 million of debt.

The Ratings and Negative Outlook reflect: i) negative operational issues that precipitated a drop in demand from telecom customers which, when combined with seasonal factors, led to a sequential decline in revenue and profitability in fiscal 4Q06 (Dec. 31, 2006); ii) expectations for continued declines in revenue and EBIT margin in the first half of 2007 due to customer attrition as management attempts to resolve its execution issues; iii) limited financial leverage with total debt/operating EBITDA of 2.9 times (x) along with a net cash position for the company at the end of 2006; iv) modest but positive free cash flow over the past two quarters.

Ratings concerns center on: i) the potential for continued declines in revenue beyond the first half of 2007; ii) further weakening in operating metrics due to lower than expected revenue and/or continued execution issues; iii) limited liquidity in the revolving credit facility due to a leverage covenant which currently limits additional debt incurrence to approximately $60 million, although Fitch believes Celestica will be able to renew this facility before it expires in June 2007 and potentially improve liquidity; and iv) significant customer concentration with the top ten customers accounting for approximately 60% of revenue including IBM and Cisco, both of which were 10% customers in 2006. In addition, Celestica is highly dependent on the communication and information technology sectors which combined account for roughly 75% of total revenue. Ratings strengths include: i) limited debt maturities until 2011; ii) a well established customer base and significant scale in core markets; and iii) positive long-term trends towards increased outsourcing of manufacturing services across numerous industries.

Fitch believes that a decline in operating metrics beyond that expected during the first half of 2007 or a lack of improvement to operations in the second half of 2007 could lead to further negative ratings action, as could the further incurrence of debt. Conversely, significant improvements in operating performance including successfully correcting customer attrition issues could stabilize the ratings.

As of Dec. 31, 2006, liquidity was adequate with no near-term debt maturities and was supported by approximately $804 million of cash and cash equivalents and an undrawn $600 million senior unsecured revolving credit facility expiring June 2007. The leverage covenant contained within the credit agreement currently limits the incurrence of additional debt to approximately $60 million. Celestica also has a committed agreement providing the company with the ability to sell up to $250 million of accounts receivable to a third party financial institution plus additional receivables at the discretion of the purchaser, which expires November 2007. As of Dec. 31, 2006, total debt was approximately $750 million and consisted primarily of i) $500 million 7.875% senior subordinated notes due 2011 and ii) $250 million 7.625% senior subordinated notes due 2013.

Fitch's rating definitions and the terms of use 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 are also available from the 'Code of Conduct' section of this site.