SAN FRANCISCO—Credit rating agency Fitch Ratings said Tuesday (Feb. 15) that a proposed initial public offering (IPO) of up to $1.15 billion worth of shares by Freescale Semiconductor Inc. would likely not affect Freescale's credit ratings.
While a successful IPO would provide up to $1.15 billion of gross proceeds and enable Freescale to further chip away at its significant debt, Fitch (Chicago) said it continues to believe that the company will find it challenging to generate enough cash to meet its intermediate term debt obligations. To improve its credit rating, Freescale must achieve meaningful revenue growth and free cash flow over the next few years that will reduce debt levels further, Fitch said.
Fitch currently gives Freescale an issuer default rating of "CCC," which falls into the category of "speculative grade" as defined by Fitch's website. Speculative grade, as opposed to "investment grade," signals a higher level of credit risk, according to the company's website.
Last week, Freescale filed with the U.S. Securities and Exchange Commission for an IPO worth up to $1.15 billion. The company did not disclose how many shares it would sell, the proposed opening value of those shares or what percentage of the company it would offer for sale.
According to Fitch, Freescale's total debt as of Dec. 31, 2010, was approximately $7.6 billion. Freescale over the past year has restructured much of his debt to give the company more time to pay it off. However, according to Fitch, the company still owes $532 million due in December 2012 and another $2.2 billion due in December 2016.
Fitch's ratings take into account Freescale's high levels of debt and significant interest expense, revenue growth challenges and structurally lower absolute level of earnings before interest and taxes and depreciation and amortization (EBITDA), Fitch said.
The ratings also reflect Feescale's leading positions with a diversified customer base in the automotive and standard product markets, increasing customer, end-market, and product diversification, and lower capital intensity from the Freescale's fab-lite manufacturing strategy, Fitch said.
Fitch estimates Freescale's total leverage (total debt to operating EBITDA) was approximately 7.6X for 2010, versus more than 30X at the trough of the most recent recession, the company said.
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