Fitch Downgrades Sanmina-SCI's IDR to 'B'; Outlook Stable

NEW YORK--(Business Wire)--
Fitch Ratings has downgraded Sanmina-SCI Corporation's (Sanmina) (Nasdaq: SANM)
Issuer Default Rating (IDR) and debt ratings as follows:

-- IDR to 'B' from 'B+';

-- Senior secured credit facility to 'BB/RR1' from 'BB+/RR1';

-- Senior unsecured notes to 'BB-/RR2' from 'BB+/RR1';

-- Senior subordinated debt to 'CCC/RR6' from 'B/RR5'.

The Rating Outlook is Stable.

The ratings downgrade reflects the following considerations:

-- Sanmina's revenue declined 34% in the fiscal second quarter (end March 2009)
over the prior year period. While largely reflective of the overall macro
economic environment this is a greater decline than peers which Fitch believes
reflects Sanmina's continuing loss of market share relative to other tier one
electronic manufacturing services (EMS) vendors.

-- Leverage (total debt to operating EBITDA) has increased to 6.2 times (x) from
5.5x while interest coverage has increased to 2.0x from 1.9x, over the prior
year period. This primarily reflects a decline in EBITDA to $234 million in the
latest twelve month period (LTM) (ending March 2009) from $272 million in the
prior year period. Fitch expects EBITDA to fall further on an LTM basis as the
current depressed revenue run rate and margin level becomes annualized by the
end of fiscal 2009 (ending September 2009).

-- While Sanmina retains a significant cash balance and ample liquidity, the
company's debt outstanding at $1.5 billion remains in excess of cash plus net
working capital with minimal expectations for positive free cash flow excluding
contributions from reduced working capital in the foreseeable future.

The Stable Outlook reflects the following considerations:

-- Ample liquidity with only a modest $176 million debt maturity in 2010;

-- Expectations that the company's revenue decline has stabilized for the moment
although the timing of any potential return to growth is highly uncertain, and
risk of a renewed business decline due to the macro environment or lost market
share remains; and

-- Fitch believes that Sanmina should achieve greater stabilization in
profitability once the macro economic environment improves as its reorganization
actions have reduced excess manufacturing capacity and shifted an increased
percentage of operations to low cost regions providing a more competitive cost
structure.

Rating strengths include:

-- Sanmina's position as still one of the largest global EMS providers with
higher than industry average exposure to complex manufacturing services which
tend to be more stable and less prone to competitive threats;

-- Countercyclical nature of working capital cash flows inherent in the EMS
industry which tend to provide a significant source of liquidity during business
downturns; and

-- Fitch believes that the long-term opportunity for revenue growth in
non-traditional markets for Sanmina including industrial, defense and medical
systems, should partially mitigate potential further revenue declines in the
Enterprise Computing and Communications markets.

Rating concerns include Fitch's expectation that the EMS market will remain
highly competitive with continued pressure on profitability across all North
American tier one competitors. In addition, Sanmina has downsized its business
considerably over the past several years through restructuring and divestitures
to a point where the remaining business is significantly smaller than leading
tier one service providers in a market where scale is of significant importance.
The company has yet to demonstrate that its revised business focus can
consistently generate sufficient margins and cash flow as the economic downturn
began shortly after Sanmina had completed the divestiture of its personal
computing (PC) operations in mid-2008.

The ratings could be positively impacted by a sustained return to top-line
growth coupled with improved EBITDA margins approaching historical levels of
near 5%. Conversely, the ratings could be negatively impacted by events that
lead to a decline in available liquidity without an offsetting decline in debt
outstanding including the use of cash for acquisitions or shareholder friendly
actions.

As of March 31, 2009, liquidity was solid and consisted of $851 million in cash
plus a $135 million senior secured credit facility, expiring March 2013, which
was fully available to the company. In addition, Sanmina utilizes various
off-balance sheet accounts receivable sales facilities, totaling approximately
$250 million, for additional liquidity purposes. Fitch expects free cash flow in
fiscal 2009 (ending September 2009) to be upwards of $100 million to $200
million, largely reflecting positive cash inflows from reduced working capital
requirements due to declining revenue trends.

Total debt as of March 31, 2009 was $1.5 billion and consisted of: i) $176
million in senior unsecured floating rate notes due June 2010; ii) $271 million
in senior unsecured floating rate notes due June 2014; iii) $400 million in
senior subordinated 6.75% notes due February 2013; and iv) $600 million in
senior subordinated 8.125% notes due March 2016.

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 a going concern enterprise value scenario. In
estimating Sanmina's liquidation value under a distressed scenario, Fitch
applied advanced rates of 80%, 20%, and 10% to Sanmina's current balance of
accounts receivable, inventory, and property, plant and equipment, respectively.
That leads to a distressed enterprise value estimate of approximately $770
million, providing the basis for a waterfall analysis to determine recovery
ratings. The current 'RR1' recovery rating for Sanmina's secured credit facility
reflects Fitch's belief that 100% recovery is realistic. As is standard with
Fitch's recovery analysis, the revolver and accounts receivable facility are
fully drawn and cash balances fully depleted to reflect a stress event. The
current 'RR2' Recovery Rating for the senior unsecured debt reflects Fitch's
estimate that a recovery of 70% to 90% would be achievable. The current 'RR6'
Recovery Rating for the senior subordinated debt reflects Fitch's estimate that
a recovery of only 0% to 10% would be achievable.

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.

Fitch Ratings, New York
Jason Paraschac, +1-212-908-0746
Nick P. Nilarp, CFA, +1-212-908-0649
Cindy Stoller, +1-212-908-0526 (Media Relations)
cindy.stoller@fitchratings.com

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