TEXT - Fitch comments on Jabil acquisition of Nypro

Mon Feb 4, 2013 3:21pm EST

Feb 4 - Fitch Ratings does not expect Jabil Circuit, Inc.'s (Jabil)  
 ratings to be impacted by the company's planned acquisition of Nypro
Inc. (Nypro) for $665 million. Jabil has stated it expects to fund the
acquisition through a combination of existing cash balances and borrowings under
its credit facility. 

As of Nov. 30, 2012, Jabil had $1 billion in cash (only a portion of which is 
available to the company) and a fully available $1.3 billion senior unsecured 
credit facility expiring March 2017. Fitch estimates that if Jabil were to fund 
the entire acquisition with debt, pro forma leverage (total debt to operating 
EBITDA) would increase from 1.6x to approximately 2.0x (or approximately 2.8x 
when adjusted for off-balance sheet accounts receivable borrowings and operating
leases). Jabil's management commented that it expects a majority of the funding 
to be from existing cash which includes proceeds from a $500 million unsecured 
note issuance in July 2012 which should result in pro forma leverage remaining 
comfortably below 2x. Fitch has previously stated that Jabil's ratings 
incorporate the expectation that leverage will remain at or below 2x (2.5x on an
adjusted basis) on a long-term basis.

Nypro is a manufacturer of precision plastic products for the healthcare, 
packaging and consumer electronics industries. This acquisition complements 
Jabil's 2007 acquisition of Taiwan Greenpoint which forms the base of its 
Diversified Manufacturing Services (DMS) segment. This business in general has 
higher margin than Jabil's traditional electronics manufacturing business. In 
addition, Nypro's mix of business generally has longer product cycles than 
Jabil's existing DMS business which should help moderate volatility in the 
business model. Nypro's position in the healthcare market has been a significant
focus for expansion for Jabil in recent years and represents a significant 
growth opportunity for the combined company over time. 

Rating strengths include the following:

--Strong management team with a track record of delivering best in class 
execution with a disciplined approach to growing the business;

--Advantages in scale as one of the largest of the tier 1 EMS vendors with a 
balanced global manufacturing footprint, including a strong mix of facilities in
low-cost regions;

--Favorable industry trends toward increased manufacturing outsourcing, 
particularly in the emerging industrial, medical, and clean tech space where 
Jabil has a leading position;

--Strategic positioning in increasingly complex EMS product offerings including 
product design, engineering, and product lifecycle management which enhance the 
value of EMS partnerships for customers;

--Vertically integrated operations which typically drive higher margins in 
periods of growth.

Rating concerns include the following:

--The potential for Jabil to pursue further vertical integration capabilities 
which could lead to additional debt financed acquisitions or execution risk in 
an industry with minimal room for execution missteps due to the relatively low 
profit margin inherent in the business model;

--An intensely competitive environment which pressures profitability across the 
industry;

--Significant customer concentration risk with Jabil's top five customers 
accounting for 48% of revenue in fiscal 2012. 

Liquidity as of Nov. 30, 2012 was solid consisting primarily of $1.0 billion in 
cash and fully available senior unsecured revolving credit facility expiring in 
March 2017. Jabil also utilizes two accounts receivable securitization 
facilities for additional liquidity purposes, both of which are located off 
balance sheet: a $200 million committed foreign receivables facility and a $300 
million committed North American receivables securitization facility expiring in
May 15, 2015 and October 2014, respectively.

Total debt as of Nov. 30, 2012 was $1.7 billion and consisted primarily of:

--$312 million in 7.75% senior unsecured notes due July 2016;
--$400 million in 8.25% senior unsecured notes due March 2018;
--$400 million in 5.625% senior unsecured notes due December 2020; and
--$500 million in 4.7% senior unsecured notes due July 2022. 

Jabil also had approximately $280 million outstanding under its off-balance 
sheet European and North American receivables securitization facilities and 
additional amounts under its accounts receivable sales facilities as of November
30, 2012, which are included in Fitch's adjusted debt calculation.

Fitch currently rates Jabil's Issuer Default Rating (IDR) and senior unsecured 
debt at 'BBB-'. The rating Outlook is Stable.
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