Dec 21 -
-- German semiconductor designer Lantiq Beteiligungs-GmbH & Co. KG and
its lenders have recently signed an amendment to the credit agreement for its
-- Furthermore, Lantiq's owner, private equity company Golden Gate
Capital, has supported the group with an additional $81 million in capital in
the current quarter.
-- We are affirming our 'CCC+' long-term corporate credit rating and
subsequently withdrawing the rating at the issuer's request.
On Dec. 21, 2012, Standard & Poor's Ratings Services affirmed its 'CCC+'
long-term corporate credit rating on Germany-based semiconductor company
Lantiq Beteiligungs-GmbH & Co. KG and the 'B-' issue rating on Lantiq's term
loan. We kept the recovery rating on this loan at '2', indicating our
expectation of substantial (70%-90%) recovery in the event of a payment
At the same time, we removed all the ratings from CreditWatch where they were
placed with negative implications on Aug. 23, 2012.
We subsequently withdrew all ratings at the issuer's request. At the time of
the rating withdrawal, the outlook was stable.
The rating affirmation reflected the positive impact on Lantiq's liquidity of
the recent amendment between Lantiq and its lenders to the credit agreement
for its outstanding loans. Furthermore, to support negotiations with lenders
and improve the group's capital structure and liquidity, Lantiq's owner, the
private equity company Golden Gate Capital (GGC), has provided Lantiq with $81
million of additional capital in the current quarter. The capital injection
was used for general corporate purposes and to reduce the group's outstanding
loan to $56 million from $111 million on Nov. 8, 2012.
These positive liquidity factors, however, are partly offset by our
expectations of continued, albeit likely lower cash flow losses in the fiscal
year 2013 (ending on Sept. 30), which if not contained over the next 12 to 18
months could impair the company's balance sheet. In addition, we forecast
moderately lower revenues in fiscal 2013 due to a currently challenging
competitive and macroeconomic environment. This could at least partly offset
the company's cost-cutting efforts and higher gross margins from a better
Following the amendment of the credit agreement, Lantiq faces no debt
amortization until the maturity of its $55 million term loan in November 2014.
In addition, it only has to comply with one financial maintenance covenant,
which requires it to maintain a minimum cash amount of $10 million. We
forecast that Lantiq has ample headroom under this covenant over the next 12
months. As of June 30, 2012, the company reported cash balances of $22
In the nine months to June 30, 2012, Lantiq reported a revenue decline of 23%
year on year and pro forma EBITDA (as defined by the company) of only $12
million, down from $26 million year on year. This includes about $1.5 million
pro forma EBITDA in the third quarter and we expect only a mild increase in
EBITDA generation in the fourth quarter. In addition, in the nine months to
June 30, 2012, Lantiq reported significant negative free operating cash flow
(FOCF; cash flow from operations after capital expenditures) of about $33
million, primarily due to its weak operating margins and significant
restructuring expenses and carve-out-related investments, which was only
partly offset by a reduction of its net working capital.
At the time of the withdrawal, the ratings on Lantiq reflected our assessment
of the group's business risk profile as "vulnerable" and its financial risk
profile as "highly leveraged". Our assessment of the company's management and
governance was "fair".
Related Criteria And Research
All articles listed below are available on RatingsDirect on the Global Credit
Portal, unless otherwise stated.
-- Methodology: Management And Governance Credit Factors For Corporate
Entities And Insurers, Nov. 13, 2012
-- Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18,
-- Methodology And Assumptions: Liquidity Descriptors For Global
Corporate Issuers, Sept. 28, 2011
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
-- 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008
-- Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings, Oct.
Ratings Affirmed; CreditWatch/Outlook Action; Ratings Withdrawn
To To From
Lantiq Beteiligungs-GmbH & Co. KG
Corporate Credit Rating NR CCC+/Stable/-- CCC+/Watch Neg/--
Senior Secured NR B- B-/Watch Neg
Recovery Rating NR 2 2