Dec 11 - Standard & Poor's Ratings Services said today that its 'BB'
corporate credit rating and stable outlook on St. Louis-based cable,
connectivity, and networking products maker Belden Inc. are unaffected
by its proposed approximately $516 million acquisition of Syracuse, N.Y.-based
PPC, a manufacturer of connectivity products used in the delivery of content by
broadband service providers. The company intends to fund the acquisition with
proceeds from the recent divestitures of its Thermax and Raydex cable businesses
($265 million), cash on hand (cash balances totaled about $386 million on Sept.
30, 2012), and $200 million of revolving credit borrowings. The company's
issue-level and recovery ratings are unaffected by the revolver borrowings, as
we already assume the revolver is fully drawn in our recovery analysis. (For the
complete recovery analysis, please see the recovery report on Belden published
on Aug. 13, 2012, on RatingsDirect.)
Pro forma for the transaction Standard & Poor's adjusted leverage will
increase very modestly to approximately 3.65x from 3.5x at Sept. 30, 2012, but
we expect leverage to decline to the low-3.0x area over the next year, through
modest EBITDA growth and mandatory debt repayments. Belden's financial profile
is supported by solid cash flow characteristics due to good working capital
management and moderate capital spending needs. We believe that the company
has sufficient liquidity and room within the rating to pursue both its
strategic growth and shareholder return objectives.
We believe that the acquisition is a modest strength to the company's business
risk profile, as it expands and enhances the company's connectivity offerings
in the broadcast vertical, and should aid profitability as PPC's operating
margins are higher than most of Belden's existing product portfolio. We do not
foresee any major integration risks. The company has an established track
record of successfully integrating acquisitions of similar size and scope.
The ratings on Belden Inc. reflect the company's "fair" business risk profile,
characterized by its participation in the highly competitive and cyclical
cable, connectivity, and networking markets and its exposure to volatile raw
material pricing and foreign currency rates. The ratings also reflect its
"significant" financial profile, with pro forma leverage in the mid-3x area.
Belden's diversification into higher margin, value-added specialty products
and vertical/geographic market expansion, along with "adequate" liquidity and
good cash flow characteristics, partly offset these risks.