Aug 7 - Fitch Ratings has assigned a 'BBB-' rating to Ingram Micro Inc.'s
(Ingram Micro) proposed issuance of $300 million in 10-year senior
unsecured notes. Fitch expects the proceeds from this offering to be used to
partially finance the company's planned $840 million acquisition of Brightpoint
Inc. (Brightpoint). Fitch expects the remaining portion of the acquisition to be
financed with a combination of additional borrowings and available cash.
Fitch had revised the Rating Outlook on Ingram Micro to Negative from Stable
following the announcement of the Brightpoint acquisition in July. For
additional information on the Outlook revision, see Fitch's press release dated
July 19, 2012.
Pro forma for the proposed debt offering and expected financing of the
acquisition, Fitch estimates total leverage (total debt to EBITDA) will be
roughly 1.5x, and long-term debt leverage (long-term debt to EBITDA) will be
roughly 1.0x. Free cash flow is expected to exceed $300 million in fiscal 2012.
Fitch expects total leverage at Ingram Micro to remain below 2.0x and for
long-term debt to EBITDA to remain at or below 1.0x going forward. Fitch
believes that the higher total leverage figure reflects the company's need to
finance working capital with short-term debt, allowing it to reduce leverage in
a business downturn.
Ratings strengths include:
--Ingram Micro's scale of operations including its global footprint, financial
capability and breadth of product offering, which provides a competitive
advantage and a moderate barrier to entry;
--Importance of the wholesale distribution model for original equipment
manufacturers (OEMs), particularly for serving the small-to-medium business
Rating concerns continue to center on:
--Exposure to the cyclicality of IT demand and general global economic
--Potential for the use of free cash flow and/or debt issuance for acquisitions
or for shareholder-friendly actions;
--Low-margin and high working capital nature of the wholesale distribution model
which can lead to volatility in profitability and free cash flow, although
working capital has historically provided a substantial source of liquidity
during cyclical downturns.
Liquidity was solid as of June 30, 2012 and consisted primarily of $981 million
in cash and cash equivalents, an undrawn $750 million senior unsecured revolving
credit facility expiring August 2016 (with $5 million of letters of credit
outstanding), and approximately $1 billion of capacity under various accounts
receivable securitization programs. These receivable facilities include a $500
million U.S. facility that expires in April 2014 as well as several smaller
facilities in Europe and Asia.
Available capacity under these agreements can vary moderately based upon the
amount of eligible Trade Accounts Receivable held by the company at any point in
time. Ingram Micro also has several additional credit facilities it utilizes for
liquidity purposes with aggregate capacity of approximately $749 million, of
which $582 million was available to the company after deducting $24 million of
letters of credit outstanding.
Total debt as of June 30, 2012 was approximately $464 million and consisted
principally of $163 million outstanding under various uncommitted revolving
credit facilities, and $300 million senior unsecured notes maturing in 2017. In
addition, Ingram Micro has $151 million outstanding under various uncommitted
off-balance sheet accounts receivable sales agreements which Fitch includes in
its adjusted debt calculations.
Fitch rates Ingram Micro as follows:
--Issuer Default Rating (IDR) 'BBB-';
--$300 million senior unsecured notes 'BBB-';
--$750 million senior unsecured credit facility 'BBB-'.
The Rating Outlook is Negative.
WHAT COULD TRIGGER A RATING ACTION
Future developments that may, individually or collectively, lead to negative
rating action include:
--An inability to grow Brightpoint's logistics business to offset expected
weakness in its distribution business;
--Overall operating margin compression at Ingam Micro due to competitive threats
or execution missteps;
Future developments that may, individually or collectively, lead to positive
rating action include:
--The current Rating Outlook is Negative. As a result, Fitch does not currently
anticipate developments with a material likelihood, individually or
collectively, leading to a rating upgrade.
Brian Taylor, CFA
One State Street Plaza
New York, NY10004
Jason Paraschac, CFA
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email:
Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
Applicable Criteria and Related Research
--'Corporate Rating Methodology' (Aug. 12, 2011);
--'Rating Global Technology Companies Sector Credit Factors' (Sept. 20, 2010);
--'Evaluating Corporate Governance' (Dec. 06, 2010).
Applicable Criteria and Related Research:
Corporate Rating Methodology
Rating Global Technology Companies - Specific Rating Factors
Evaluating Corporate Governance
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