Moody's Ba3 Rating for M/A-COM Technology - Analyst Blog

M/A-Com Technology Solutions Holdings, Inc.'s MTSI $450 million senior secured debt was assigned a Ba3 rating by leading credit rating agency Moody's along with a stable outlook. Ba3 is a speculative grade rating, and indicates the presence of substantial credit risk.

Ratings Validation

M/A-Com's senior secured debt has a limited buffer of subordinated liabilities, and there are no financial maintenance covenants for the debt either. These risks are reflected in Moody's Ba3 rating. On the positive side, the rating expresses M/A-Com's healthy cash balance, a secure revolving credit facility and consistent free cash flow generation, all of which add to its liquidity.

Additionally, M/A-Com was assigned a Corporate Family Rating CFR of Ba3, reflecting its focused specialization in the analog semiconductor market. Compared with the broader semiconductor field, this industry is marked by long product life cycles and steady revenues, which makes its operations more stable.

A negative factor contributing to the speculative grade rating was M/A-Com's substantial leverage, resulting from its recent purchase of Mindspeed. The company drew $220 million under a revolving credit facility to finance the acquisition of Mindspeed. However, the company is expected to begin deleveraging soon as it streamlines Mindspeed's cost structure and uses free cash flow to retire debt.

Outlook

Moody's ratings are accompanied by a stable outlook as it expects M/A-Com to seamlessly integrate Mindspeed into its operations. The Mindspeed acquisition is expected to be accretive to earnings from the current quarter, as its significant competitive advantages and financial synergies are realized. In the next year, their collective revenues are expected to register growth in high single digits.

M/A-Com presently sports a Zacks Rank #3 (Hold). Other stocks in the industry that look promising include Montage Technology Group Limited MONT, ON Semiconductor Corp. ONNN and NXP Semiconductors NV NXPI. While Montage and ON Semiconductor sport a Zacks Rank #1 (Strong Buy), NXP holds a Zacks Rank #2 (Buy).