S&P Global Ratings removed Microchip Technology Inc. from CreditWatch and affirmed its BB unsolicited corporate credit rating after the chipmaker completed its acquisition of Microsemi Corp. on May 29.
The rating agency said the addition of Microsemi's portfolio will expand Microchip's presence in the aerospace and defense industry and communications and data center end markets.
"Following close of the transaction, these two end markets will represent about 10% (up from about 2%), and 25% (up from about 14%) of pro forma revenues, respectively," S&P said.
S&P said, however, that the all-cash transaction poses meaningful risks as management focuses on integrating the two businesses while deleveraging the balance sheet.
"The company will fund the transaction with about $8 billion of debt, resulting in pro forma leverage (pre-synergy) in the mid-5x area up from about 1.6x at March 31, which is high compared to similarly rated companies, but we expect it to decline to the mid-4x area within 12 months of close," the rating agency said.
S&P also noted that a downturn in the semiconductor cycle, heightened competition, or integration-related issues could result in a slower pace of deleveraging and a possible ratings downgrade.
This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found here.
