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Fitch downgrades Motorola Solutions on Avigilon acquisition

Fitch Ratings lowered both the long-term issuer default rating and issue level ratings of Motorola Solutions Inc. to BBB- from BBB after it announced plans to acquire Avigilon Corp. and issue new debt to fund a $500 million pension contribution.

An issuer default rating of BBB- will accommodate the company's plans and such actions in the future, Fitch said.

The rating agency also said there is a strong possibility that Motorola Solutions will pursue more acquisitions, leading to further periods of leverage inconsistent with a BBB issuer default rating.

"Fitch anticipates that Motorola's leverage will experience periods of being elevated as the company continues to pursue acquisitions to enhance its growth prospects," it said.

The company's leverage is projected to be around 3.3x at close of the acquisition in the second quarter, reflecting both the deal and the expected pension contribution, according to Fitch.

Motorola Solutions would bring its leverage back to 2.8x or below by the end of 2018, when it is expected to partially repay the bank debt related to the transaction, the rating agency added.

Motorola Solutions will acquire all the outstanding shares of Avigilon, a video surveillance equipment maker, for C$27.00 per share for an enterprise value of about US$1.0 billion, including Avigilon's net debt.

Fitch said the rationale for acquiring Avigilon was "reasonably sound" as the firm will serve as an additional source of growth for Motorola Solutions.