23.09.2016, 18:16
Fitch Affirms Avnet's IDR at 'BBB-' on Technology Solutions Divestiture
OREANDA-NEWS. Fitch Ratings has affirmed the Long-Term Issuer Default Rating of Avnet, Inc. (Avnet) at 'BBB-'. Fitch has also affirmed the 'BBB-' issue specific ratings assigned to the company's senior unsecured debt and revolving credit facility. The Rating Outlook remains Stable. The company reported approximately $2.5 billion of debt outstanding as of July 2, 2016. A complete list of rating actions follows at the end of this release.
The rating action follows Avnet's announcement that it has reached an agreement to sell its Technology Solutions (TS) business to Tech Data Corporation for $2.6 billion in cash and common stock. Fitch believes the divestiture of the TS business is a positive given the business' negative revenue growth, lower margins and few synergies with the Electronics Marketing (EM) segment, but is offset by the remaining business having less scale and diversification and more cyclicality of demand. The TS business has had negative revenue growth four of the last five years as technology consumers reduce on premise spending and shift to hyper-converged infrastructure and cloud environments. Fitch estimates the remaining company will have approximately 80% exposure to the broader semiconductor market and will be susceptible to the cyclicality of the industry.
Fitch expects proceeds from the asset sale will be used to reduce debt, decreasing leverage below Fitch's 3.0x gross leverage (unadjusted debt to EBITDA) in the near-term. A deviation from our expectation for the company to reduce leverage below 3.0x would likely result in a downgrade. Following debt reduction, Fitch expects excess cash from the divestiture to be used for M&A and shareholder returns.
Avnet announced it entered into a definitive agreement to sell its TS business to Tech Data Corporation for $2.6 billion, including $2.4 billion of cash (approximately $2 billion after taxes) and $200 million of common stock. Prior to the divestiture, the embedded computing solutions business will be transferred from TS to the EM segment and stay with Avnet. The company expects the deal to close in the first half of calendar year 2017.
The rating action follows Avnet's announcement that it has reached an agreement to sell its Technology Solutions (TS) business to Tech Data Corporation for $2.6 billion in cash and common stock. Fitch believes the divestiture of the TS business is a positive given the business' negative revenue growth, lower margins and few synergies with the Electronics Marketing (EM) segment, but is offset by the remaining business having less scale and diversification and more cyclicality of demand. The TS business has had negative revenue growth four of the last five years as technology consumers reduce on premise spending and shift to hyper-converged infrastructure and cloud environments. Fitch estimates the remaining company will have approximately 80% exposure to the broader semiconductor market and will be susceptible to the cyclicality of the industry.
Fitch expects proceeds from the asset sale will be used to reduce debt, decreasing leverage below Fitch's 3.0x gross leverage (unadjusted debt to EBITDA) in the near-term. A deviation from our expectation for the company to reduce leverage below 3.0x would likely result in a downgrade. Following debt reduction, Fitch expects excess cash from the divestiture to be used for M&A and shareholder returns.
Avnet announced it entered into a definitive agreement to sell its TS business to Tech Data Corporation for $2.6 billion, including $2.4 billion of cash (approximately $2 billion after taxes) and $200 million of common stock. Prior to the divestiture, the embedded computing solutions business will be transferred from TS to the EM segment and stay with Avnet. The company expects the deal to close in the first half of calendar year 2017.
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