TTM Technologies Inc. Ratings Affirmed On Announced Acquisition Of Anaren Inc.; Outlook Stable

Stocks and Financial Services Press Releases Friday February 9, 2018 13:02
SAN FRANCISCO--9 Feb--S&P Global Ratings

SAN FRANCISCO (S&P Global Ratings) Feb. 8, 2018--S&P Global Ratings today affirmed its 'BB' corporate credit rating on Costa Mesa, Calif.-based TTM Technologies Inc. The outlook is stable. The rating was removed from CreditWatch, where it was placed with negative implications on Dec. 4, 2017, after the announced Anaren acquisition.

At the same time, we affirmed our 'BBB-' issue-level and '1' recovery ratings on the company's upsized first-lien term loan ($650 million total) due in 2024. The '1' recovery rating indicates our expectation for very high (90%-100%; rounded estimate: 90%) recovery in the event of payment default.

We lowered our issue-level rating on the existing senior unsecured notes to 'BB-' from 'BB' after revising the recovery rating to '5' from '4'. The '5' recovery rating indicates our expectation for modest (10%-30%; rounded estimate: 15%) recovery in the event of payment default.

In addition, we affirmed our 'B+' issue-level rating on the company's $250 million subordinated unsecured convertible notes due in 2020. The '6' recovery rating is unchanged and reflects our expectation for negligible recovery (0%-10%; rounded estimate: 0%) in the event of payment default.

All issue-level ratings have been removed from CreditWatch, where it was placed with negative implications on Dec. 4, 2017, after the announced Anaren acquisition.

The rating affirmation reflects pro forma S&P Global Ratings-adjusted leverage in the low-3x area post the acquisition of Anaren and our expectation for it to decline to the mid-2x area within 12 months of close due in part to continued revenue growth, aggressive debt repayment, and the netting of remaining cash against debt. The rating also reflects what we consider an overall improvement to its business over the past three years. TTM continues to increase its scale, end-market, and product diversification through its acquisition of Anaren, as it had done with Viasystems in 2015. Viasystems nearly doubled the company's PCB scale, providing a footprint in the fast growing automotive segment and decreasing TTM's revenue concentration in the cellular segment. The acquisition of Anaren expands TTM's engineering skillset and provides additional product diversification, adding to the A&D and network and communications industry segments, along with expanding TTM's radio frequency technology. Given the scale of the acquisition, around 10% of TTM's revenue, and in light of TTM's history integrating Viasystems, we view the integration risk of Anaren as minimal.

The stable outlook reflects S&P Global Ratings' expectation that the company's market position among leading PCB makers and its diverse end markets (serving the automotive, A&D, cellular, computing, medical, industrial and instrumentation, and networking and communication industries) will result in consistent positive operating performance.

We could lower the rating if declines in its key end markets--resulting in part from volatility in the networking and communications industries, pricing pressure from customers, or higher labor costs--cause EBITDA to decline, resulting in leverage forecast to exceed 3x on a sustained basis.

Although unlikely over the next 12 months, we could raise the rating if the company continues to deliver revenue growth and profitability, benefiting from industry tailwinds in the automotive segment as electronic content in automobiles continues to increase, while continuing to diversify end-market product exposure away from volatile and cyclical end markets (namely cellular and networking). We could also raise the ratings should the company reduce S&P Global Ratings-adjusted leverage to below the 2x area and commit to a financial policy of sustaining that leverage.


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