Entegris Inc. Outlook Revised to Positive on Strong Operating Performance and Lower Leverage

Stocks and Financial Services Press Releases Friday February 9, 2018 08:38
NEW YORK--9 Feb--S&P Global Ratings

NEW YORK (S&P Global Ratings) Feb. 8, 2018--S&P Global Ratings today revised its outlook to positive from stable on Billerica, Mass.–based Entegris Inc. and affirmed the 'BB' corporate credit rating. At the same time, we affirmed our issue-level ratings on the company's first-lien term loan and senior unsecured notes. The first-lien credit facilities consist of a $75 million revolver and a term loan with $134 million outstanding. The term loan is rated 'BBB-' with a '1' recovery rating.

The '1' recovery rating indicates our expectation for very high (90%-100%; rounded estimate: 95%) recovery of principal in the event of a payment default.

The $550 million senior unsecured notes are rated 'BB-' and have a '5' recovery rating. The '5' recovery rating indicates our expectation for modest (10%-30%; rounded estimate: 20%) recovery of principal in the event of a payment default.

The positive outlook reflects the company's strong execution, consistent revenue growth, and a positive industry environment that we believe will support ongoing EBITDA growth and low leverage throughout the next year. The company's total revenue--approximately 75% from wafer starts and approximately 25% from semiconductor capital expenditures--grew 13.6% to $350.6 million in the fourth quarter of 2017.

The company's full-year revenues of $1.34 billion million grew 14% in 2017, up from 8.7% revenue growth in 2016. We expect the company to continue to generate strong revenue growth and stable EBITDA margins in 2018 as fab utilization and industry capital spending trends remain healthy. The positive outlook reflects our expectation that Entegris will continue to grow revenues and EBITDA while gradually reducing debt levels through accelerated term loan repayment.

The outlook also reflects our view that the company will continue to benefit as the industry undergoes various technology transitions (e.g. 3D NAND), and moves toward advanced process nodes (e.g. seven nanometer) that require increasing levels of chemical purity and more stringent thresholds for contamination. We could raise the rating if Entegris is able to generate strong growth in revenues and free cash flow over the next 12 months while maintaining the company's EBITDA margin improvement and reducing debt.

We could also raise the rating if the company maintains a consistent capital allocation program that provides for a sufficient amount of cash cushion on the company's balance sheet. We could lower the rating if a slowdown in the semiconductor industry or a failure to secure customer design wins in leading edge nodes leads to EBITDA declines and leverage above 3x.

A more aggressive financial policy leading to leveraged acquisitions or increased shareholder returns could also cause us to lower the rating.

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