TEXT-S&P affirms 'B' rating on GATE with positive outlook

(The following statement was released by the rating agency)

July 02 -

Overview

-- We expect Global A&T Electronics' (GATE) business risk profile to

remain "weak" and its "highly leveraged" financial risk profile to improve in

2013.

-- We expect the Singapore-based outsourced semiconductor assembly and

testing (OSAT) services company to register stable operating performance,

contain its capital expenditure, and meet its debt maturities in 2013 mainly

with its own funds.

-- We are affirming our 'B' long-term corporate credit rating on GATE.

-- The positive outlook reflects our expectation that the company will

reduce its leverage with debt to EBITDA below 4.5x in 2013.

Rating Action

On July 2, 2012, Standard & Poor's Ratings Services affirmed its 'B' long-term

corporate credit rating on Singapore-based Global A&T Electronics Ltd. (GATE).

The outlook is positive. At the same time, we affirmed the 'B' rating on the

US$150 million revolving credit facility due in October 2013 and the US$625

million first lien term loan due in October 2014.

Rationale

We affirmed the ratings because we believe GATE, an OSAT company, will have

stable operating performance and maintain its "highly leveraged" financial

risk profile over the next 12 months. We expect GATE's ratio of debt to EBITDA

to remain above 4.5x in 2012 and funds from operations (FFO) to debt at about

15% in 2012. In our view, GATE is likely to improve its financial risk profile

to "aggressive" in 2013 by reducing its leverage and capital expenditure.

We expect GATE to show modest low single-digit revenue growth and EBITDA

margin of about 27% in 2012. GATE also plans to restrict its cash capital

expenditure in 2012 to about 14% of revenues, down from 18%-20% seen in the

past. However, the ratio of debt to total capital is unlikely to improve

significantly from about 70%, without an equity issuance. We believe the

company might reduce its leverage by using its cash and internal accruals to

repay the US$145 million outstanding on the revolving credit facility due in

October 2013. This would result in the ratio of debt to EBITDA falling below

4.5x with the ratio of FFO to debt improving to about 18% in 2013.

In 2011, GATE's revenue was 7% below our estimate due to a shift of U.S.

customers to lower price packaging and weaker overall demand in the second

half, stemming from lower customers' inventory in the market. However, the

company improved its EBITDA margin by almost 90 basis points above our

expectation. Its capital expenditure was in line with our expectation at 20%

of revenues. As a result, FFO to debt at 15% and debt to EBITDA at 4.8x were

in line with our expectations. The financial performance for the first quarter

of 2012, which is seasonally weaker, was in line with our expectations.

GATE's business risk profile is "weak," in our view, and we expect it to

remain unchanged. The company is the sixth-largest player globally in the

cyclical and highly fragmented OSAT industry. The industry faces short product

life cycles, continuing technological developments, and price erosion with

aggressive competition. It also requires heavy capital expenditure at 15%-20%

of revenue. However, we expect the OSAT industry to continue to grow due to

the increasing complexity of packaging and economies of scale. The growth in

smartphones, tablets, and PCs also provides opportunities for the

semiconductor industry. We believe revenues could increase faster than global

GDP growth.

Liquidity

GATE's liquidity is "adequate," as defined in our criteria. We expect the

company's ratio of liquidity sources to uses to be well above 1.2x in the next

12-24 months. However, we believe GATE has little flexibility to increase debt

due to limited headroom on its covenants. We expect the company to be able to

meet its liquidity uses even if its EBITDA falls 15%-20%. Our liquidity

assessment is based on the following factors and assumptions:

-- GATE's liquidity sources include cash and cash equivalents of US$262.6

million as of March 31, 2012, and our FFO projection of about US$180 million.

-- Liquidity uses include US$6.7 million debt maturing in 2012 and

estimated capital expenditure of US$140 million.

In our view, GATE would be able to maintain "adequate" liquidity even if it

meets the US$145 million maturity in October 2013 from its own funds and

internal accruals. We expect that the company will need to refinance its large

bullet maturity of US$577 million in October 2014.

Outlook

The positive outlook reflects our expectation of stable operating performance

and EBITDA margin. We also assume that the company will contain its capital

expenditure.

We may raise the rating if GATE maintains its operating performance and

strengthens its financial risk profile such that the debt-to-EBITDA ratio is

consistently below 4.5x, which is likely if the company meets its 2013 debt

maturities using its own funds.

We may revise the outlook back to stable if GATE refinances the entire

maturities in 2013 and 2014 with debt, or if the operating performance

deteriorates, resulting in debt to EBITDA above 4.5x on a sustained basis.

Related Criteria And Research

-- Methodology And Assumptions On Risks In The Global High Technology

Industry, Oct. 15, 2009

-- Business Risk/Financial Risk Matrix Expanded, May 27, 2009

-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008

-- Credit FAQ: Knowing The Investors In A Company's Debt And Equity,

April 4, 2006

Ratings List

Ratings Affirmed

Global A&T Electronics Ltd.

Corporate Credit Rating B/Positive/--

Senior Secured B

Source: http://news.yahoo.com/text-p-affirms-b-rating-gate-positive-outlook-090651380--sector.html

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