S&P affirms Lam Research on acquisition news

Standard & Poor’s said it affirmed the BBB corporate credit rating on Lam Research Corp. following news that it will acquire KLA-Tencor Corp. in a cash and stock transaction valued at $10.4 billion.

KLA-Tencor is expected to become a wholly-owned subsidiary of Lam Research upon closing, S&P said.

The transaction is subject to shareholder and regulatory approvals and expected to close in mid-2016, the agency said.

Lam Research will fund the transaction using about $1.9 billion of cash on hand, about $3.9 billion of debt and about $5.5 billion of equity, S&P said.

Along with the corporate credit rating, the agency said it affirmed the BBB issue-level ratings on Lam Research’s unsecured senior and convertible notes.

The outlook is stable.

S&P also affirmed the BBB corporate credit rating on KLA-Tencor, along with the BBB rating its unsecured term loan and senior notes.

Upon closing, the agency said it expects to withdraw KLA-Tencor’s corporate credit rating and term loan rating, but continue to rate the existing $2.5 billion unsecured notes, which will be guaranteed by Lam Research.

S&P said it believes Lam Research’s acquisition of KLA-Tencor strengthens its business risk profile through greater product diversity, expanded served available market and improved standing with its customers.

This assessment is tempered by the company’s high absolute amount of pro forma funded debt, which could reduce the company’s operating flexibility in the event of a downturn, the agency said.

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