Moody's rates KLA-Tencor notes Baa1

Moody's Investors Service said it assigned a Baa1 rating to the proposed senior unsecured notes of KLA-Tencor Corp.

The proceeds of the proposed issuance are to partially refinance existing debt, repurchase shares and for general corporate purposes.

The outlook is stable.

Despite an expectation for a pullback in wafer fabrication equipment spending in 2019, ongoing fundamental drivers for semiconductor industry capital expenditures will drive revenue and free cash flow growth over the next few years, leading to strong financial flexibility, Moody's said.

KLA's conservative financial posture and strong liquidity will allow it to invest aggressively even during weaker environments, the agency said.

Last month, KLA closed its acquisition of Orbotech for $3.2 billion, Moody's said.

KLA funded the transaction with about $1.9 billion of balance sheet cash and $1.3 billion of common equity, the agency said.

KLA's adjusted gross debt-to-EBITDA as of December 2018 was 1.3x, Moody's said.

Pro forma the planned debt issuance, the agency said it projects KLA's leverage will be about 1.8x at year-end June 2019, the agency said.

The ratings reflect the company's very strong and defensible position in the semiconductor inspection and metrology equipment market, track record of good business execution and cash flow generation through industry cycles, Moody's said.

The ratings also consider its solid debt protection measures and a strong liquidity profile, the agency said.

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