S&P downgrades Microchip

Standard & Poor's said it lowered the unsolicited corporate credit rating on Microchip Technology Inc. to BB from BB+.

The outlook is stable.

The agency also said it lowered the unsolicited issue-level rating on the company's senior secured revolving credit facility to BB+ from BBB-. The recovery rating remains at 2, indicating 70% to 90% expected default recovery.

S&P also said it lowered the unsolicited issue-level ratings on the company's senior subordinated convertible notes due 2025 and junior subordinated convertible notes due 2037 to B+ from BB-. The recovery rating remains at 6, indicating 0 to 10% expected default recovery.

The downgrades reflect Microchip's weaker credit metrics as a result of the acquisition of Atmel for about $3.6 billion, the agency said.

S&P said it expects Microchip to fund the acquisition with $2.2 billion of cash, $800 million of revolver borrowings and $6 million of Microchip stock and equity awards.

Pro forma leverage is expected to increase to about 4x at the close of the transaction, up from the low-2x range as of Sept. 30, 2015, the agency said.

But, S&P also said it expects Microchip's organic growth trajectory to continue, leading to leverage declining to the mid-3x range within a year.

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