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S&P puts Microsemi on watch
S&P said it placed the BB rating on Microsemi Corp.'s senior secured instruments on CreditWatch with negative implications following news of the company's tender offer for its 9 1/8% unsecured notes.
The recovery rating on this debt is 2, indicating 70% to 90% expected default recovery.
The negative watch reflects the potential for a downgrade, resulting from lower recovery on secured debt in a default scenario because of a thinner layer of unsecured debt to absorb first losses, S&P said.
The resolution of the CreditWatch listing will depend on the amount of redeemed notes, which will be evaluated at the early tender date of May 24 and on the expiration date of June 8, the agency said.
Microsemi said that it would purchase notes up to an aggregate purchase price of $200 million, which amounts to about $170 million of principal assuming the company achieves the maximum amount during the early tender period.
At this level, the agency said it believes a one-notch downgrade of the senior secured instruments to BB- and a revision of the recovery rating to 3 are likely.
The company could increase the maximum aggregate purchase price to more than $200 million at its discretion, S&P said.
The agency said it assumes the company will fund most of the consideration for the transaction with a draw on its revolving credit facility, which it will repay from cash flow in future periods.
This transaction does not affect the company's corporate credit rating, which remains at BB- with a positive outlook.
In fact, S&P said it believes the transaction modestly lowers probability of default given the positive impact on cash flow of retiring high-coupon debt.
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