Fitch: Arrow outlook stable

Fitch Ratings said it revised the outlook for Arrow Electronics, Inc. to stable from negative and affirmed its issuer default, senior unsecured notes and senior unsecured bank credit facility at BBB-.

The stable outlook for the IT distributors in 2010 is based on a more optimistic view on end-market demand and resulting improvement of industry financial profiles offset by expectations of moderate deterioration in liquidity and heightened event risk, according to the agency.

Total debt-to-operating EBITDA ratio is expected to fall to 2.3 times, or 3x when adjusted for operating leases, from 3.1x (3.7x adjusted) as of the end of the September 2009 quarter, Fitch said.

Credit strengths include the company's leading market positions, ability to generate cash from operations in a downturn from reduced working capital requirements, a highly diversified supplier and customer base, and increasing end-market and geographic diversification, the agency said.

Concerns include Arrow's thin operating margins, significant investment levels required to increase share in the faster-growing Asia-Pacific region, integration risk stemming from Arrow's acquisition growth strategy, exposure to the cyclical demand patterns and cash flows in the semiconductor industry, and the potential for future partially debt-financed share-repurchase programs, the agency noted.

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