Moody's cuts Smart Modular outlook to negative

Moody's Investors Service said it changed the outlook of Smart Modular Technologies (WWH), Inc. to negative from stable, downgraded the senior secured second-lien notes rating to B1 from Ba3 and affirmed the corporate family rating at B1.

The outlook change reflects continued decline in Smart's revenues due to dramatic product price erosion in its core DRAM memory module segment, which has impacted profitability and pressured EBITDA, the agency said.

Moody's noted that it believes that the reduced level of EBITDA may cause Smart to violate the financial covenants under its $50 million revolving credit facility while the negative outlook further underscores Moody's expectations that the company may generate breakeven to slightly negative free cash flow in the near-term and the potential of a weaker liquidity profile, if the company were to lose access to its revolving credit facility.

Affected ratings include the company's probability of default rating at B1 and the $81 million senior secured second-lien notes to B1 (LGD-4, 52%) from Ba3 (LGD-3, 38%).

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