Fitch lifts Avnet from junk

Fitch Ratings said it upgraded Avnet, Inc.'s issuer default rating, senior unsecured bank credit facility and senior unsecured notes to BBB- from BB+.

The outlook is stable.

The upgrade reflects Fitch's view that Avnet will continue to improve operating performance and outgrow its served market while limiting its total debt-to-operating EBITDA ratio to about 2.5x over the longer term. Avnet's operating model has improved considerably since 2001, the result of market share consolidation, growth and maturing of end markets, increased geographic diversification and greater operating efficiency, all of which have contributed to significant free cash flow and allowed Avnet to reduce debt balances over the past several years.

The agency said the ratings are supported by Avnet's leading market positions in component and enterprise computing distribution worldwide, the ability to generate significant cash in a downturn, a highly diversified customer base and well-diversified supplier base and increasing end-market and geographic diversification.

Rating concerns include the thin operating margins for the components distributors, the significant investment levels required to increase share in the faster-growing Asia Pacific region, Avnet's exposure to the cyclical demand patterns and cash flows associated with the semiconductor market and the potential for future debt-financed share repurchase programs, Fitch said.

At Dec. 30, Avnet's estimated total debt-to-operating EBITDA ratio was 1.7x, down from 2.9x at the end of 2005.

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