Moody’s rates Integrated Device Ba2, loan Baa3

Moody's Investors Service said it assigned Integrated Device Technology (IDT) a Ba2 corporate family rating, a Ba2-PD probability of default rating, a Baa3 to the proposed senior secured term loan B and an SGL-2 speculative grade liquidity rating.

The outlook is stable.

Net proceeds from the new debt issuance, along with balance sheet cash, will be used to fund IDT's $250 million acquisition of GigPeak, Inc. (unrated).

Moody’s said the Ba2 corporate family rating reflects IDT's valuable intellectual property and strong market positions in certain niche analog semiconductor segments, as indicated by the company’s high gross margins, which Moody's expects will be sustained around 60% (Moody's adjusted) following the integration of GigPeak.

The rating also reflects consistently positive free cash flow due to IDT's fab-lite manufacturing model, and the company’s conservative financial policy, as the agency expects it to prioritize debt reduction, reducing debt to EBITDA (Moody's adjusted) toward 2.5 times over the next year from nearly 3 times debt to EBITDA (12 months ended Jan. 1, 2017, pro forma for GigPeak, Moody's adjusted).

The Baa3 rating on the proposed senior secured term loan reflects the collateral, comprised of a first priority lien on the company's assets, and large cushion of unsecured liabilities, including the $374 million convertible notes, the agency explained.

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