|[May 08, 2012]
Fitch Rates Motorola Solutions, Inc.'s $750 Million Senior Notes 'BBB'
CHICAGO --(Business Wire)--
Fitch Ratings has assigned a 'BBB' rating to Motorola Solutions, Inc.'s
(Motorola Solutions; NYSE: MSI (News - Alert)) $750 million senior unsecured notes
issuance. The Rating Outlook is Stable.
Motorola Solutions intends to use a portion of net proceeds from the
notes sale to call the company's $400 million of 5.375% senior notes due
Nov. 15, 2012. The remainder of net proceeds will be used for general
corporate purposes, including potentially funding share repurchases
under the company's remaining board authorization ($525 million),
voluntary contributions to the company's pension plans, acquisitions,
working capital, and capital expenditures.
Pro forma for today's senior notes sale and early call of the senior
notes due November 2012, Fitch estimates total leverage (total debt to
operating EBITDA) was 1.2 times (x) for the latest 12 months (LTM) ended
March 31, 2012, versus 2x for the comparable year ago period. The
ratings and Outlook continue to incorporate Fitch's expectations that
Motorola (News - Alert) Solutions will manage debt levels to maintain total leverage
The ratings are supported by Motorola Solutions':
--Leading market positions in public safety and enterprise markets,
driven in part by a solid intellectual property (IP) portfolio and brand
--Expectations for more consistent operating performance and
pre-dividend annual free cash flow of $500 million -- $1 billion;
--Conservative capital structure and solid liquidity position.
Ratings concerns center on:
--Maturing public safety markets that may limit significant longer-term
organic growth opportunities;
--Strained government budgets and a tepid macroeconomic growth
environment, which could mute intermediate-term revenue growth;
--Reduced diversification and revenue base following separation of
mobile devices and sale of networks businesses.
Positive rating actions could result from meaningfully greater than
expected free cash flow, likely driven by robust new product adoption
leading to stronger than anticipated revenue growth and gross profit
Negative rating actions could result from:
--Pre-dividend annual free cash flow meaningfully below $500 million,
likely due to meaningful deterioration in the macroeconomic environment
or more significant than anticipated municipal and state budget spending
--The company does not maintain total leverage below 2.5x, likely from
intensified profit margin contraction.
Fitch believes Motorola Solutions' liquidity is solid as of March 31,
2012 and supported by:
--Approximately $3.7 billion of cash and cash equivalents and the Sigma
Fund. This is comprised of approximately $1.7 of cash and cash
equivalents and approximately $2 billion in the Sigm Fund.
Approximately $302 million of cash and cash equivalents were held in the
U.S. with the remainder ($1.4 billion) held by the company or its
subsidiaries outside the U.S. A portion of Sigma Fund amounts, the
majority of which is invested in highly liquid securities, also is
located outside the U.S.;
--An undrawn $1.5 billion revolving credit facility expiring June 30,
Pro forma for today's senior notes issuance and use of cash to call the
senior notes due this November, Fitch estimates cash and cash
equivalents will increase to approximately $2.1 billion and domestic
cash to approximately $652 million. This assumes all proceeds are added
to cash and not the Sigma Fund.
Fitch's expectation for pre-dividend annual free cash flow of more than
$500 million also supports liquidity. Over the near term, Fitch believes
free cash flow may be constrained by increasing cash contributions to
the company's underfunded pension in 2012.
Total debt, pro forma for the debt offering and early call of senior
notes, is approximately $1.9 billion, consisting of various tranches of
senior notes. After the $400 million of senior notes maturing Nov. 15,
2012 have been called, Motorola Solutions has a clear debt maturity
schedule until the company's $1.5 billion revolving credit facility
expiring June 30, 2014 and $400 million of senior notes mature on Nov.
Fitch continues to rate Motorola Solutions as follows:
--Long-term Issuer Default Rating (IDR) at 'BBB';
--Senior unsecured bank revolving credit facility (RCF) at 'BBB';
--Senior unsecured notes at 'BBB';
--Short-term IDR and commercial paper program at 'F2'.
Additional information is available at 'www.fitchratings.com'.
The ratings above were solicited by, or on behalf of, the issuer, and
therefore, Fitch has been compensated for the provision of the ratings.
Applicable criteria and Relevant Research:
--'Corporate Rating Methodology', Aug. 12, 2011;
--'Evaluating Corporate Governance', Dec. 13, 2011;
--'Liquidity Considerations for Corporate Issuers', June 12, 2007;
--'Short-term Ratings Criteria for Non-Financial Corporates', Aug. 12,
Applicable Criteria and Related Research:
Corporate Rating Methodology
Evaluating Corporate Governance
Liquidity Considerations for Corporate Issuers
Short-Term Rating Criteria for Non-Financial Corporates
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DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
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