CHICAGO--(BUSINESS WIRE)--Ingram Micro Inc.'s (Ingram Micro) 'BBB-' Issuer Default Rating (IDR) and senior unsecured debt ratings are not affected by the close of the company's previously announced merger with Tianjin Tianhai Investment Co., Ltd. (Tianjin Tianhai), according to Fitch Ratings. Ingram Micro had approximately $1.3 billion of debt outstanding as of Oct. 1, 2016.
The ratings reflect Fitch's view of Ingram Micro as a standalone entity due to the weak legal and operational ties with Tianjin Tianhai and the ultimate parent HNA Group. Ingram Micro is not responsible for liabilities of Tianjin Tianhai, including its $4.3 billion loan from the Agricultural Bank of China, New York Branch, whose proceeds will be used to fund the transaction. Conversely the debt outstanding at Ingram Micro does not benefit from any guaranty from either Tianjin Tianhai or HNA Group. Ingram Micro has amended its senior unsecured revolving credit facility credit agreement and senior unsecured note indentures, limiting the company's ability to upstream dividends to its shareholders. Ingram Micro will operate as a separate entity with a separate management team, board of directors and treasury functions.
Fitch does not expect any material change to existing financial policies and expects credit protection measures to remain solid for the rating through the intermediate term. Total debt adjusted for rental expense to operating EBITDAR (adjusted leverage) should remain below 3.5x over the intermediate term and was 2.5x for the latest 12 months (LTM) ended Oct. 1, 2016. Operating EBITDA to gross interest expense should remain near 10x or better over the intermediate term and was 10.3x for this LTM period.
Liquidity was solid as of Oct. 1, 2016 and consisted primarily of $689 million in cash and cash equivalents ($301 million in the U.S.), an undrawn $1.5 billion senior unsecured revolving credit facility expiring January 2020 and approximately $854 million of available capacity under the company's trade accounts receivable-backed financing programs. Upon consummation of the merger, Ingram Micro's revolving credit facility commitment was reduced from $1.5 billion to 1.05 billion.
RATING SENSITIVITIES
Negative: Fitch's expectations for adjusted leverage sustained above 3.5x, driven by: (i) lower operating EBITDA from sustained revenue declines or competitive pricing; or (ii) negative free cash flow (FCF) from lower profitability in conjunction with diminished working capital efficiency.
Positive: Fitch does not anticipate positive rating action, given Ingram Micro's low profitability and significant working capital needs; however, positive rating actions could result from: (i) expectations for higher FCF of $750 million to $1 billion from sustained revenue growth and modest profit margin expansion; and (ii) management's commitment to managing borrowings to maintain adjusted leverage below 2x.
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