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Fitch rates Arrow notes BB
Fitch Ratings initiated coverage of Arrow Electronics, Inc. and assigned a BB rating to its senior unsecured debt. The outlook is stable.
Fitch said the ratings reflect concerns regarding Arrow's strained credit protection measures, high debt levels, lower but improved capacity utilization levels along with the pricing pressures and demand variability characteristic of the technology distribution industry.
Also considered are the company's acquisitive nature and execution risk relating to Arrow's various restructuring programs.
Positively, Fitch recognizes the company's stabilizing revenue stream, adequate liquidity and leading industry position. Profitability expansion is possible from on-going cost cutting initiatives and the anticipated growth for semiconductors.
The stable outlook reflects the stabilization of Arrow's revenue base and cash flows in an improving but still challenging demand environment. Even though Fitch expects third quarter weakness for the European market, Arrow has flexibility within the current rating for moderate operational and industry shortfalls.
The company's credit protection metrics have weakened substantially since 2000 as a result of lower profitability, Fitch said. In June 2003 Arrow completed the sale of $350 million 6.875% senior notes due 2013. As a result, total debt increased to nearly $2.4 billion as of the second quarter ending June 30, 2003 compared to $2.1 billion at fiscal year 2002 and $2.5 billion in 2001. As of the second quarter leverage (measured by total debt/EBITDA) deteriorated to more than 9 times, mostly as a result of the debt offering, from 8.3x in fiscal year 2002 and 5.3x in 2001.
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