Moody's cuts Jabil Circuit to junk

Moody's Investors Service said it downgraded Jabil Circuit, Inc.'s corporate family rating to Ba1 from Baa3 and $300 million senior unsecured notes due 2011 to Ba2 (LGD5, 83%) from Baa3 and assigned a Ba1 probability-of-default rating.

The ratings remain under review for possible downgrade, where they were initially placed in November, to reflect continued uncertainty about Jabil's credit and liquidity profile due to issues surrounding delays in its filing of audited financial statements.

The agency said that while it continues to believe that Jabil is a leader in the North American electronic manufacturing services industry, the downgrade reflects a confluence of events and issues over the past nine months including Jabil's continued inability to file its financial statements as a result of the on-going investigations over its stock options practices, the possibility of acceleration by bondholders due to a potential covenant breach as a result of the delayed filing of financial statements, a protracted investigation thus far, significant negative free cash flow generation in recent months due in part to increasing working capital, an increase in the debt-to-EBITDA ratio to more than 3x from 1.6x as a result of the debt-financed acquisition of Taiwan Green Point Enterprises and integration risks associated with the $900 million acquisition.

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