Moody's lifts Flextronics view to stable

Moody's Investors Service said it revised the outlook of Flextronics International Ltd. to stable from negative and affirmed the corporate family and probability-of-default ratings at Ba1, the speculative grade liquidity rating at SGL-1 and the $400 million 6¼% senior subordinated notes due 2014, $400 million 6½% senior subordinated notes due 2013 and $7.7 million 9 7/8% senior subordinated notes due 2010 at Ba2 (LGD5, 85%).

The agency said the outlook revision reflects Flextronics' solid revenue growth over the past 12 months, with fiscal 2007 revenue expected to rise 24% over 2006. Although revenue from acquisitions including its recently acquired Nortel assets contributed to the growth, organic growth in areas such as handsets was strong. The outlook revision also reflects Moody's expectation that Flextronics' profitability measures and free cash flow generation, net of acquisitions and divestitures, will improve in the near term.

The ratings are supported by Flextronics' size and scale, with revenue nearly twice as large as the average of its North American peers; product diversity; solid credit metrics; and Moody's expectation that improving working capital will help generate free cash flow in fiscal 2008.

The agency said the ratings continue to reflect risks associated with the volatility of the electronics manufacturing services industry, exacerbated by high client concentration, the challenges Flextronics will face in managing a business with revenue exceeding $19 billion and management's strategy to maintain high growth rates.

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