Fitch rates Flextronics

Fitch Ratings said it has initiated coverage of Flextronics International Ltd. and rated the company's senior subordinated notes BB+.

The outlook is stable.

Fitch said the ratings reflect Flextronics' leading position in the electronics manufacturing services industry, relatively stable operating metrics through the recent information technology downturn, financial flexibility related to its conservative capital structure and solid liquidity, and a strong and consistent management team. Also considered is Flextronics' consistent operating and free cash flow from continued reductions in industry-leading cash conversion days and restrained capital spending.

Fitch noted ratings concerns center on Flextronics' heavy reliance on lower margin end-markets, risks associated with diversifying and expanding service offerings, the company's historically acquisitive nature, and weak pricing for its lower mix products.

Additionally, Flextronics' recently announced transaction with Nortel, if consummated, would add about $2 billion of higher-margin annual revenues, one of the largest EMS contracts ever awarded. However, the deal also would involve significant operating and execution risks, and could cause cash conversion days to increase, the agency said.

Total debt at Dec. 31 was about $1.5 billion and consists primarily of $500 million 1% convertible subordinated notes due 2010; $7.3 million 9 7/8% senior subordinated notes due 2010; $186.6 million 9¾% senior subordinated notes due 2010; $400 million 6½% senior subordinated notes due 2013; and, $200 million zero-coupon convertible junior subordinated notes due 2008.

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