S&P rates Flextronics notes BB-

Standard & Poor's assigned a BB- rating to Flextronics International Ltd.'s proposed $400 million senior subordinated notes due 2013 and confirmed its existing ratings including its senior secured debt at BB+ and subordinated debt at BB-. The outlook remains stable.

S&P said Flextronics' ratings reflect challenges associated with managing through a severe downturn in end-market demand in a highly competitive industry and a prolonged period of low asset-utilization rates. These are only partly offset by the company's top-tier industry position, broad geographic scope of operations, and solid long-term customer relationships.

Sales growth has slowed, as revenues remained flat in the 12 months ended March 2003, with total sales of about $13 billion, S&P noted. End-market demand in communications and computing end-markets are expected to remain weak over the near term. Still, the company is the largest provider in the electronic manufacturing services (EMS) industry and has maintained sales levels, while sales of its competitors have dropped significantly.

Depressed operating margins of about 4.5% in the March 2003 quarter are likely to remain pressured in the near term, S&P said. Even so, cash flow protection measures are expected to remain solid, with EBITDA coverage of interest expense of more than 5x and debt-to-EBITDA of about 2.3x as of March 2003. Pro forma for the notes issue, debt-to-EBITDA was 2.6x and total debt to capital was less than 30%, reflecting a moderate financial profile.

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