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S&P rates Lattice convertibles CCC+
Standard & Poor's assigned its B corporate credit rating to Lattice Semiconductor Corp. and CCC+ rating to the Hillsboro, Ore.-based company's $184 million zero-coupon convertible subordinated note issue.
The outlook is stable.
S&P said the ratings reflect Lattice's second-tier market position in a rapidly evolving technological industry, acquisitive business practices, and high debt leverage. These factors are only partially offset by the company's adequate operating liquidity and the lack of any near- or intermediate-term debt maturities.
Total operating lease-adjusted debt to EBITDA was more than 9x as of September 2003, which is high for the rating. Lattice's business model is "fabless" - without its own manufacturing capability - which provides for a more variable cost structure and moderate capital expenditures compared to a manufacturing based model.
During the 12 months ended September 2003, the company generated about $26 million in free operating cash flow. However, this included about $28 million of federal income tax refunds relating to net operating losses, which S&P said it does not view as a sustainable source of cash flow.
A $279 million cash balance as of September 2003 serves as an additional source of liquidity. Lattice has no bank lines.
As of September 2003, Lattice had $184 million in zero-coupon convertible subordinated notes on its balance sheet, which are putable in mid-2008. During the quarter ended September 2003, the company repurchased $16 million face value of the original $200 million note issue at a slight discount, and management has indicated that it will make additional repurchases in an opportune manner.
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