Moody's rates Philips notes A3

Moody's Investors Service said it assigned provisional A3 senior unsecured ratings to Royal Philips Electronics NV's $3.1 billion of senior unsecured notes issued in four tranches, including $350 million floating-rate bonds due 2011, $500 million 4 5/8% bonds due 2013, $125 million 5¾% bonds due 2018 and $100 million 6 7/8% bonds due 2038.

The notes issue will allow the company to refinance its maturing bonds and replenish balance sheet liquidity following scheduled expenditures for the Respironics acquisition and share buyback program and, in the agency's view, is neutral to Philip's credit profile.

Moody's said Philips' A3 rating reflects the company's diversified portfolio of relative stable and market-leading businesses and its improving earnings quality after semiconductor disposal and the acquisition of high-margin businesses in lighting and medical systems. The company's credit profile also benefits from its substantial financial investments.

However, Philips' capital reallocation strategy to return €5 billion to shareholders, accompanied by €5.5 billion of acquisition payments for Respironics and Genlyte, would consume substantial liquidity reserve and largely exhaust the company's rating headroom as measured by retained cash flow to net debt, the agency said.

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