S&P rates new School Specialty convert B+

Standard & Poor's assigned a B+ rating to School Specialty Inc.'s planned $100 million convertible subordinated notes due 2023. The outlook is stable.

The rating reflects the highly competitive and fragmented school supplies industry and risks associated with an aggressive acquisition growth strategy, S&P said. These factors are offset in part by the company's market leadership, stable industry growth prospects and good cash flow.

The company has expanded substantially, making numerous acquisitions since 1991, and is expected to continue to make smaller strategic acquisitions where the margins are higher than in its traditional business. This strategy should continue to improve operating efficiencies through economies of scale, purchasing, and elimination of redundant operations.

Operating performance improved in the fiscal year ended April 26, with EBITDA increasing 47% to $101.5 million, S&P said. Credit protection measures improved with EBITDA coverage of interest of about 4.5x for the 12 months ended April 26 from about 3.3x the year before, while total debt to EBITDA declined to 3.5x from about 3.7x the year before.

Credit protection measures are expected to continue to improve as the company realizes operating efficiencies from integrating acquired entities, S&P added.

Liquidity is adequate, with $2.4 million in cash and a $250 million revolving credit facility of which $126 million was outstanding as of April 26. The credit facility matures in April 2006 and the existing convertible subordinated notes mature in 2008; otherwise, the debt maturity schedule is light over the next several years.

S&P expects operating cash flow will be the company's primary source to service debt and fund capital expenditures.

Moody's rates Jabil Circuit notes Baa3

Moody's Investors Service assigned a Baa3 rating to Jabil Circuit Inc.'s proposed $300 million senior notes due 2010, and confirmed its other ratings, including the convertible subordinated notes due 2021 at Ba1. The outlook is stable.

The Baa3 rating is based on Jabil's disciplined, metric-driven approach to managing its electronics manufacturing services business, eschewing large scale expansion in favor of diversifying service offerings and geographic spheres of activity on behalf of a somewhat concentrated customer base.

The stable outlook reflects Moody's expectation that Jabil will continue to execute on its strategy, which encompasses the coordination of manufacturing complex electronic printed circuit assemblies in lower cost labor regions with final systems integration and assembly designated for customer end markets.

Pro forma debt to EBITDA for the last 12 months ended May 31 would have been about 1.9x , although if debt were adjusted in recognition of cash proceeds available for funding a portion of the potential May 2004 convertibles put, actual leverage would be somewhat more moderate at 1.3x, Moody's said.

Free cash flow, after deducting capital expenditures which have been running at about $90 million annually, would have provided about 5.8x pro forma fixed charges over the same period.

Moody's believes that Jabil's return on invested capital after deducting goodwill and intangibles, based on EBITA estimated for fiscal 2003 could exceed 11%, significantly lower than returns recorded in fiscal 2000 and fiscal 2001 but more than satisfactory considering acquisitions over the past year.

Pro forma cash of over $700 million will be buttressed by borrowing availability under an amended and restated $400 million unsecured three-year revolving credit facility. Drawings under the facility are subject to a minimum 3.0x fixed charge coverage ratio, debt leverage ceiling of 2.5x and minimum net worth test.

S&P rates Jabil Circuit notes BB+

Standard & Poor's assigned a BB+ rating to Jabil Circuit Inc.'s proposed $300 million senior unsecured notes due 2010 and a BB+ senior unsecured bank loan rating to its $400 million revolving credit facility due 2005. At the same time, S&P confirmed the convertible subordinated notes due 2021 at BB-. The outlook remains stable.

Jabil's $400 million credit facility amends and replaces its existing $600 million credit facility. Proceeds from the notes will be used to repay the $100 million outstanding term loan, issued under the existing facility, and to fund working capital and possible acquisitions.

Ratings continue to reflect exposure to volatile end-markets in the electronics industry, challenges associated with high customer concentration and the integration of several recent acquisitions.

These are only partially offset by Jabil's top-tier industry position and moderate financial profile, S&P said.

Cash flow measures remain solid for the rating category, with funds from operations to total debt of more than 50%. S&P expects Jabil's financial profile to remain moderate. Pro forma for the notes issue, debt-to-EBITDA was 1.9x at May 2003.

As of May, cash balances of $514 million and the unused $400 million credit facility, pro forma for expected term loan repayment, provide adequate financial flexibility.

In addition, Jabil is expected to continue to generate positive cash flow from operations, which was about $200 million in the nine months ended May, S&P said.

Holders of the $345 million subordinated convertible notes may put the notes to the company in May 2004, and S&P expects Jabil to have sufficient liquidity sources to meet the put.

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