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--Issuer Default Rating (IDR) at 'BBB';
--Senior unsecured revolving credit facility at 'BBB';
--Senior unsecured notes at 'BBB';
--Commercial paper program rating at 'F2'.
The Rating Outlook is Negative. Approximately $6.2 billion of total debt, including the company's revolving credit facility, is affected by Fitch's actions.
The removal of the ratings from Rating Watch Negative (where they were placed on Feb. 1,) follows Motorola's indefinite postponement of the separation of its Mobile Devices division to beyond 2009 from the previously expected third quarter of 2009 due to macroeconomic weakness and slowing global handset demand. In addition, Mobile Devices recently has undertaken certain strategic initiatives, including further headcount reductions and the consolidation of software and silicon platforms, which will require additional time to better position the unit for separation. Given the uncertainty related to timing of the planned separation, Fitch will continue evaluating Motorola as a consolidated entity.
The company noted in its report that while Motorola's consolidation of silicon and software platforms will result in delayed new product offering for early 2009 and is likely to result in additional market share losses (currently at approximately 8.4 percent), Fitch notes that Motorola plans to reduce costs by $600 million in the mobile devices business, which is in addition to the $1 billion in expense reduction in 2008.
--The company's pressured credit protection measures: Fitch estimates leverage (total debt/operating EBITDA) will exceed 3.0 times (x), while interest coverage (operating EBITDA/gross interest expense) will be less than 5x over the intermediate term, in the absence of a successful restructuring and modest improvement in mobile devices and stable operating performance for broadband mobility solutions in 2009.
Fitch believes Motorola's liquidity as of Sept. 27, was solid and supported by:
--Approximately $7.1 billion of cash and cash equivalents (excluding long-term Sigma Fund balances), the majority of which is located outside the U.S.;
--An undrawn $2 billion senior unsecured revolving credit facility expiring 2011.
Total debt as of Sept. 27, was approximately $4.1 billion, consisting of various tranches of senior unsecured notes and debentures. The company's nearest maturity is $527 million of 7.625 percent senior unsecured debentures due Nov. 15, 2010. The company is on track to make approximately $300 million of cash contributions to its U.S. and non-U.S. pension and post-retirement healthcare plans in 2008.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, fitchratings.com.
((Comments on this story may be sent to newsdesk@closeupmedia.com))
((Distributed via M2 Communications Ltd - http://www.m2.com))
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