Moody's assigns (P)Ba3 rating to CEVA's USD300 million senior secured notes due 2017 and (P)Caa2 rating to its USD525 million senior notes due 2020
London, 24 January 2012 -- Moody's Investors Service today assigned a (P)Ba3 rating to CEVA Group Plc's (CEVA's) new USD300 million senior secured notes due 2017, and a (P)Caa2 rating to its new USD525 million senior notes due 2020. Moody's also placed on review for upgrade CEVA's Caa1 corporate family rating (CFR) and probability of default rating (PDR), as well as the ratings on the senior secured bank and revolving facilities, senior secured notes due 2017, priority and junior priority lien notes due 2016 and 2018, senior unsecured notes due 2014 and 2018 and senior subordinated notes due 2016 and 2018.
Moody's issues provisional ratings in advance of the final sale of securities. Upon closing of the transaction and a conclusive review of the final documentation, Moody's will endeavour to assign definitive ratings. A definitive rating may differ from a provisional rating.
RATINGS RATIONALE
The rating actions follow the announcement by CEVA of a planned debt refinancing and exchange. This comprises the issuance of the new notes, together with the proposed exchange of certain debt held by CEVA's holding company's (CEVA Investments Ltd) main shareholder Apollo. As part of the Apollo debt exchange, USD140 million of senior notes due 2020 (on top of the USD525 million) will be issued to Apollo in exchange for existing debt due 2014 and 2016, and Apollo will also exchange over EUR860 million of debt for equity, as discussed below.
The new notes will be used to refinance existing CEVA indebtedness; whilst Moody's understands that the debt exchange by Apollo is intended to reduce CEVA's overall indebtedness. The proposed transactions are intended to result in the repayment of the senior secured bank facility due 2013, the senior unsecured notes due 2014, the senior subordinated notes due 2016 and the senior unsecured loan due 2015.
Subject to the debt exchange proceeding as outlined, Moody's currently anticipates upgrading CEVA's CFR and PDR by 1 notch to B3. The ratings of existing debt will be adjusted in line with Moody's loss-given default approach to the ultimate capital structure, depending on the amounts of new notes and also debt retired.
The proposed debt exchange includes EUR533 million of CEVA indebtedness due in 2018 to be exchanged for new equity in CEVA Investments Ltd (CIL). Moody's understands that Apollo will exchange CEVA debt -- which will be retired - for equity in CIL that will be gifted as a capital contribution, which will not create any ongoing obligation from the restricted group. The review for upgrade will consider the extent of deleveraging of the business post the potential conversion of EUR533m in CEVA's debt (as well as EUR355 million of debt outside the CEVA restricted group), all held by the shareholder Apollo into preferred equity in CIL, a holding company above the restricted group. Furthermore, it will consider potential improvements in the liquidity profile after the refinancing of approximately EUR720 million in near term maturities associated with the issuance of the new notes and the potential increase in the Revolving Credit Facility (RCF) by EUR100 million to EUR179 million, which is also conditional upon the transaction.
The (P)Ba3 and (P)Caa2 ratings of the new notes are based on Moody's assumption of issuance levels of about USD300 million senior secured notes and USD665 million of unsecured notes (USD525 million of unsecured notes issued to investors and approximately USD140 million issued to Apollo as part of a private exchange). Moody's notes that these ratings are sensitive to final amounts of each tranche actually issued.
Moody's currently anticipates that CEVA's CFR and PDR will be at the same level, assuming an expected family recovery rate of 50%. The (P)Ba3 rating on the new first lien secured Notes reflects that they will rank ahead of over EUR1 billion in financial debt. The (P)Caa2 rating on the new unsecured Notes, two notches below the CFR, reflects the fact that they will rank behind over EUR1.5 billion in financial debt and that the new capital structure will have a higher proportion of secured debt after the proposed transaction given the reduction in unsecured debt.
The new instruments will be issued at the same level, CEVA Group plc, and guaranteed by the same subsidiaries that guarantee the senior secured credit facilities. In total, the guarantors will represent 59% of the group's aggregate revenues and 53% of its aggregate EBITDA for the year ended December 2010.
CEVA's ratings were assigned by evaluating factors that Moody's considers relevant to the credit profile of the issuer, such as the company's (i) business risk and competitive position compared with others within the industry; (ii) capital structure and financial risk; (iii) projected performance over the near to intermediate term; and (iv) management's track record and tolerance for risk. Moody's compared these attributes against other issuers both within and outside CEVA's core industry and believes CEVA's ratings are comparable to those of other issuers with similar credit risk. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
Information sources used to prepare the rating are the following :
parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.
Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.
Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.
The rated entity has received a Rating Assessment Service within the last two years preceding the Credit Rating Action.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the two years preceding the credit rating action. Please see the special report Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies on the ratings disclosure page on our website www.moodys.com for further information.
Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.
Moody's issues provisional ratings in advance of the final sale of securities. Upon closing of the transaction and a conclusive review of the final documentation, Moody's will endeavour to assign definitive ratings. A definitive rating may differ from a provisional rating.
RATINGS RATIONALE
The rating actions follow the announcement by CEVA of a planned debt refinancing and exchange. This comprises the issuance of the new notes, together with the proposed exchange of certain debt held by CEVA's holding company's (CEVA Investments Ltd) main shareholder Apollo. As part of the Apollo debt exchange, USD140 million of senior notes due 2020 (on top of the USD525 million) will be issued to Apollo in exchange for existing debt due 2014 and 2016, and Apollo will also exchange over EUR860 million of debt for equity, as discussed below.
The new notes will be used to refinance existing CEVA indebtedness; whilst Moody's understands that the debt exchange by Apollo is intended to reduce CEVA's overall indebtedness. The proposed transactions are intended to result in the repayment of the senior secured bank facility due 2013, the senior unsecured notes due 2014, the senior subordinated notes due 2016 and the senior unsecured loan due 2015.
Subject to the debt exchange proceeding as outlined, Moody's currently anticipates upgrading CEVA's CFR and PDR by 1 notch to B3. The ratings of existing debt will be adjusted in line with Moody's loss-given default approach to the ultimate capital structure, depending on the amounts of new notes and also debt retired.
The proposed debt exchange includes EUR533 million of CEVA indebtedness due in 2018 to be exchanged for new equity in CEVA Investments Ltd (CIL). Moody's understands that Apollo will exchange CEVA debt -- which will be retired - for equity in CIL that will be gifted as a capital contribution, which will not create any ongoing obligation from the restricted group. The review for upgrade will consider the extent of deleveraging of the business post the potential conversion of EUR533m in CEVA's debt (as well as EUR355 million of debt outside the CEVA restricted group), all held by the shareholder Apollo into preferred equity in CIL, a holding company above the restricted group. Furthermore, it will consider potential improvements in the liquidity profile after the refinancing of approximately EUR720 million in near term maturities associated with the issuance of the new notes and the potential increase in the Revolving Credit Facility (RCF) by EUR100 million to EUR179 million, which is also conditional upon the transaction.
The (P)Ba3 and (P)Caa2 ratings of the new notes are based on Moody's assumption of issuance levels of about USD300 million senior secured notes and USD665 million of unsecured notes (USD525 million of unsecured notes issued to investors and approximately USD140 million issued to Apollo as part of a private exchange). Moody's notes that these ratings are sensitive to final amounts of each tranche actually issued.
Moody's currently anticipates that CEVA's CFR and PDR will be at the same level, assuming an expected family recovery rate of 50%. The (P)Ba3 rating on the new first lien secured Notes reflects that they will rank ahead of over EUR1 billion in financial debt. The (P)Caa2 rating on the new unsecured Notes, two notches below the CFR, reflects the fact that they will rank behind over EUR1.5 billion in financial debt and that the new capital structure will have a higher proportion of secured debt after the proposed transaction given the reduction in unsecured debt.
The new instruments will be issued at the same level, CEVA Group plc, and guaranteed by the same subsidiaries that guarantee the senior secured credit facilities. In total, the guarantors will represent 59% of the group's aggregate revenues and 53% of its aggregate EBITDA for the year ended December 2010.
CEVA's ratings were assigned by evaluating factors that Moody's considers relevant to the credit profile of the issuer, such as the company's (i) business risk and competitive position compared with others within the industry; (ii) capital structure and financial risk; (iii) projected performance over the near to intermediate term; and (iv) management's track record and tolerance for risk. Moody's compared these attributes against other issuers both within and outside CEVA's core industry and believes CEVA's ratings are comparable to those of other issuers with similar credit risk. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
Information sources used to prepare the rating are the following :
parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.
Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.
Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.
The rated entity has received a Rating Assessment Service within the last two years preceding the Credit Rating Action.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the two years preceding the credit rating action. Please see the special report Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies on the ratings disclosure page on our website www.moodys.com for further information.
Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.