Moody's assigns B2 CFR to Ciena Corporation. Outlook stable
Global Credit Research - 24 Jun 2014
New York, June 24, 2014 -- Moody's Investors Service assigned a B2 corporate family rating and a B2-PD probability of default rating to Ciena Corporation. Moody's also assigned a Ba2 rating to Ciena's proposed senior secured term loan. Ciena will use the proceeds from the term loan for general corporate purposes, which may include the repayment of certain indebtedness. The ratings outlook is stable.
RATINGS RATIONALE
Ciena's B2 corporate family rating reflects solid market position in the approximate $13 billion next generation communications networking sector. We expect service providers will continue investing to augment the capacity and intelligence of their optical backbone networks in order to drive down unit costs and create the economics/cost structure to handle the huge and growing amounts of IP traffic that they transport to and from customers. With a solid market presence, good product positioning and a broadening customer base, Ciena should benefit from a market that we anticipate will grow in the mid single digits over the next few years.
While improving, profitability is modest, with adjusted EBITDA margins just over 7%. The rating is also constrained by high financial leverage, with adjusted debt to EBITDA at 8.5x as of April 2014, although we expect leverage should decline to around 6.5x by the fiscal year ended October 2015 as a result of earnings improvement. Although still somewhat concentrated, Ciena's customer diversification is improving and, over time, the company's nascent partnership with Ericsson should further improve Ciena's presence overseas.
The following ratings were assigned:
Corporate Family Rating: B2
Probability of default: B2-PD
Speculative Grade Liquidity Rating: SGL-2
$250 million senior secured term loan, Ba2, LGD2
Ratings outlook: stable
The stable outlook reflects Moody's expectations that Ciena's good product positioning will support the company's ability to at least maintain and defend its solid market position in the next generation communications networking market.
The ratings could be upgraded if Ciena is likely to sustain revenue growth and expand adjusted EBITDA margins above 10%, while sustaining adjusted debt to EBITDA below 6 times and maintaining a good liquidity profile.
The ratings could be lowered if there is a deterioration in business fundamentals evidenced by sustained revenue declines and adjusted EBITDA margins falling toward 5%. Additionally, adjusted debt to EBITDA sustained above 6.5 times (after considering the March 2015 debt maturity) could pressure the rating.
The principal methodology used in this rating was Global Communications Equipment Industry published in June 2008. 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 certain 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 certain 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 certain 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.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating. |
