Fitch currently rates $4.2 billion of debt for FLEX, including the undrawn $1.5 billion revolving credit facility (RCF). A full list of current ratings follows at the end of this release.
Fitch expects the acquisition of NEXTracker, a smart solar tracking solutions provider, will complement FLEX's domain expertise, solar manufacturing and global footprint, providing system-level solutions for FLEX's global energy customers.
NEXTracker designs and manufactures advanced single-axis photovoltaic (PV) trackers that orient and maximize the output of PV panels.The acquisition should add roughly $400 million of revenues on a run rate basis to FLEX's existing $1 billion Energy business at higher profit margins, consistent with FLEX's strategy.
FLEX agreed to acquire NEXTracker for an initial net cash consideration of $245 million with an additional $85 million of potential contingent consideration upon achievement of future performance targets. FLEX expects to fund the deal with available cash, which was $1.8 billion at June 30, 2015 pro forma for the EUR 457 million ($494 million) MCi acquisition payment. FLEX expects to close the acquisition in the December 2015 quarter, subject to customary closing conditions.
The current ratings and Outlook continue to reflect Fitch's expectations for stable profitability and solid annual free cash flow (FCF) through the intermediate term, despite capital spending returning to normalized levels beginning in the current fiscal year.
Fitch expects flat to positive low single digit organic revenue growth for fiscal 2016, driven by new program ramps more than offsetting lower sales from Motorola Mobility following its acquisition by Lenovo Group Ltd.
Nonetheless, Fitch expects low-single-digit revenue growth through the cycle, driven by strong customer relationships and share in mature traditional end-markets. Fitch believes faster growing end-markets, including medical, automotive, and industrial automation, will drive positive mid-cycle revenue growth.
Fitch expects profitability will gradually strengthen over the longer term from a richer sales mix of non-traditional markets and lower exposure to high-velocity markets, particularly handsets. Fitch expects operating EBITDA will trough at $1.2 billion in the near term and expand through intermediate term.
Fitch expects more than $500 million of annual FCF through the cycle, driven by strengthening profitability and cash flow from the liquidation of inventory during a downturn. Additionally, Fitch believes FLEX's increasing ability to moderate capital spending in the face of lower demand supports the industry's maturity and strengthened FCF profile.
Fitch expects FLEX will use annual FCF for acquisitions and share repurchases. Fitch expects acquisitions will be focused on access to technologies and customers in faster-growing markets. At the same time, FLEX is targeting 50% of FCF to be distributed to shareholders through stock buybacks. Fitch anticipates FLEX will fund larger acquisitions with debt, such as it did to fund the pending EUR457 million ($494 million) acquisition of automotive mirror electronics supplier, MCi.
Credit protection measure should remain solid for the rating. Fitch expects total leverage (total debt to operating EBITDA) below 3x and debt adjusted for off-balance-sheet accounts receivable securitization and operating leases below 4x. Fitch estimates total leverage was 2.2x, for the latest 12 months (LTM) ended June 30, 2015, versus 1.8x for the comparable prior year period.
