No Ratings Impact Expected Following Jabil's Acquisition of Nypro for $665
NEW YORK -- February 4, 2013
Fitch Ratings does not expect Jabil Circuit, Inc.'s (Jabil) ratings to be
impacted by the company's planned acquisition of Nypro Inc. (Nypro) for $665
million. Jabil has stated it expects to fund the acquisition through a
combination of existing cash balances and borrowings under its credit
As of Nov. 30, 2012, Jabil had $1 billion in cash (only a portion of which is
available to the company) and a fully available $1.3 billion senior unsecured
credit facility expiring March 2017. Fitch estimates that if Jabil were to
fund the entire acquisition with debt, pro forma leverage (total debt to
operating EBITDA) would increase from 1.6x to approximately 2.0x (or
approximately 2.8x when adjusted for off-balance sheet accounts receivable
borrowings and operating leases). Jabil's management commented that it expects
a majority of the funding to be from existing cash which includes proceeds
from a $500 million unsecured note issuance in July 2012 which should result
in pro forma leverage remaining comfortably below 2x. Fitch has previously
stated that Jabil's ratings incorporate the expectation that leverage will
remain at or below 2x (2.5x on an adjusted basis) on a long-term basis.
Nypro is a manufacturer of precision plastic products for the healthcare,
packaging and consumer electronics industries. This acquisition complements
Jabil's 2007 acquisition of Taiwan Greenpoint which forms the base of its
Diversified Manufacturing Services (DMS) segment. This business in general has
higher margin than Jabil's traditional electronics manufacturing business. In
addition, Nypro's mix of business generally has longer product cycles than
Jabil's existing DMS business which should help moderate volatility in the
business model. Nypro's position in the healthcare market has been a
significant focus for expansion for Jabil in recent years and represents a
significant growth opportunity for the combined company over time.
Rating strengths include the following:
--Strong management team with a track record of delivering best in class
execution with a disciplined approach to growing the business;
--Advantages in scale as one of the largest of the tier 1 EMS vendors with a
balanced global manufacturing footprint, including a strong mix of facilities
in low-cost regions;
--Favorable industry trends toward increased manufacturing outsourcing,
particularly in the emerging industrial, medical, and clean tech space where
Jabil has a leading position;
--Strategic positioning in increasingly complex EMS product offerings
including product design, engineering, and product lifecycle management which
enhance the value of EMS partnerships for customers;
--Vertically integrated operations which typically drive higher margins in
periods of growth.
Rating concerns include the following:
--The potential for Jabil to pursue further vertical integration capabilities
which could lead to additional debt financed acquisitions or execution risk in
an industry with minimal room for execution missteps due to the relatively low
profit margin inherent in the business model;
--An intensely competitive environment which pressures profitability across
--Significant customer concentration risk with Jabil's top five customers
accounting for 48% of revenue in fiscal 2012.
Liquidity as of Nov. 30, 2012 was solid consisting primarily of $1.0 billion
in cash and fully available senior unsecured revolving credit facility
expiring in March 2017. Jabil also utilizes two accounts receivable
securitization facilities for additional liquidity purposes, both of which are
located off balance sheet: a $200 million committed foreign receivables
facility and a $300 million committed North American receivables
securitization facility expiring in May 15, 2015 and October 2014,
Total debt as of Nov. 30, 2012 was $1.7 billion and consisted primarily of:
--$312 million in 7.75% senior unsecured notes due July 2016;
--$400 million in 8.25% senior unsecured notes due March 2018;
--$400 million in 5.625% senior unsecured notes due December 2020; and
--$500 million in 4.7% senior unsecured notes due July 2022.
Jabil also had approximately $280 million outstanding under its off-balance
sheet European and North American receivables securitization facilities and
additional amounts under its accounts receivable sales facilities as of
November 30, 2012, which are included in Fitch's adjusted debt calculation.
Fitch currently rates Jabil's Issuer Default Rating (IDR) and senior unsecured
debt at 'BBB-'. The rating Outlook is Stable.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Evaluating Corporate Governance' (Dec. 12, 2012);
--'Rating Global Technology Companies Sector Credit Factors'(Aug. 9, 2012).
Applicable Criteria and Related Research:
Corporate Rating Methodology
Evaluating Corporate Governance
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Fitch Ratings, Inc.
Jason Paraschac, CFA, +1-212-908-0746
One State Street Plaza
New York, NY 10004
Jamie Rizzo, CFA, +1-212-908-0548
Brian Bertsch, +1-212-908-0549
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