Motorola Solutions maintains ’BBB’/’F2’ rating at Fitch after Silvus acquisition announcement

Published 27/05/2025, 22:06
© Reuters.

Investing.com -- Motorola Solutions (NYSE:MSI), Inc. (Motorola) has had its Long-Term Issuer Default Rating (IDR) and senior unsecured ratings reaffirmed at ’BBB’, as well as its Short-Term IDR and commercial paper (CP) ratings at ’F2’ by Fitch Ratings. The Rating Outlook remains Stable.

The ratings reflect Motorola’s EBITDA leverage, which is predicted to slightly pass rating sensitivities in 2025 due to the acquisition of Silvus Technologies Inc. (Silvus). However, this is expected to fall below these sensitivities in 2026. The ratings also consider Motorola’s consistent annual revenue growth, which is expected to benefit from Silvus’ relatively higher growth trend, and its consistent Free Cash Flow (FCF) generation.

The $4.4 billion acquisition of Silvus, a company that designs and develops mobile ad hoc network technologies (MANET), adds a high growth product line that complements Motorola’s existing mission-critical product offering. The acquisition is expected to close in either the third or fourth quarter of 2025.

Motorola’s ultimate financing plan for the acquisition is expected to include a mix of term loans, bonds, and cash from its balance sheet. Fitch expects Motorola’s EBITDA leverage may slightly exceed the downgrade sensitivity threshold of 2.5x, depending on the final financing combination.

Motorola’s credit profile headroom, forecast by Fitch to be at 1.9x at the end of 2025 before the Silvus acquisition announcement, informs the expectation that Motorola’s leverage would only slightly exceed its downgrade sensitivity. Fitch expects Motorola to prioritize repayment of the term loans with FCF, resulting in it rebuilding similar credit profile headroom in 2027.

Motorola’s consistent trends of expanding addressable markets and stable recurring revenue in its sales mix, along with product diversification across its three main product lines, are reducing concentration risk. The company’s backlog, which was $14.1 billion at the first quarter of 2025, provides partial revenue visibility.

Motorola estimated $100 million in tariff impacts during 2025. The extent to which tariffs impact Motorola’s supply chain is tempered by the flexibility provided by large electronics manufacturing services to adjust their footprint within the supply chain and the critical nature of many of Motorola’s products, as well as other cost-saving and opportunistic pricing measures the company is implementing.

With pro forma annual FCF expected to be approximately $1.5 billion to $1.6 billion through Fitch’s forecast period, Motorola has flexibility to repay the term loan and revolver debt related to the Silvus acquisition, as well as to make moderated shareholder distributions.

Motorola’s U.S. pension was 87% funded at the end of 2024, up from 84% at the end of 2023, with a negative $506 million funded status. The company does not expect further funding requirements for the next several years.

Motorola’s Short-Term IDR of ’F2’ is the higher of the two possible ratings at the ’BBB’ Long-Term IDR level. The ’F2’ is applied due to Fitch’s assessment of Motorola’s improved financial flexibility. This is supported by Motorola’s EBITDA interest coverage of approximately 10x, a well-spread maturity profile, and a high cash balance relative to operational requirements.

Motorola is among the leading providers of two-way radios, associated systems, and services to government, public safety, and commercial end users. Compared with L3Harris Technologies (NYSE:LHX), Inc. (L3Harris; BBB+/Stable), a competitor in this market, Motorola’s EBITDA margins are approximately 30%, while L3Harris’ margins are close to 20%. Motorola’s EBITDA leverage, pro forma the Silvus acquisition, is comparable with L3Harris’, with L3Harris’ revenue scale at almost double Motorola’s.

Keysight Technologies (NYSE:KEYS), Inc. (Keysight; BBB+/Stable) is another ’BBB’ rating category Fitch-rated peer for Motorola. Keysight is about half the size in terms of revenue and has similar EBITDA margins. Motorola’s EBITDA leverage is above Keysight’s, at approximately 1.0x-1.5x, and is closer to that of DXC Technology Company (NYSE:DXC) (BBB/Negative) at 2.1x in DXC’s fiscal 2024.

Fitch’s key assumptions include the successful closing of the Silvus acquisition in the second half of 2025, fiscal 2025 revenue in line with Motorola’s public guidance, and EBITDA margins near 30% reflecting recent annual operating margin expansion and expected higher contribution from Silvus.

Negative rating action or downgrade could occur if EBITDA leverage is sustained above 2.5x and cash flow from operations (CFO) minus capital expenditures (capex) to total debt ratio is sustained below 20%, or if there is sustained negative organic revenue growth. Positive rating action or upgrade could occur if there is sustained mid-single-digit organic revenue growth, supported by a higher contribution from software and services revenues, or if EBITDA leverage is sustained below 2.0x, and (CFO-capex)/debt is sustained in the high 20% range.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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