Trump announces trade deal with EU following months of negotiations
Investing.com -- Moody’s Ratings has placed the ratings of Viavi Solutions (NASDAQ:VIAV) Inc. (VIAVI), including the Ba2 corporate family rating (CFR), Ba2-PD probability of default rating (PDR), and the Ba2 senior unsecured rating, under review for a potential downgrade. This comes after Viavi’s announcement of its acquisition of Spirent (LON:SPT) Communications plc’s High-Speed Ethernet and Network Security Business. Viavi’s SGL-1 speculative grade liquidity rating remains unchanged.
The acquisition, expected to conclude during the second quarter of 2025, will be financed through $425 million in committed bank debt. Viavi may also consider increasing the term loan B on a "best efforts" basis. The acquisition is dependent on regulatory approvals and is expected to close shortly after Keysight’s acquisition of Spirent.
Moody’s Vice President, Justin Remsen, stated that the review for downgrade reflects Viavi’s willingness to make debt-funded acquisitions in a challenging operating environment. High leverage, driven by prolonged inventory digestion and modest service provider spending, is a concern. The additional debt from the acquisition will increase this leverage and put pressure on the Ba2 rating.
The acquisition of Spirent’s business will enhance Viavi’s Ethernet testing solutions, which will advance its software, hardware, and protocol knowledge across network layers. This is expected to strengthen Viavi’s market position in the growing digital infrastructure sector.
However, the transaction is expected to increase leverage to over 8x, which is already at a high level due to the challenging operating environment. As such, governance considerations are a key driver of the rating action.
Viavi, which has a strong market position in certain niche market segments, such as pigments used in anti-counterfeit features in currency notes and optical filters used for 3D sensing in smartphones, is known for its free cash flow generation, solid, though declining profitability, and limited capital intensity. The 3D sensing market is seen as an important secular growth driver as 3D sensing becomes more widely available across smartphones and other use cases.
However, Viavi’s revenue scale is small, and the underlying businesses are narrowly focused, leading to revenue volatility over time, especially since Viavi derives a large portion of revenue from cyclical end markets. Revenues have been particularly volatile over the past 18 months.
The review will focus on the strategic rationale of the acquisition, details on the integration plan and cost synergies, and long-term financial policies, including deleveraging plans and capital allocation.
At the conclusion of the review, Viavi’s CFR could be downgraded by one notch. Depending on the final capital structure, the Ba2 rating on the senior unsecured note could be downgraded by two notches given the proposed acquisition financing is senior in priority to the unsecured note.
Viavi Solutions Inc., based in Chandler, Arizona, makes network test, monitoring, and assurance instruments and software for communications services providers, enterprises, network equipment manufacturers, and the aerospace industry. It also makes pigments used in currency notes to reduce counterfeiting risk and makes optical filters primarily used in 3D sensing modules for smartphones.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.