Ranking Motion: Moody’s affirms Cohu’s B2 company score, outlook secure
World Credit score Analysis – 22 Dec 2020
New York, December 22, 2020 — Moody’s Traders Service, (“Moody’s”) affirmed Cohu, Inc.’s (“Cohu”) scores, together with the Company Household Ranking (“CFR”) of B2, Likelihood of Default Ranking (“PDR”) of B2-PD, and the senior secured time period mortgage (“Time period Mortgage”) of B2. The Speculative Grade Liquidity (“SGL”) score is unchanged at SGL-2. The score outlook was modified to secure from unfavorable.
The affirmation of the scores and the stabilization of the outlook displays the enhancing finish market demand. Moody’s expects it will drive sturdy income, EBITDA, and free money circulate (“FCF”) progress, such that credit score metrics will enhance to ranges applicable for the B2 CFR.
..Issuer: Cohu, Inc.
…. Company Household Ranking, Affirmed B2
…. Likelihood of Default Ranking, Affirmed B2-PD
….Senior Secured Financial institution Credit score Facility, Affirmed B2 (LGD3)
..Issuer: Cohu, Inc.
….Outlook, Modified To Steady From Detrimental
The B2 CFR displays Cohu’s monetary leverage of about 9.2x debt to EBITDA (newest twelve months ended September 26, 2020, Moody’s adjusted). This degree of economic leverage may be very excessive given the corporate’s extremely cyclical finish markets, notably the automotive and industrial finish markets, and the excessive leverage limits monetary flexibility to reply to market developments. The excessive monetary leverage displays depressed revenues and EBITDA as finish market demand remained weak by way of the third quarter of 2020 because of the world financial recession.
Nonetheless, Moody’s expects free money circulate (FCF) technology will enhance over the close to time period, pushed by energy in mobility on account of 5G smartphone ramps and supported by a restoration within the automotive and industrial finish markets. Given the enhancing finish market demand, Moody’s expects that revenues and EBITDA will develop quickly over the close to time period, driving debt to EBITDA (Moody’s adjusted) towards 5x and FCF to debt (Moody’s adjusted) towards the higher single digits p.c degree. Cohu additionally advantages from a base of recurring revenues, accounting for over half of Cohu’s income base and restricted capital spending necessities, which lowers money consumption during times of depressed demand.
Given the volatility of revenues and FCF, we anticipate that Cohu’s monetary coverage will stay conservative. We anticipate that Cohu will chorus from resuming the money dividend funds or materials share repurchases over the following two years, as a substitute utilizing money circulate to scale back debt, till FCF to debt (Moody’s adjusted) is sustained on the higher single digits p.c degree.
The credit score profile is impacted by governance issues. In Might, Cohu suspended its quarterly money dividend, saving about $10 million yearly, and has acknowledged that deleveraging continues to be a capital allocation precedence. Moody’s expects that Cohu will proceed to observe this extra conservative monetary coverage.
The secure outlook displays Moody’s expectation of a strong restoration in finish market demand for the rest of 2020 and thru 2021, lifting revenues towards $700 million from $576 million for the newest twelve months ended September 26, 2020. With this rising base of revenues, we anticipate that EBITDA will enhance quickly, supporting deleveraging, with debt to EBITDA (Moody’s adjusted) enhancing towards 5x and FCF to debt (Moody’s adjusted) in the direction of the higher single digits p.c degree.
The SGL-2 Speculative Grade Liquidity Ranking (SGL) displays Cohu’s good liquidity profile. Though Cohu doesn’t have a multi-year revolving credit score facility, Moody’s expects that Cohu will keep not less than $100 million of money on the steadiness sheet ($171 million as of September 26, 2020). Moody’s anticipates that Cohu will generate not less than $25 million of FCF over the following yr. On Might 5, 2020, Cohu suspended its money dividend, conserving money of about $10 million yearly and Moody’s expects that Cohu will restrict share repurchases over the following yr. The Time period Mortgage is just not ruled by monetary upkeep covenants.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The score may very well be upgraded if:
revenues exceed $800 million and FCF to debt (Moody’s adjusted) is sustained over 10%.
The score may very well be downgraded if:
natural income progress is lower than the higher single digits p.c degree or FCF to debt (Moody’s adjusted) doesn’t exceed the low single digits p.c degree.
Cohu reinstates the money dividend previous to significant debt discount.
The B2 score of the Time period Mortgage displays the collateral, which features a first precedence lien on all belongings, and advantages from loss absorption of unsecured liabilities. The Time period Mortgage advantages from upstream ensures of wholly-owned materials home subsidiaries. Because the Time period Mortgage represents a single class of debt, the instrument score is in step with the B2 CFR.
Cohu, Inc., primarily based in Poway, California, makes check automation tools used within the remaining levels of manufacturing of semiconductor gadgets and printed circuit boards. Merchandise embody handlers, micro-electro mechanical system (MEMS) check modules, check contactors and thermal subsystems.
The principal methodology utilized in these scores was Semiconductor Methodology printed in December 2020 and out there at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1248106. Alternatively, please see the Ranking Methodologies web page on www.moodys.com for a duplicate of this system.
For additional specification of Moody’s key score assumptions and sensitivity evaluation, see the sections Methodology Assumptions and Sensitivity to Assumptions within the disclosure kind. Moody’s Ranking Symbols and Definitions may be discovered at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For scores issued on a program, sequence, class/class of debt or safety this announcement offers sure regulatory disclosures in relation to every score of a subsequently issued bond or notice of the identical sequence, class/class of debt, safety or pursuant to a program for which the scores are derived solely from current scores in accordance with Moody’s score practices. For scores issued on a assist supplier, this announcement offers sure regulatory disclosures in relation to the credit standing motion on the assist supplier and in relation to every explicit credit standing motion for securities that derive their credit score scores from the assist supplier’s credit standing. For provisional scores, this announcement offers sure regulatory disclosures in relation to the provisional score assigned, and in relation to a definitive score that could be assigned subsequent to the ultimate issuance of the debt, in every case the place the transaction construction and phrases haven’t modified previous to the task of the definitive score in a fashion that might have affected the score. For additional data please see the scores tab on the issuer/entity web page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit score assist from the first entity(ies) of this credit standing motion, and whose scores might change because of this credit standing motion, the related regulatory disclosures will likely be these of the guarantor entity. Exceptions to this method exist for the next disclosures, if relevant to jurisdiction: Ancillary Providers, Disclosure to rated entity, Disclosure from rated entity.
The scores have been disclosed to the rated entity or its designated agent(s) and issued with no modification ensuing from that disclosure.
These scores are solicited. Please consult with Moody’s Coverage for Designating and Assigning Unsolicited Credit score Rankings out there on its web site www.moodys.com.
Regulatory disclosures contained on this press launch apply to the credit standing and, if relevant, the associated score outlook or score evaluation.
Moody’s common ideas for assessing environmental, social and governance (ESG) dangers in our credit score evaluation may be discovered at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
No less than one ESG consideration was materials to the credit standing motion(s) introduced and described above.
The World Scale Credit score Ranking on this Credit score Ranking Announcement was issued by one among Moody’s associates outdoors the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Foremost 60322, Germany, in accordance with Artwork.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit score Ranking Businesses. Additional data on the EU endorsement standing and on the Moody’s workplace that issued the credit standing is offered on www.moodys.com.
Please see www.moodys.com for any updates on adjustments to the lead score analyst and to the Moody’s authorized entity that has issued the score.
Please see the scores tab on the issuer/entity web page on www.moodys.com for added regulatory disclosures for every credit standing.
Terrence Dennehy, CFA Vice President - Senior Credit score Officer Company Finance Group Moody's Traders Service, Inc. 250 Greenwich Road New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Consumer Service: 1 212 553 1653 Stephen Sohn Affiliate Managing Director Company Finance Group JOURNALISTS: 1 212 553 0376 Consumer Service: 1 212 553 1653 Releasing Workplace: Moody's Traders Service, Inc. 250 Greenwich Road New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Consumer Service: 1 212 553 1653
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