Xperi Corp. Outlook Revised To Negative From Stable On Weaker-Than-Expected Credit #BB-# Rating Affirmed

Stocks and Financial Services Press Releases Tuesday November 14, 2017 08:37
SAN FRANCISCO--14 Nov--S&P Global Ratings

SAN FRANCISCO (S&P Global Ratings) Nov. 13, 2017-- S&P Global Ratings today revised its outlook to negative from stable and affirmed its 'BB-' corporate credit rating on San Jose, Calif.-based Xperi Corp. At the same time, we affirmed our 'BB-' issue-level rating, with a '3' recovery rating, on the company's $600 million senior secured term loan, indicating our expectation for meaningful (50%-70%; rounded estimate: 50%) recovery in the event of payment default.

The outlook revision reflects weakened credit metrics following the most recent quarter, with S&P Global Ratings-adjusted leverage in the 4x area (above our downside threshold of mid-3x) and our view that leverage could stay elevated until there is clarity on ongoing lawsuits. While there is a catalyst to resolve legal matters with Broadcom with the upcoming final determination from the ITC in early December 2017, the dispute could continue into 2018. If the lawsuits drag on, we see incremental risk to the company's financial metrics in 2019. Some of the company's Fotonation imaging revenues were pushed out into 2018 because of delayed product launches by its customers, and Xperi lost an audio customer representing about $10 million of 2017 revenues due to the customer's financial issues. These near-term challenges are offset by the company's successful integration of the DTS acquisition, strong free cash flow generation, and its intention to put cash flow toward debt repayment. The DTS business continues to perform well, with solid DTSX and HD Radio market adoption.

The negative outlook reflects Xperi's weakened credit metrics with leverage in the 4x area following the most recent quarter and the risk that there could be no near-term resolution to ongoing lawsuits against Samsung and Broadcom.

We could lower the rating on Xperi if the company's leverage is sustained above the mid-3x area over the next 12 months, if there is no resolution to ongoing litigation, or if we view future profitability to be weaker as a result of new licensing deals.

We could revise the outlook to stable if there is a favorable outcome in either of the ongoing lawsuits, resulting in improved liquidity and financial metrics.

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