OREANDA-NEWS. Fitch Ratings has affirmed the ratings of Ingram Micro, Inc. (Ingram), including the long-term Issuer Default Rating (IDR) at 'BBB-'. The Rating Outlook is Stable.

Fitch's actions affect $2.6 billion of total debt, including Ingram's undrawn $1.5 billion revolving credit facility (RCF). A full list of current ratings follows at the end of this press release.

KEY RATINGS DRIVERS
The ratings and Outlook reflect Fitch's expectations for stable operating performance, consistent annual free cash flow (FCF) through the cycle, and solid credit protection measures. Fitch expects low- to mid-single digit revenue growth in constant currency over the intermediate term, driven by strong top line growth in emerging markets and stability in mature markets. Ingram Micro's focus on value-added services for the faster growing small- to medium-size businesses (SMB) space, including mobility and supply chain solutions, will be key to accelerating revenue growth.

Fitch believes cloud computing growth and data center solutions for the SMB market will continue to present risks and opportunities, with wholesale cloud computing and data center solutions adoption by customers potentially shrinking Ingram Micro's addressable market. At the same time, these trends should increase complexity, which favor value-added services and wholesale distributors' wide product and service offerings.

Fitch expects operating EBITDA margin will remain thin but expand slightly over the intermediate term, driven by operating efficiencies and headcount reductions. Fitch also expects operating EBITDA margin will remain above 1.5% through the cycle. For the latest 12 months (LTM) ended April 4, 2015, Fitch estimates operating EBITDA margin was 1.62%, versus 1.66% for the comparable prior year.

Fitch expects consistently positive annual FCF through the intermediate-term with fluctuations driven by working capital investments to support growth. Countercyclical inventory supports cash flow within the context of negative revenue growth.

Fitch expects credit protection measures to remain solid for the rating through the intermediate term. Total debt adjusted for rental expense to operating EBITDAR (adjusted leverage) should remain below 3.5x over the intermediate term and was 2.7x for the LTM ended April 04, 2015. Operating EBITDA to gross interest expense should remain near 10x or better over the intermediate term and was 9.4x for this LTM period.

Ratings strengths include:

--Broad customer and geographic diversification; --Scale of operations and geographic reach gives Ingram a competitive advantage in attracting and maintaining suppliers;
--Leading industry positions in the Americas, Europe, and Asia-Pacific;
--Importance of wholesale distribution model to both original equipment manufacturers (OEMs) and value added resellers (VARs).

Rating concerns include:

--Lower than expected profitability in the Verizon business. Ingram is renegotiating prices with Verizon and Verizon's channel partners and may exit some of this business if the negotiations do not result in an appropriate margin.
--Exposure to the cyclicality of IT demand and general global economic conditions, including current FX headwinds associated with the company's presence overseas.
--Low-margin and high working capital nature of the wholesale distribution model, which can lead to volatility in profitability and FCF, although lower inventory has historically provided a substantial source of liquidity during cyclical downturns;
--Significant reliance on Hewlett-Packard and Apple as suppliers.

KEY ASSUMPTIONS:

Fitch's key assumptions within the rating case for the issuer include:

--Ingram renegotiates prices with Verizon and its channel partners to bring margins to an appropriate level.
--Low- to mid-single-digit revenue growth in constant currency, driven by top line growth for the technology solutions businesses.
--Operating EBITDA margin will remain thin but expand slightly over the intermediate term.
--Consistently positive annual FCF through the intermediate term with meaningful fluctuations driven by significant working capital investments to support growth.
--Ingram will manage borrowings to maintain adjusted leverage below 3.5x over the intermediate term.
--Operating EBITDA to gross interest expense will remain near 10x or better over the intermediate term.

RATINGS SENSITIVITIES:

Future developments that may, individually or collectively, lead to negative rating action include:

Fitch's expectations for adjusted leverage sustained above 3.5x, driven by: (i) structurally lower operating EBITDA from sustained revenue declines or competitive pricing; or (ii) negative FCF from lower profitability in conjunction with diminished working capital efficiency.

Fitch does not anticipate positive rating action, given Ingram Micro's low profitability and significant working capital needs; however, positive rating actions could result from: (i) expectations for structurally higher FCF of $750 million to $1 billion from sustained revenue growth and modest profit margin expansion; and (ii) management's commitment to managing borrowings to maintain adjusted leverage below 2x.

Liquidity was solid as of April 4, 2015 and consisted primarily of $509 million in cash and cash equivalents ($98 million in the U.S.), an undrawn $1.5 billion senior unsecured revolving credit facility expiring January 2020 and approximately $510 million of capacity under a $675 million North American accounts receivable securitization program which expires April 2018. Ingram also has several additional committed and uncommitted receivable financing facilities which can provide further liquidity.

Total debt as of April 4, 2015 was approximately $1.4 billion and consisted principally of $160 million outstanding under the aforementioned North American accounts receivable facility, $300 million 5.25% unsecured notes maturing in 2017, $299 million 5% unsecured notes maturing 2022, and $498 million 4.95% unsecured notes maturing in 2024. In addition, Ingram has $159 million outstanding under other debt and various uncommitted lines of credit.

Fitch affirms Ingram's ratings as follows:

--IDR at 'BBB-';
--Senior unsecured debt at 'BBB-'
--Senior unsecured credit facility at 'BBB-'.