OREANDA-NEWS. Fitch Ratings maintains its 'BB+' Issuer Default Rating (IDR) for Western Digital Corp. (Western Digital) which was originally assigned on March 14, 2016 with a Stable Rating Outlook. Fitch also assigned 'BBB-/RR1' ratings to the senior secured debt, including credit facilities and secured senior notes, and 'BB+/RR4' ratings to the senior unsecured notes. Western Digital will use net proceeds from debt issuance to fund the pending $17 billion acquisition of SanDisk Corporation (SanDisk). A full list of current ratings follows at the end of this release.

The ratings and outlook reflect Western Digital's:

--Diversified storage portfolio, pro forma for the acquisition of SanDisk, which should strengthen the company's positions in next generation storage platforms, while reducing nearer-term risks associated with solid-state drives (SSD) cannibalization of hard disk drives (HDD);
--Increased scale and profitability, which should support higher investment intensity as: i) Western Digital faces larger competitors; and ii) the industry rapidly evolves around significant cloud driven data growth and new storage architectures, such as 3D NAND;
--Credible profit margin expansion story, driven by cost synergies related to the deal and integration of Hitachi Global Storage Technologies (Hitachi), resulting in operating EBITDA margin to the mid- to high-20s from the low 20s; and
--Commitment to rapid debt reduction from free cash flow (FCF) and tax efficient use of offshore cash, made possible in connection with a restructuring that is expected to relocate SanDisk's domestic intellectual property (IP) offshore.

The ratings consider Fitch's expectations:

--Western Digital is subject to significant technology risk from the storage industry's rapid evolution and emergence of new storage architectures, which will be exacerbated by a wider array of competitors with alternative technologies;
--Western Digital could structurally trail larger competitors, including Intel Corp. and Samsung, in 3D NAND through the intermediate term, potentially adversely impacting operating results and reducing FCF for debt reduction;
--The combined company will face meaningful near- to intermediate-term revenue pressures from continued personal computer (PC) shipment declines, pressured removable retail and decreased use of single function electronics devices, and that increased exposure to uneven datacenter spending could exacerbate volatility; and
--Total leverage (total debt to operating EBITDA) will be high at 3.4x at the close of the transaction (excluding synergies and pro forma the repayment of the bridge loan), limiting financial flexibility, despite rapid debt reduction.

FULL LIST OF CURRENT RATINGS

Western Digital Corp.
--Long-term Issuer Default Rating (IDR) 'BB+';
--Senior secured revolving credit facility 'BBB-/RR1';
--Senior secured term loan A 'BBB-/RR1';
--Senior secured term loan B 'BBB-/RR1';
--Senior secured notes 'BBB-/RR1';
--Senior unsecured notes 'BB+/RR4'.