S&P: Plantronics Inc. Ratings Placed On CreditWatch Negative On Announced Plan To Acquire Polycom Inc.

S&P Global Ratings today placed its 'BB' corporate credit rating, and all other ratings, on Santa Cruz, Calif.-based Plantronics Inc. on CreditWatch with negative implications.

The CreditWatch listing reflects the company's announcement that it plans to issue approximately $1.4 billion of debt to finance the acquisition of Polycom Inc. (B/Stable/--), and our expectation that leverage at close will rise above the current stated downside scenario of 3x. The acquisition of Polycom broadens Plantronics' portfolio of communication and collaboration endpoints, and provides additional diversification to Plantronics' enterprise products. The company currently uses roughly 60% of its free cash flow to fund share repurchases. We would look to better understand this dynamic going forward under the new capital structure in order to determine the debt repayment and deleverating capacity over the 12 months subsequent to the close of the transaction. Furthermore, the transaction doubles the companies scale which could pose significant integration risks. These factors could lead to leverage, in our view, in the high-3x area, above our current downgrade threshold.

We intend to resolve our CreditWatch listing once we have had a chance to discuss the transaction with management and better understand the debt structure financing the acquisition. We could lower the rating, or assign a negative outlook, based on our discussions with management regarding potential cost savings and/or accelerated debt repayment post transaction and the implication this may have on our financial metrics forecasts.
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