Fitch Ratings announced on March 6, 2025, that it has placed Viavi Solutions Inc.'s 'BB-' Long-Term Issuer Default Rating (IDR) and 'BB-' senior unsecured debt ratings on Rating Watch Negative (RWN). This action follows VIAVI's proposed acquisition of Spirent Communications plc's high-speed Ethernet and network security testing business. The RWN reflects concerns regarding the deal's shareholder-friendly funding structure.
Fitch estimates that VIAVI's EBITDA leverage, pro forma for the Spirent acquisition, will reach 4.7x for fiscal 2026, exceeding Fitch's 4.5x negative sensitivity threshold. VIAVI plans to fund the $425 million all-cash acquisition with $425 million of Term Loan B borrowings, with the potential to upsize the amount. This increased leverage, combined with expectations for the company to use free cash flow for stock buybacks, suggests more opportunistic financial policies.
While the Spirent acquisition is expected to strengthen VIAVI's network and services enablement segment and expand its addressable market, Fitch anticipates that integration costs will offset Spirent's higher gross margins in the near term. Fitch expects to resolve the RWN once there is clarity on deal synergies and VIAVI's deleveraging roadmap, indicating that the company's ability to manage its debt and improve profitability will be closely monitored.
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