Word of the Day

Commodity

Even if you don't think you do, you already know plenty about commodities. Want us to prove it? No problem.

What makes oil produced in Saudi Arabia different from oil exported from Nigeria? It's the same thing that makes the corn you ate at last summer¿s barbecue different from the corn used to produce ethanol. Stumped? Well, don't feel bad, it's a trick question. The answer? Absolutely nothing. Corn is corn no matter where it comes from -- just as wheat is wheat and natural gas is -- right! -- natural gas. (Though the quality may differ, the make-up is uniform.)

So, in less elaborate terms, corn and oil (and all other commodities) are homogenous goods that can be processed, resold and more often than not, used as an input to the production of other goods or services. These goods are traded on a commodity exchange, thus setting the price-per-barrel (or other metric unit) used to value them.

Now pay attention, here's a question that indeed does have an answer: What is the difference between a commodity and a stock? While a stock can tank and become worthless, a commodity cannot have its value be wiped to zero. One other difference: Most commodities are traded in futures, meaning traders buy and sell where they think the price of a product will be at a certain point in the future. Stocks trade based on the value of the underlying company at that point in time.

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Wednesday, July 09, 2008

Fitch Affirms Celestica's IDR at 'B+'; Outlook to Stable

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NEW YORK, Jul 09, 2008 (BUSINESS WIRE) ----Fitch Ratings has affirmed the following ratings for Celestica Inc. (Celestica):

--Issuer Default Rating (IDR) at 'B+';

--Senior Secured Credit Facility at 'BB+/RR1';

--Senior subordinated debt at 'B/RR5'.

The Rating Outlook has been revised to Stable from Negative.

The ratings affirmation and Stable Outlook reflect the following considerations:

--Celestica has significantly improved profitability over the past year, increasing EBITDA margin from a low of 1.7% in 1Q07 (end Mar 2007) to 4% in 1Q08 despite a 7.5% decline in revenue for the latest twelve month (LTM) period ending March 31, 2008.

--Celestica maintains a conservative balance sheet with $750 mm in long-term debt and $1.1 billion in cash. Fitch estimates leverage (Total Debt / Total Operating EBITDA) as of March 31, 2008, to be 2.7x or 4.3x when adjusted for off-balance sheet debt (accounts receivable securitization and operating leases). This compares to peak leverage of 3.6x or 5.5x on an adjusted basis in 3Q07.

--Fitch believes Celestica has managed to stabilize its top-line following five consecutive quarters of year-over-year declines in revenue although signs of a renewed and sustainable revenue growth trend have yet to materialize.

The ratings are supported by the following:

--Celestica maintains a conservative capital structure with approximately $400 million in net cash.

--Fitch expects Celestica would generate significant cash from working capital during a downturn, as typical for the EMS industry.

--Fitch believes that a long-term trend of increased outsourcing of manufacturing across multiple economic sectors will benefit the EMS industry in general.

--Celestica remains a leading global EMS provider with a blue chip customer base.

Ratings concerns include:

--Execution issues in late 2006 led to material customer attrition and an 8.4% decline in revenue during 2007. Fitch does expect revenue trends to stabilize in 2008.

--Celestica has significant customer concentration risk, although typical for the industry, with the top 10 customers representing approximately 60% of total revenue.

--Generally low operating margins associated with the EMS model which has produced returns on invested capital below the cost of capital for many competitors in recent years, including Celestica.

As of March 31, 2008, liquidity was solid with a fully available $300 million secured revolving credit facility which expires April 2009 and $1.1 billion in cash. Celestica also has a $250 million committed accounts receivable securitization facility which it utilizes for additional liquidity. This facility had approximately $50 million of available liquidity as of March 31, 2008, and expires November 2008.

Total debt as of March 31, 2008 was approximately $770 million and included primarily $500 million of 7.875% senior subordinated notes due June 2011 and $250 million of 7.625% senior subordinated notes due June 2013.

The Recovery Ratings (RRs) and notching reflect Fitch's recovery expectations under a distressed scenario, as well as Fitch's expectation that the enterprise value of Celestica, and hence recovery rates for its creditors, will be maximized in a restructuring scenario (going concern) rather than a liquidation scenario. In deriving a distressed enterprise value, Fitch applies a 30% discount to Celestica's estimated operating EBITDA of approximately $285 million for the LTM ended March 31, 2008 based on a 3.25x interest coverage covenant included in the company's revolving credit facility agreement. Fitch then applies a 4x distressed EBITDA multiple, which considers Celestica's current multiple and that a stress event would likely lead to multiple contraction. As is standard with Fitch's recovery analysis, the revolver is fully drawn and cash balances fully depleted to reflect a stress event. The 'RR1' is for Celestica's secured bank facility reflects Fitch's belief that 100% recovery is realistic. The 'RR5' is for the senior subordinated debt reflects Fitch's estimate that a recovery of 11%-30% would be achievable.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

SOURCE: Fitch Ratings

Fitch
   Ratings, New York Jason Paraschac, 212-908-0746 Nick P. Nilarp, CFA, 212-908-0649 or Media Relations: Brian Bertsch, 212-908-0549

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