2009-12-03 15:57:49 -

Fitch Ratings has revised the Rating Outlook for Avnet, Inc. (Avnet) to Stable from Negative and affirmed the following ratings.

--Issuer Default Rating (IDR) at 'BBB-';

--Senior unsecured bank credit facility at 'BBB-';

--Senior unsecured notes at 'BBB-'.

Fitch's Stable Outlook for the IT Distributors in 2010 is based on a more optimistic view on end-market demand and resultant improvement of industry financial profiles offset by expectations of moderate deterioration in liquidity and heightened event risk. Fitch expects modest sales growth in 2010, as corporate IT demand improves amid a more stable economic backdrop and growth in emerging markets, particularly Asia-Pacific, while Western Europe is expected to experience the lowest growth. Recent cost reduction initiatives along with aforementioned revenue growth

expectations are expected to drive positive operating leverage. Liquidity profiles will likely deteriorate modestly from current levels as distributors begin deploying cash amid a more stable operating and credit environment, particularly for acquisitions, and modest working capital needs drive lower free cash flow. While much of the acquisition activity will likely be moderate, Fitch believes there is an increased likelihood of larger and more numerous transactions, given higher cash balances, compressed valuations, and an increasingly stable operating environment. Ratings incorporate some capacity for liquidity deterioration as well as moderate acquisition activity, assuming expected operating profit improvement materializes.

The ratings and Stable Outlook reflect the above considerations as well as the following.

--Fitch expects revenue growth of mid-single digits and EBITDA growth of low double digits in calendar 2010 as Avnet benefits from improved end-market demand for IT hardware and semiconductors in 2010 as well as operating leverage from cost cutting actions taken over the past year.
Avnet has begun to increase its relatively nascent exposure to the Asia-Pacific region, particularly in its Technology Solutions business, through both organic growth and acquisitions which could further positively impact results in 2010. Fitch expects free cash flow to remain positive although below historically average levels as working capital requirements will likely increase due to both revenue growth and modest increases in cash conversion cycle days. Fitch estimates Avnet's cash conversion cycle days at 46 as of the September 2009 quarter versus a historical range in the mid-50s.

--Fitch expects leverage (total debt/total operating EBITDA) to potentially decline slightly in 2010 below the current level of 2.0 times (x) (2.7x when adjusted for operating leases), driven primarily by modest EBITDA growth. Avnet reduced debt by $373 million in the LTM period representing 30% of its total debt balance as of September 2008.
This has enabled the company to keep leverage below Fitch's expected range of 2.0x to 2.5x for its current ratings despite a near 40% decline in EBITDA over the LTM period. Fitch believes Avnet could modestly increase leverage without pressuring the current ratings. In addition, Avnet could choose to replace a portion of its $450 million accounts receivable securitization facility which expires in August 2010 with long-term debt if it can not renew the facility with economical terms.

--Fitch expects Avnet to utilize free cash flow and excess cash for working capital purposes and potential acquisitions. In addition, Fitch believes Avnet could pursue shareholder friendly actions if excess cash is not utilized for acquisitions and the macro and credit environments continue to stabilize. Fitch believes any potential debt-financed share buy-back plan could pressure the ratings dependent on the company's ability to maintain leverage within historical expectations as well as the trend in profitability which remains a longer-term concern. Avnet has experienced a significant decrease in EBITDA margins and return on invested capital in the past 18 to 24 months. While Fitch believes margins will improve in 2010, it may be challenging to return profitability to historically high levels without substantial improvements in the current macro environment.

The ratings are supported by Avnet's leading market positions in both component and enterprise computing distribution worldwide; the ability to generate cash from operations with revenue growth rates up to 15%, given the current margin profile and CCC days, as well as achieve significant free cash flow in a downturn from reduced working capital; a highly diversified customer base and well-diversified supplier base with only IBM representing greater than 10% of revenue in fiscal year 2009 (end June 2009); Avnet has increased end-market and geographic diversification, driven by higher growth rates in the Asia-Pacific region and market share consolidation within the Technology Solutions (TS) business.

Credit concerns include Avnet's thin operating margins, which are typical of the IT distribution market; significant investment levels required to increase share in the faster-growing Asia-Pacific region, including potentially debt-financed acquisitions; integration risk stemming from Avnet's acquisition growth strategy; Avnet's exposure to the cyclical demand patterns and cash flows associated with the semiconductor industry; and the potential for future debt-financed share-repurchase programs.

On Sept. 30, 2009, total available liquidity was approximately $1.8 billion and consisted of: $987 million of cash and cash equivalents; $394 million available under a $500 million senior unsecured bank credit facility expiring October 2012; and a $450 million A/R securitization facility expiring August 2009 which was fully available. Fitch expects free cash flow, which has averaged over $400 million annually over the past four years, to positively support liquidity going forward.

Total debt as of Sept. 30, 2009 was approximately $1 billion and consisted of: i) $104 million drawn on the company's $500 million revolving credit facility expiring September 2012; ii) $300 million 5.875% senior notes due March 2014; iii) $250 million 6% senior notes due September 2015; and iv) $300 million 6.625% senior notes due September 2016.

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Fitch Ratings, New YorkJason Paraschac, CFA, +1-212-908-0746Melissa
Cohen, CFA, +1-212-908-0611Media RelationsCindy
Stoller, +1-212-908-0526 cindy.stoller@fitchratings.com : mailto:cindy.stoller@fitchratings.com