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CHICAGO & NEW YORK–(BUSINESS WIRE)– Fitch Ratings has taken the following rating actions on Advanced Micro Devices Inc. (NYSE: AMD):

–Long-term Issuer Default Rating (IDR) affirmed at ‘B-’;

–Senior unsecured debt upgraded to ‘B-/RR4′ from ‘CC/RR6′.

Fitch also has revised the Rating Outlook on AMD to Positive from Negative.

Fitch expects to rate the proposed private placement of $500 million of 8.125% senior unsecured notes due 2017 at ‘B-/RR4′.

Approximately $2.8 billion of rated debt securities, pro forma for AMD’s proposed net debt reduction initiatives, are affected by Fitch’s actions.

The revision of the Outlook to Positive from Negative reflects:

–AMD’s anticipated receipt of $1.25 billion of cash from Intel Corp. (Intel) as part of the companies’ recent litigation settlement. Importantly, the agreement paves the way for AMD to significantly reduce its ownership stake in GLOBALFOUNDRIES (GF), its foundry joint venture, and, in conjunction with the consummation of Advanced Technology Investment Corporation’s (ATIC) proposed acquisition of Chartered Semiconductor Manufacturing Ltd., deconsolidate GF’s financial results over the near term. The agreement also enables AMD to pursue alternate manufacturing sources for its microprocessors.

–Expected net debt reduction of up to $890 million funded with a portion of the settlement proceeds and approximately $439 million of net proceeds from its private placement of $500 million of senior notes maturing in 2017. AMD announced the redemption of $390 million of 7.75% senior notes due 2012 at 101.938% of par and tender for up to $1 billion of 5.75% convertible senior notes due 2012 at 99% of par, potentially materially reducing its aggregate 2012 debt maturities by approximately $1.4 billion to $485 million. The tender offer expires on Dec. 16, 2009 and is conditional upon closing the $500 million senior note offering.

–The Positive Outlook reflects the potential for further meaningful debt reduction outside of what has already been announced, given that total pro forma debt levels remain substantial.

–Fitch’s expectations for AMD’s modestly improved operating performance over the near term, driven primarily by recent cost reduction initiatives and a stabilizing personal computer (PC) demand environment.

–Strengthened credit protection measures over the near term from currently extremely weak levels. Pro forma for the debt reduction and Fitch’s expectations for the continuation of modestly improved operating trends, Fitch believes consolidated AMD could exit 2009 with total leverage (total debt-to-operating EBITDA) of approximately 13 times (x) and interest coverage (operating EBITDA-to-gross interest expense) approaching 1x. Fitch estimates total leverage for the AMD product company (AMD PC), which excludes the operating results of GF, may decline to just over 10x with interest coverage increasing to almost 1x.

Aside from the aforementioned cash payment, the terms of AMD’s litigation settlement with Intel:

–Provide for both companies abandoning all outstanding litigation claims against one another;

–Restricts Intel from engaging in certain anti-competitive commercial practices, which Fitch believes is unlikely to meaningfully alter the industry’s current competitive dynamics;

–Extends Intel’s and AMD’s microprocessor (MPU) patent cross-license agreement that was set to expire in 2011; and

–Expands AMD’s application of the patent licensing agreement to include use by AMD subsidiaries, including GF.

Positive rating actions could result from further debt reduction driven by stronger than anticipated free cash flow or meaningful diversification of GF’s customer base, thereby reducing AMD’s ownership of GF and leading to de-consolidation. Negative rating actions could result from substantial free cash flow usage by AMD PC, likely as the result of further meaningful microprocessor market share losses to Intel or material delays in introducing new products.

Pro forma for the consummation of AMD’s net debt reduction initiatives, liquidity as of Sept. 30, 2009 was sufficient, consisting solely of approximately $2.9 billion of cash and cash equivalents, of which approximately $1.9 billion was attributable to AMD PC. AMD does not have a revolving bank credit facility at present. While Fitch estimates consolidated free cash flow for 2009 will likely be negative $750 million to negative $1 billion, free cash flow for AMD PC could be nearly break even for the year. Negative free cash flow at GF is expected to be funded by capital contributions from AMD’s JV partner, ATIC. ATIC has committed to funding capital expenditures at GF for the expansion of a fabrication facility in Dresden, Germany and construction of a new fabrication facility in upstate New York. AMD has the option but not obligation to meet a portion of these capital calls. While Fitch expects consolidated free cash flow will also be meaningfully negative in 2010, AMD PC’s annual free cash flow could be modestly positive, given Fitch’s expectations for higher profitability and $260 million of currently budgeted capital expenditures for next year.

Pro forma for the proposed debt reduction initiatives, AMD’s total consolidated debt as of Sep. 30, 2009, was approximately $4.6 billion. Approximately $2.8 billion was attributable to AMD PC, and consisted of:

–The proposed issuance of $500 million of 8.125% senior unsecured notes due 2017;

–$485 million of 5.75% senior unsecured convertible notes due 2012;

–Approximately $1.8 billion of 6% senior unsecured convertible notes due 2015; and

–Capital lease obligations of approximately $31 million.

Approximately $1.8 debt was attributable to GF, including:

–Approximately $527 million of obligations under the fab 36 term loan due 2011;

–Capital lease agreements related to energy supply in Dresden, Germany totaling approximately $232 million;

–$202 million of 4% convertible subordinated notes held by ATIC; and

–$807 million of 11% convertible subordinated notes held by ATIC.

The Recovery Ratings (RR) for AMD incorporate Fitch’s treatment of AMD PC and GF on a consolidated basis at present, given the significant degree of inter-dependence between the companies. Nonetheless, Fitch believes the recovery ratings for standalone AMD PC would be substantially similar. The ratings reflect Fitch’s belief that AMD would be reorganized rather than liquidated in a bankruptcy scenario, given Fitch’s estimates that the company’s reorganization value of approximately $2.5 billion exceeds a projected liquidation value of approximately $950 million. Furthermore, Fitch believes AMD’s recent litigation settlement agreement with Intel supports its role as a viable alternative microprocessor supplier to Intel and, therefore, reorganizing rather than liquidating AMD in a bankruptcy scenario. To arrive at a reorganization value, Fitch assumes a 5x reorganization multiple, and applies it to its estimate of distressed operating EBITDA of $500 million, resulting in an adjusted reorganization value of $2.25 billion after subtracting administrative claims.

Based upon these assumptions, and given the approximately $790 million of secured unrated borrowings related to Fab 36 and capital leases, recovery at the low end of (51%-70%) would be available for the approximately $2.8 billion of senior unsecured debt (pro forma for the aforementioned $890 million of net debt reduction initiatives). While this range is normally associated with ‘RR3′ ratings, Fitch rates the senior unsecured debt at ‘RR4′, indicating average recovery prospects, given the considerable risks to AMD growing operating EBITDA to $500 million from an estimated $182 million for the latest 12 months ended Sept. 30, 2009.

Additional information is available at ‘www.fitchratings.com’.

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