Fitch Rates Anixter's Senior Unsecured Convertible Note Offering 'BB-'

Business Wire, Feb 12, 2007

NEW YORK -- Fitch Ratings has assigned a 'BB-' rating to Anixter International's (Anixter) offering of up to $300 million in senior unsecured convertible notes maturing in 2013. Fitch rates Anixter and its wholly owned operating subsidiary, Anixter Inc. (AI), as follows:

Anixter

--Issuer Default Rating (IDR) 'BB ';

--Senior unsecured debt 'BB-'.

AI

--Issuer Default Rating (IDR) 'BB ';

--Senior unsecured notes 'BB ';

--Senior unsecured bank credit facility 'BB '.

The Rating Outlook is Stable, although similar future debt-financed shareholder friendly actions that result in deteriorating credit protection measures would result in negative rating actions.

Fitch expects Anixter to use the proceeds from this offering to reduce debt by approximately $150 million and to repurchase common stock with the remaining portion. Combined with a repurchase program at the beginning of January, Anixter will have repurchased close to 3 million shares this year, roughly 8% of total shares outstanding.

Based on financial results as of Dec. 29, 2006 and reflecting the aforementioned convertible note issuance, share repurchase and debt redemption plan, Fitch estimates liquidity on a pro forma basis to be approximately $200 million consisting of the following:

--Approximately $50 million of cash and cash equivalents;

--A $275 million, five-year revolving credit agreement maturing June 2009 of which approximately $125 million is undrawn and available;

--A $40 million Canadian revolving credit facility expiring June 2009 with a minimal amount remaining undrawn and available;

--Revolving credit facilities at other foreign subsidiaries totaling approximately $35 million with nominal amounts undrawn and available.

In addition, Anixter has a $225 million on-balance-sheet accounts receivable securitization program expiring September 2007 of which approximately $125 million is available.

Fitch estimates pro forma total debt is approximately $950 million consisting of the following:

Anixter

--Approximately $160 million accreted value of 3.25% zero coupon convertible senior notes due 2033;

--Current offering of up to $300 million in senior unsecured convertible notes due 2013.

AI

--$200 million 6% senior unsecured notes due 2015;

--Approximately $190 million in borrowings under various credit facilities;

--Approximately $100 million outstanding under the company's accounts receivable securitization program.

Anixter's senior unsecured convertible notes are not guaranteed by AI and, therefore, are structurally subordinated to AI's debt.

The ratings and Outlook reflect Anixter's improved operating performance driven by the combination of a stable end-market demand environment, market share gains in the company's small but growing sales of fasteners and C-class components to original equipment manufacturers (OEMs), and higher EBIT margins due in part to cost savings from integrating recent acquisitions as well as rising copper prices during 2006. Also considered are Anixter's well-diversified product, customer and supplier portfolios, and the information technology (IT) distribution industry's ability to generate cash from working capital during a downturn. Fitch also expects that Anixter will continue to be able to generate cash from operations even at growth rates in the low double-digits.

Rating concerns mainly center on the company's history of using debt financing for shareholder friendly actions as well as Fitch's expectation that Anixter will continue using free cash flow for a combination of special dividends and acquisitions. Given Anixter's current focus of integrating prior acquisitions, Fitch expects acquisition activity to slow in 2007. Fitch also considers the thin operating EBIT margins associated with the IT distributors and Anixter's unhedged exposure to commodity prices, which would affect operating income negatively if copper prices were to decline significantly.

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