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Loss-making NOR flash memory market leader Spansion, Inc. is facing growing concerns over its liquidity status with credit ratings specialist, Fitch Ratings, lowering its view on approximately US$1.3 billion of debt to a ‘negative’ outlook. Fitch noted that Spansion’s total debts were US$1.6 billion.

Rumours have circulated that the NOR flash manufacturer is considering bankruptcy and is claimed to have extended a production shutdown at its 200mm fab in Austin, Texas to preserve cash and reduce inventories.

Fitch said that it expects Spansion to post lower gross profits in 2009 that keep the company in the red, despite its aggressive cost-cutting measures, highlighting the need to raise funds as well as renegotiate loan agreements.

Regarding insolvency, Fitch currently believes that creditors would be better served if Spansion went into receivership as a going concern rather than entering liquidation under a distressed scenario. However, Fitch saw the difference between the two scenarios for creditors as diminishing.

Fitch calculates that Spansion has approximately US$152 million of cash and cash equivalents and approximately US$100 million of availability under various credit facilities at the end of the third quarter of 2008. Spansion has approximately US$125 million of debt amortization and approximately US$60 million in capital leases that would need to be paid through the end of 2009.

Coupled to estimated cash burn and the possible downward revision to revenue as market conditions could worsen, Fitch didn’t rule out further credit rating cuts on Spansion.