(The following statement was released by the rating agency)
Oct 5 - Standard & Poor's Ratings Services said today that it assigned its'BB-' issue-level rating to Sunnyvale, Calif.-based Blue Coat Systems Inc.'s $25million revolving credit facility (undrawn at closing) and $500 millionfirst-lien term loan. Blue Coat intends to use the proceeds to redeem $487.8million of its existing first- and second-lien term loans. However, theadditional amount of first-lien debt in the new capital structure brings ourestimated first-lien recovery to the low end of our '2' (70%-90%) recoveryrating boundary, and we would likely lower the first-lien debt rating if thecompany incurred any further material amounts of first-lien debt. Blue Coat isrefinancing its second-lien credit facilities as part of this transaction.
The corporate credit rating and outlook are unaffected by the change ofcapital structure, as there is a very small amount of incremental debt.
Pro forma for the transaction, the company's operating lease-adjusted debt toadjusted EBITDA is in the mid-4x area as of the latest 12 months ended July31, 2012. Our adjusted EBITDA adds back the deferred revenue fair valueadjustment of $45.3 million, resulting from purchase accounting for the ThomaBravo acquisition on Feb. 15, 2012, restructuring expenses, acquisitiontransaction fees, and stock-based compensation expenses. We expect modestreduction in leverage in the near-to-intermediate term as the company benefitsfrom the latest restructuring efforts and the recent increase in security andWAN optimization product bookings.
The rating on Blue Coat reflects the company's "weak" business risk profile,characterized by its narrow product focus and significant competition fromlarger players, and its "aggressive" financial risk profile. The company'sdiversified customer base, significant level of recurring revenue, andmoderate free cash flow generation partially offset these factors. (For thecomplete corporate credit rating rationale, see the summary analysis on BlueCoat, published Aug. 24, 2012, on RatingsDirect. For the complete recoveryanalysis, see the recovery report on Blue Coat, to be published as soon aspossible following the release of this article.)
RELATED CRITERIA AND RESEARCH
-- Issuer Ranking: Global Technology Ratings, Strongest To Weakest, Sept.27, 2012
-- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded,Sept. 18, 2012
-- Industry Economic Outlook: Despite Economic Headwinds, GlobalTechnology Shows Balanced Ratings Trend, July 9, 2012
-- Performance For U.S. Semiconductor Equipment Makers Has Been Volatile,But Ratings Remain Stable, June 11, 2012
-- Top 10 Investor Questions: How Will The Global Technology IndustryFare Amid An Economy In Flux?, April 26, 2012
-- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
-- Key Credit Factors: Methodology And Assumptions On Risks In The GlobalHigh Technology Industry, Oct. 15, 2009
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
RATINGS LISTBlue Coat Systems Inc.Corporate Credit Rating B+/Stable/--New RatingsBlue Coat Systems Inc.
$25 mil. revolving credit facility BB-
Recovery Rating 2
$500 mil. first-lien term loan BB-
Recovery Rating 2
Complete ratings information is available to subscribers of RatingsDirect onthe Global Credit Portal at
. All ratings affectedby this rating action can be found on Standard & Poor's public Web site at. Use the Ratings search box located in the leftcolumn.(New York Ratings Team)