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Global Credit Research - 09 Dec 2010
New York, December 09, 2010 -- Moody's Investors Service assigned a B2 Corporate Family Rating (CFR)
and a B2 Probability of Default Rating (PDR) for Buccaneer Merger Sub,
Inc. ("Buccaneer"), an entity formed by The Carlyle
Group that will acquire and ultimately merge with Syniverse Holdings,
Inc. ("Syniverse" or the "Company"), with Syniverse as the
surviving entity and the ultimate borrower of Moody's rated debt.
Moody's also assigned Caa1 ratings to Syniverse's $475
million of senior unsecured notes, and B1 ratings to its $1.175
billion of senior secured loan facilities that will be used to fund the
pending acquisition. In addition to the debt financings,
the $2.6 billion acquisition will be financed with about
$1.25 billion of equity from The Carlyle Group, with
the remainder from cash on hand. All existing debt of Syniverse
will be repaid concurrent with the acquisition, and the corresponding
ratings will be withdrawn. The acquisition is expected to close
in the first quarter of 2011. The rating outlook is stable.
The following ratings were assigned:
Corporate Family Rating: B2
Probability of Default Rating: B2
$1.025 billion senior secured term loan: B1,
$150 million senior secured revolver: B1, LDG-3
$475 million senior unsecured notes: Caa1, LDG-5
The B2 corporate family rating reflects the company's high financial leverage,
driven primarily by the increased debt load following the pending LBO,
and the risk that it will be unable to grow its EBITDA at sufficient levels
to materially delever over the next several years as rapid technological
changes impact core wireless carrier customers and pressure transaction
rates. Proforma leverage of 5.9x (using Moody's standard
adjustments) as expected at closing is significantly higher than the approximate
2.2x operating level that existed pre-LBO for the twelve
month period ended September 30, 2010. The rating is also
constrained by declining top-line trends in the company's network
services business, as well as the company's focus on acquiring
new products and services for growth, which may limit debt reduction
beyond the mandatory 50% excess cash flow sweep attached to the
company's term loan. Moody's estimates that leverage
will remain above 5x through early 2012.
Syniverse's high proforma leverage is mitigated, however,
by the broad diversification of its customer and revenue base, its
leading market position in interoperability and network services for telecommunications
carriers, and the strong cash generating capabilities of the business.
The roaming business remains stable and benefits from continued growth
in smartphone usage, and the acquisition of Verisign's messaging
business has strengthened the company's position in the still rapidly
growing messaging market and opened up more relationship opportunities
with top global carriers.
Syniverse has a good liquidity profile. Free cash flows have remained
positive during the difficult economic environment of the past several
years. While Moody's expects negative free cash flow proforma
for 2010 given the added LBO expenses, the company should resume
moderate free cash flow generation in 2011 and 2012. Moody's
expects cash balances to decline to approximately $40 million by
the end of 2010, from $154 million at the end of the third
quarter, as the company uses a portion of its cash to finance the
LBO. However, cash balances will improve gradually following
the LBO, given internally generated cash and controlled capital
expenditures of approximately 8% of revenues, offset by high
interest payments related to the LBO financing. The $150
million revolver is expected to remain undrawn, and the company
should have ample room under its financial maintenance covenants as governed
by the senior secured bank credit facility.
The ratings for the debt instruments reflect both the overall probability
of default for Syniverse, to which Moody's has assigned a B2 PDR,
and an average mean family loss given default assessment of 50%,
in line with Moody's LGD Methodology. The senior secured facilities
are secured by a first priority interest in and lien on substantially
all Syniverse's assets.
The Company's senior secured debt is rated B1 (LGD3-34%),
one notch above the B2 CFR. The B1 (LGD3-34%) rating
for Syniverse's senior secured bank facility benefits from the junior
capital cushion provided by the $475 million of senior unsecured
notes. The senior secured debt, which represents about 68%
of the total debt outstanding, benefits from a pledge of assets
and stock of Syniverse's directly and indirectly owned subsidiaries.
The Caa1 rating for the senior unsecured notes and their loss given default
assessment of LGD5-88% reflect the junior-ranking
position of their claim in the consolidated capital structure.
The notes benefit from the guarantees of Syniverse's subsidiaries,
on a senior unsecured basis.
The stable outlook reflects Moody's expectation that Syniverse's
business will continue to be fairly resilient despite the global economy.
Moreover, the outlook incorporates the favorable underlying trends
for the company's core wireless connectivity and interoperability services,
and the ensuing expectation that the company will continue to generate
free cash flow and modestly delever following the LBO.
What Could Change the Rating - Up
Given the company's significant leverage, Moody's does
not anticipate upward rating momentum at this time. However,
ratings could experience upward pressure if the company materially reduces
and maintains leverage below 4.5x.
What Could Change the Rating - Down
The ratings could face downward pressure if the company no longer generates
revenue growth, or free cash flow-to-debt fails to
return to levels above 5% in the next two years. Should
leverage remain near 6x for an extended period following the LBO,
and/or liquidity be strained in any way, we would consider a downward
The primary rating methodology used is the Business and Consumer Service
Industry Rating Methodology, which can be found at www.moodys.com
in the Rating Methodologies sub-directory under the Research &
This is the first rating action for the post-acquisition entity,
Buccaneer Merger Sub, Inc. Moody's had previously rated the
to-be-acquired entity, Syniverse Holdings, Inc.,
for which a Ba3 CFR is currently maintained (and the ratings for which
will be withdrawn upon completion of the pending financing and acquisition
transactions, and corresponding repayment of all obligations thereunder)
and the last rating announcement was for which was September 9,
2010 when Moody's changed the outloook on Syniverse's rating sto Positive
Based in Tampa, Florida, Buccaneer Merger Sub, Inc.
(and ultimately Syniverse Holdings, Inc, with whom Buccaneer
Merger Sub, Inc. will merge and which will be the surviving
entity; Syniverse) is a provider of technology outsourcing to wireless
telecommunications carriers with annualized revenues of $619 million
for the period ending September 30, 2010.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
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validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
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The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
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Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
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used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's Assigns B2 Rating to Buyout of Syniverse Holdings Inc.
250 Greenwich Street
New York, NY 10007
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