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05 Nov 2010
Approximately $405 of rated debt affected
New York, November 05, 2010 -- Moody's Investors Service affirmed Allen Systems Group, Inc.'s
("ASG" or the "Company") B2 Corporate Family Rating
("CFR") with a stable ratings outlook. Concurrently,
Moody's also assigned Ba2 ratings to the Company's proposed
$25 million secured revolving credit facility and $80 million
first-lien term loan and a B3 rating to its proposed $300
million of secured second-lien notes. The net proceeds from
the new credit facility and notes offering will be used to refinance the
Company's existing first and second lien term loans and pay a $20
million dividend to the company's sole shareholder. At the
completion of the refinancing, Moody's will withdraw the ratings
on the existing term loans and revolving credit facility.
The B2 CFR reflects ASG's moderate debt leverage, expectations for
modest free cash flow generation, its small scale relative to its
larger and better capitalized competitors, and the Company's
highly competitive operating environment. ASG primarily competes
with large-scale technology vendors such as IBM (rated A1),
HP (rated A2), CA (rated Baa2), and BMC Software (rated Baa2)
as well as several independent niche software providers. The rating
also incorporates the potential for opportunistic debt-financed
distributions to the Company's sole shareholder and acquisitions
consistent with its strategy to complement organic growth with small to
moderate sized acquisitions to build out its software stack and increase
product offerings. The B2 rating is supported by ASG's broad portfolio
of well-regarded mainframe and distributed enterprise management
software products as well as its relatively large portion of recurring
maintenance revenues and high contract renewal rates, which provide
good revenue and cash flow visibility. The rating benefits from
the Company's diverse customer base of about 3,200 customers
across various industries and good geographic diversity of revenues.
The stable ratings outlook reflects Moody's expectations that the
Company's operating performance will provide adequate financial
flexibility to manage financial leverage at less than 5.0x debt-to-EBITDA,
including opportunistic acquisitions and shareholder distributions,
and that ASG's free cash flow generation will improve through organic
revenue growth rates in the low to mid-single digit percentages
driven by higher new license sales and maintenance revenue retention rates.
The outlook incorporates Moody's expectations that overall enterprise
management software spending will grow with improved macroeconomic conditions
and that the Company will be able to maintain or grow its market share
in its core product categories. However, Moody's notes
that ASG's revenues and profitability could moderate somewhat over
the near-term due to a weak new license sales cycle in 2009 and
significant investment in its sales organization over the next 12 months.
The following ratings were affirmed:
Corporate Family rating at B2
Probability of Default rating at B2
The following ratings were assigned:
Proposed $25 million first-lien revolving credit facility
due 2015-- Ba2 (LGD1, 7%)
Proposed $80 million first-lien senior secured term loan
due 2015 -- Ba2 (LGD1, 7%)
Proposed $300 million of second-lien secured notes due 2016
-- B3 (LGD4, 61%)
All the ratings assigned are subject to the closing of the transaction
and Moody's review of final documentation
Upon closing of the proposed transaction and repayment of existing debt,
Moody's will withdraw the ratings of ASG including:
$10 million senior secured revolving credit facility --
B1 (LGD3, 34%)
$250 million first-lien term loan due 2013 --
B1 (LGD3, 34%)
$91 million second-lien term loan due 2014 --
Caa1 (LGD5, 85%)
Please see ASG's credit opinion on Moodys.com for additional information.
The last rating action for ASG was on October 27, 2009 when Moody's
upgraded ASG's CFR to B2, from B3, and revised the ratings
outlook to stable from developing in conjunction with the issuance of
new first and second lien term loans.
The principal methodology used in rating ASG was Global Software Industry
rating methodology published in May 2009. Other methodologies and
factors that may have been considered in the process of rating this issuer
can also be found on Moody's website.
Headquartered in Naples, Florida, ASG is a privately-held
provider of enterprise management software solutions used by IT departments
of enterprise customers to automate tasks, manage content,
and monitor performance of their infrastructure across mainframe and distributed
computing environments. The Company generated approximately $266
million in revenues for the last-twelve-month period ended
September 30, 2010.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service's information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
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
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
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
and accurate data may not be available. Consequently, Moody's
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
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Corporate Finance Group
Moody's Investors Service
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's affirms ASG's B2 rating and assigns ratings to new proposed debt offerings
250 Greenwich Street
New York, NY 10007
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