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Global Credit Research - 23 Feb 2011
Approximately $525 million of rated debt affected
New York, February 23, 2011 -- Moody's Investors Service affirmed Serena Software, Inc.'s
("Serena" or the "Company") existing ratings, including
the B2 Corporate Family Rating ("CFR"), and assigned B1 ratings
to the Company's amended and extended tranches of senior secured
credit facilities. The ratings outlook remains stable.
On February 14, 2011, Serena announced that it is seeking
an amendment of its existing credit agreement, which among other
things, includes extension of maturity dates for portions of its
revolving and term loan commitments by three years. As of the year
ended January 31, 2011, the Company had approximately $35
million of borrowings outstanding under its $65 million revolving
credit facility and about $316 million of term loans were outstanding.
The proposed changes to the credit agreement include a delay in step-down
of maximum leverage covenant ratio by 18 months and the ability to refinance
extended tranches of revolving and term loan from time to time over the
remaining life of the amended agreement. In addition, Serena's
revolving credit facility is expected to be increased to $75 million
and Moody's understand the amended credit facility will include a springing
maturity for the extended term loans if the Company's subordinated notes
remain outstanding six months prior to the maturity of extended term loans
in March 2016.
The following ratings were assigned (subject to close of amendment process):
Issuer: Serena Software, Inc.
Extended tranches of revolving credit facility and term loan facility
-- B1, LGD3 (36%)
The following ratings were affirmed:
..Corporate Family Rating -- B2
..Probability of Default Rating -- B2
.....Revolving Credit Facility due
March 2012 -- B1, LGD3 (36%)
.....Term Loan Facility due March 2013
-- B1, LGD3 (36%)
......Senior Subordinated Notes
due March 2016 -- Caa1, LGD5 (89%)
...Speculative Grade Liquidity -- SGL-2
The ratings outlook is stable.
Moody's notes that while the proposed transaction could raise Serena's
interest expense annually by up to $5 million approximately,
the extension of debt maturities, especially the revolving credit
facility which was maturing in March 2012, and the increased headroom
under financial maintenance covenant enhances the Company's already
The affirmation of Serena's CFR reflects Moody's view that
the Company's credit metrics will continue to remain supportive
of its B2 CFR over the next 12-to-24 months. Despite
three years of sustained decline in revenues, Serena generates good
free cash flows, primarily from its high levels of recurring maintenance
revenues, which drive its high EBITDA margins. Moody's
believes that a rebound in enterprise software spending, coupled
with the Company's investments in its sales and marketing organization,
should lead to a modest recovery in software license sales during the
current year. Moody's expects the Company's profitability
to gradually improve as maintenance revenues -- a key driver of its
profitability -- should stabilize over the next 12-to-24
months. During this period, Moody's expects the Company
to generate free cash flow in high single digit percentages of debt.
The B2 rating is constrained by Serena's high financial leverage
(5.7x Debt/LTM October 2010 EBITDA, Moody's adjusted)
and the intensely competitive market segments in which the Company primarily
operates. Serena's competitors in its core Software Change
and Configuration Management (SCCM) and Business Process Management enterprise
software segments include several large competitors with broad software
product offerings, such as CA, Inc. (rated Baa2),
Microsoft (rated Aaa), Compuware (unrated), IBM's Rational
suite (IBM rated Aa3), as well as several smaller niche operators.
Nonetheless, Serena's good market position as a leading provider
of SCM solutions to enterprise customers, supports the rating.
The rating benefits from the Company's high levels of recurring
revenues under maintenance contracts (67% for LTM October 2010),
and the Company's historically high maintenance renewal rates,
which provide a great degree of predictability of cash flows over the
The stable outlook incorporates Moody's expectations that Serena
should be able to sustain Debt/EBITDA leverage of less than 5.5x
over the next 12-to-18 months, driven by stabilization
in revenues, and that the Company will generate good free cash flow
driven by its high EBITDA margins of about 40% over this period.
Moody's could raise Serena's CFR if the Company generates
profitable organic revenue growth as demonstrated by growth in software
license sales, reduces Debt/EBITDA leverage to less than 4.0x,
and its free cash flow/Debt exceeds 10%, on a sustainable
Alternatively, the rating could be downgraded if the Company's
software license revenues continue to decline and its installed customer
base shrinks, as evidenced by lower customer retention rates or
reduced maintenance revenues. The rating could be downgraded if
Serena's EBITDA declines or EBITDA margins deteriorate such that
debt/EBITDA increases above 6.5x or if FCF/Debt becomes negative.
For further information, please refer to the Credit Opinion located
Moody's last rating action for Serena was on February 10,
2006, when Moody's assigned first-time ratings to the
Company in connection with its leveraged buyout financing.
The principal methodology used in rating Serena 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 Redwood City, CA, Serena Software,
Inc. develops software products for managing process and governing
change across mainframe and distributed computing environments.
The Company had revenue of $215 million in the LTM October 2010
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, and public information.
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
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 assigns B1 rating to Serena Software's credit facilities
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