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Rating Action:

Moody's assigns B3 CFR to Idera, Inc.; outlook stable

Global Credit Research - 24 Sep 2015

New York, September 24, 2015 -- Moody's Investors Service ("Moody's") assigned a B3 Corporate Family Rating ("CFR") and B3-PD Probability of Default Rating ("PDR") to Idera, Inc. ("Idera") while placing a B2 rating on the company's proposed first lien credit facilities and a Caa2 rating on the proposed second lien term loan. The rating action follows the announcement of the company's pending acquisition of Embarcadero Technologies, Inc. ("Embarcadero"). Proceeds of the debt financing will be used to partially fund the purchase transaction as well as refinance Idera's existing borrowings. The ratings outlook is stable.

RATINGS RATIONALE

The B3 CFR reflects the credit risks associated with Idera's relatively small revenue base and narrow market focus, high debt/EBITDA leverage (Moody's adjusted) and integration challenges associated with the Embarcadero acquisition which will more than double the company's size. Moody's expects debt leverage to approximate 6.0x by the end of FY16 (ending March) and decline by roughly 0.2x in the following year driven by modest debt amortization and projected EBITDA expansion. The rating also factors in a somewhat limited equity cushion and the potential for the company to pursue acquisitions and shareholder distributions over the intermediate term which could constrain deleveraging efforts. However, the risks associated with Idera's credit profile are partially offset by the combined company's largely recurring revenue base and a wide-ranging product suite that helps database and system administrators and other application users improve the overall availability and performance of their information technology (IT) systems. Idera's top-line predictability is also bolstered by high client retention rates among a global, highly diversified customer footprint and the company's strong overall competitive position within its targeted market for third party database diagnostic tools and complementary application monitoring and development products. Furthermore, Idera's management team's demonstrated track record of realizing cost efficiencies, coupled with modest capital expenditure requirements, should allow the company to generate positive free cash flow (FCF) in FY16 with FCF/debt rising to over 5% by FY17.

Idera's FCF generation prospects, coupled with cash on the company's balance sheet and an undrawn $25 million revolver, support Idera's good liquidity position. The revolving credit facility will have a springing covenant, which is not expected to be in effect over the next 12-18 months, as excess availability should remain above minimum levels.

The stable ratings outlook reflects Moody's projection for mid-single digit pro forma annual revenue growth, on an average basis, for the combined company through FY17 as Idera benefits from maintenance renewals and pricing as well as more modest growth in license revenues from its existing business and Embarcadero's product suite. The company is also well positioned to capitalize on a number of identifiable cost reduction initiatives, although initial costs associated with the implementation of these synergies could limit margin improvement over the near term.

What Could Change the Rating - Up

The ratings could be upgraded if Idera smoothly integrates Embarcadero and effectively expands revenues and EBITDA such that adjusted leverage and FCF/debt are expected to be sustained under 6x and at about 5%, respectively.

What Could Change the Rating - Down

The ratings could be lowered if revenue contracts materially from current levels and the company begins to generate free cash flow deficits leading to expectations for diminished liquidity.

Assignments:

Issuer: Idera, Inc.

-Corporate Family Rating- B3

-Probability of Default Rating- B3-PD

-Senior Secured Revolving Credit Facility due 2020-- B2 (LGD3)

-Secured First Lien Term Loan due 2022 -- B2 (LGD3)

-Senior Secured Second Lien Term Loan due 2023 -- Caa2 (LGD5)

Outlook:

Stable

The principal methodology used in these ratings was Global Software Industry published in October 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Idera, owned by TA Associates, is a leading provider of third party database management and monitoring tools. The company's pending acquisition of Embarcadero will create a pure-play database-centric software provider with complementary performance monitoring and application development tools.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Lee Zeltser
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Lenny J. Ajzenman
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns B3 CFR to Idera, Inc.; outlook stable
No Related Data.
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