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Global Credit Research - 28 Apr 2011
Approximately $518 million of debt affected
New York, April 28, 2011 -- Moody's Investors Service affirmed Allen Systems Group, Inc.'s
("ASG" or the "Company") B2 Corporate Family Rating ("CFR") with a stable
ratings outlook and assigned a Ba2 rating to the Company's $115
million of term loan B incremental credit facility. ASG's
other existing debt instrument ratings were affirmed. The Company
plans to use the net proceeds from the incremental credit facility to
fund the purchase price for visionapp AG's acquisition.
The following ratings were assigned:
..Issuer -- Allen Systems Group, Inc.
$115 million incremental term loan B due 2015 -- Ba2,
The following ratings were affirmed:
..Issuer -- Allen Systems Group, Inc.
Corporate Family Rating -- B2
Probability of Default Rating -- B2
....$25 million senior 1st lien secured
revolving credit facility due 2015 -- Ba2, (LGD2 -- 16%),
LGD assessment revised from LGD1, 7%
....$78 million ($80 million
originally) senior 1st lien secured term loan due 2015 -- Ba2,
(LGD2 -- 16%), LGD assessment revised from LGD1,
....$300 million senior 2nd lien secured
notes due 2016 -- B3, (LGD5, 71%), LGD assessment
revised from LGD4, 61%
Outlook -- Stable
The proposed acquisition of visionapp will extend ASG's existing
enterprise information technology (IT) management software suite to include
a cloud computing solutions offering which enables the roll-out
of cloud computing services for enterprise customers. Although
these acquisitions expand the Company's market opportunities,
and there is potential to cross-sell into the customer base of
the combined companies, the debt-financed acquisitions materially
weaken the Company's credit metrics, notably as Debt-to-EBITDA
leverage increases from 4.9x to about 5.9x, excluding
any acquisition synergies. Additionally, visionapp does not
have a track record of positive cash flow generation. Nonetheless,
Moody's views the acquisitions as consistent with the Company's
history of augmenting and strengthening its product portfolio through
acquisitions. The affirmation of the B2 CFR reflects Moody's
expectations that ASG will be able revive revenue growth from its legacy
products and that it will achieve approximately $18 million of
targeted annual cost savings such that Debt-to-EBITDA leverage
will be restored to less than 5.0x over the next twelve months.
The execution risks of achieving synergies are somewhat tempered by ASG's
history of combining companies and achieving synergies from its key acquisitions.
ASG's CFR is weakly positioned in the B2 rating category,
which is characterized by the Company's aggressive financial policies
and acquisitive growth strategy. The B2 CFR reflects Moody's
expectations that ASG will maintain moderate financial risk profile,
including Debt-to-EBITDA leverage of between 4.0x-to-5.0x,
and that free cash flow (Cash from operations less capital expenditures
and dividends) will increase to about 3%-to-4%
of its total debt. The B2 rating considers ASG's small scale
relative to its larger and better capitalized competitors, and its
highly competitive operating environment. The Company primarily
competes with large-scale technology vendors such as IBM (rated
Aa3), HP (rated A2), CA (rated Baa2), and BMC Software
(rated Baa2) as well as several independent niche software providers.
The rating is supported by ASG's broad portfolio of well-regarded
mainframe and distributed enterprise management software products and
its recurring maintenance revenues (63% of total revenues) and
high contract renewal rates, which provide good revenue and cash
flow visibility. The rating also 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
will realize synergies from the recent acquisitions in a timely manner
such that Debt-to-EBITDA leverage will reduce to less than
5.0x over the next 12 months. The outlook incorporates expectations
of improving free cash flow generation through revenue growth rates of
mid- to high single digits, consistent with the growth rates
in the software industry segments in which ASG operates.
Moody's could downgrade ASG's ratings if leverage could not
be sustained below 5.0x as a result of underperformance relative
to expectations or delays in realizing the anticipated synergies.
Downward rating pressure could develop if revenue and EBITDA growth does
not materialize and free cash flow remains negative as a result of increasing
competitive pressures or erosion in market share.
Given ASG's elevated financial risk profile, Moody's
does not anticipate an upward rating movement in the near term.
Nonetheless, in the longer term Moody's could raise ASG's
ratings if the Company could sustain Debt-to-EBITDA (Moody's
adjusted) below 3.0x and generate free cash flow in excess of 10%
of its total debt through revenue and EBITDA growth.
Please see ASG's credit opinion on Moodys.com for additional information.
The last rating action for ASG was on November 5, 2010.
The principal methodology used in rating Allen Systems Group, Inc.
was the Global Software Industry Methodology, published May 2009.
Other methodologies used include Loss Given Default for Speculative Grade
Issuers in the US, Canada, and EMEA, published June
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 annual revenues of
approximately $263 million in 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, and confidential and proprietary Moody's
Investors Service 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 Ba2 rating to Allen Systems Group's incremental term loans; affirms B2 CFR with stable outlook
250 Greenwich Street
New York, NY 10007
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