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Rating Action:

Moody's assigns first-time B2 rating to Flexera Software; ratings outlook stable

30 Nov 2010

Approximately $215 million of debt rated affected

New York, November 30, 2010 -- Moody's Investors Service has assigned first-time corporate family rating ("CFR") of B2 to Flexera Software Inc. ("Flexera" or the "Company"). Concurrently, Moody's assigned a B3 probability of default ("PDR") rating and B2 ratings to the company's proposed $15 million Senior Secured Revolving Credit Facility due 2015 and $200 Million Senior Secured Term Loan due 2016. The rating outlook is stable.

The net proceeds from the new credit facilities will be used to refinance the Company's existing debt and issue a shareholder distribution of approximately $90 million.

RATINGS RATIONALE

The B2 CFR reflects Flexera's moderate pro-forma leverage and the company's modest overall size / scale and concentrated business profile as a specialty provider of application usage management solutions to independent software vendors, device manufacturers, and enterprise IT customers. In addition, the rating is constrained by Flexera's majority ownership structure by a financial sponsor, which confers a degree of event risk, as the financial sponsors' interests may not be aligned with those of debt-holders.

Conversely, the B2 CFR is supported by Flexera's competitive market position and well-regarded product offerings within its niche, but growing, markets; its deep-domain expertise and large installed base of customers, its high level of recurring revenues combined with high renewal rates in the 90%-range, and its good liquidity position supported by healthy profit margins and solid free cash flow generation prospects.

Pro forma for the proposed transaction, Flexera's debt leverage as measured by debt to EBITDA (including Moody's standard analytical adjustments) will be approximately in the 4.1x-range based on pro forma adjusted financial results for the trailing twelve months, which is solid for the B2-rating category.

The stable outlook reflects Moody's expectation that Flexera will continue to maintain its competitive market position and generate solid revenue growth in the mid-single digits percentages as the Company benefits from the generally favorable trends within the application usage management market. The outlook also incorporates Moody's expectation that Flexera will maintain a good liquidity position and will use excess free cash flow to reduce debt and make small targeted acquisitions to build out its product portfolio.

Ratings could be downgraded if Flexera were to experience significant declines in revenue and cash flow due to reasons including poor execution and heightened competition or its financial policies become overly shareholder-friendly, which results in a degradation of credit metrics. Specifically, negative rating pressure could arise if expected revenue growth does not materialize or if the Company is unable to maintain leverage below 5.0x and free cash flow falls below 10% of its adjusted debt. Given Flexera's modest scale, niche product focus, and the potential for future shareholder distributions, a ratings upgrade is unlikely over the near-term. However, to the extent that the Company is able to increase its scale while maintaining a conservative leverage profile and good liquidity position, the ratings or the outlook could come under upward pressure.

The following ratings were assigned:

Corporate Family Rating -- B2

Probability of Default Rating -- B3

Proposed $15 Million Senior Secured Revolving Credit Facility due 2015 -- B2 (LGD3 - 35%)

Proposed $200 Million Senior Secured Term Loan due 2016 -- B2 (LGD3 - 35%)

The assigned ratings are subject to satisfactory review of final documentation and no material change in the terms and conditions of the transaction as advised to Moody's.

The principal methodologies used in this rating were Global Software Industry published in May 2009, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

Headquartered in Schaumburg, IL, Flexera Software, Inc. provides application usage management products and services to software vendors and enterprise customers to facilitate electronic entitlement management, software asset management, compliance and electronic downloading installations. Pro forma revenues for the LTM period ended September 30, 2010 were approximately $136 million.

REGULATORY DISCLOSURES

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.

New York
Kyle Chen
Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Kendra M. Smith
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.

Moody's assigns first-time B2 rating to Flexera Software; ratings outlook stable
No Related Data.
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