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Rating Action:

Moody's downgrades Aspect Software to Caa2

07 Dec 2015

New York, December 07, 2015 -- Moody's Investors Service ("Moody's") downgraded Aspect Software, Inc.'s corporate family rating to Caa2 from B3. Moody's also downgraded the 1st lien debt facilities to B3 from B1 and second lien notes to Caa3 from Caa2. The downgrade was driven by challenges the company is facing in offsetting declines in its legacy product lines, high debt levels and upcoming debt maturities. The ratings outlook is negative.

Ratings Rationale

Aspect's revolving credit facility matures in February 2016 and its term loan matures in May 2016. Though Aspect has made significant strides in offsetting declines in its legacy Signature lines, overall revenues and EBITDA continue to decline. Results have been exacerbated by unfavorable foreign exchange movements and the shift from upfront license sales to spread-over-time subscription sales. The company has grown its next generation unified IP contact center lines and its broad cloud offerings, and overall revenues and EBITDA are expected to return to growth over time. Given the uncertainty over that timing however, the high debt levels and imminent maturities, the ratings have been downgraded. The ratings reflect the risk that a default under Moody's definition, potentially through a distressed exchange, is possible over the next year given imminent debt maturities and very high leverage.

The Caa2 corporate family rating reflects Aspect's very high debt load, near term debt maturities and weak free cash flow at a time when the company faces challenges in turning around its revenues in the evolving contact center software market. Debt/EBITDA is approximately 8x based on LTM September 30, 2015 results. Although Aspect is a leader in many segments of the contact center software market, the company has had difficulty in offsetting declines in its legacy Signature business with its next generation products. And though the company continues to make strategic acquisitions and develop new products to bolster its suite of contact center offerings, restructuring and integration costs have hampered the company's cash flow. In addition, upcoming revolver and term loan maturities significantly limit the company's liquidity.

Though Aspect's longstanding leadership position in the contact center industry is a key ratings consideration, the business is evolving and it is unclear if the landscape will favor Aspect's full suite hardware and software competitors. Aspect remains particularly exposed to being displaced from its legacy installed base as customers consider contact center purchases as part of enterprise wide unified communications build-outs rather than stand-alone decisions - a shift that benefits some of Aspect's key competitors.

The ratings could be downgraded further if the company is unable to refinance its near term maturities or cash flow deteriorates further. Extensions of the maturity dates on the existing debt could also result in an assignment of a limited default. The ratings could be upgraded if existing debt is refinanced, free cash flow is expected to be positive and leverage is expected to be under 7.5x.

Liquidity is weak based on the near term debt maturities, limited cash balances and uncertainty over near term cash flow. The company's revolver was fully drawn as of September 30, 2015.

The following ratings were affected:

Downgrades:

..Issuer: Aspect Software, Inc.

.... Probability of Default Rating, Downgraded to Caa2-PD from B3-PD

.... Corporate Family Rating, Downgraded to Caa2 from B3

....1st Lien Senior Secured Bank Credit Facility, Downgraded to B3 (LGD 2) from B1 (LGD 2)

.... 2nd Lien Notes due 2017, Downgraded to Caa3 (LGD 5) from Caa2 (LGD 5)

Outlook Actions:

..Issuer: Aspect Software, Inc.

....Outlook, Negative

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.

Aspect is provider of contact center software solutions and services. The company, headquartered in Phoenix, AZ had revenue of $421 million for the twelve months ended September 30, 2015.

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.

Matthew B. Jones
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 downgrades Aspect Software to Caa2
No Related Data.
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