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Rating Action:

Moody's downgrades Vision Solutions CFR to B2 on dividend recap

Global Credit Research - 16 Mar 2011

Approximately $385 million in debt affected

New York, March 16, 2011 -- Moody's Investors Service downgraded Vision Solutions Inc.'s ("Vision") corporate family rating ("CFR") to B2 from B1 and assigned ratings to its new debt facilities -- senior secured first lien debt at B1 and senior secured second lien debt at Caa1. The new debt issued will refinance Vision's existing senior secured loans and fund a payment to the sponsors. Ratings on the existing senior secured loans will be withdrawn upon completion of the transaction. The rating outlook is stable .

The rating action is driven by the increase in Vision's debt to fund a $150 million payment to equity holders, and the indication that Vision is willing to operate at higher levels of financial leverage than in the past. The distribution comes about nine months after Vision bought Double-Take Software, Inc. for $153 million, which effectively doubled Vision's size.

RATINGS RATIONALE

The B2 CFR reflects high financial leverage (with debt to EBITDA estimated at 5.9x, pro forma the new debt as well as for a full year of Double-Take performance), aggressive financial policy, and limited scale. The ratings also recognize the company's strong position providing sophisticated high availability, recovery and related software for key IBM System i and Windows based server platforms.

The Double-Take acquisition positioned Vision to be one of the few recovery software providers that provide solutions to mixed IBM Power Systems and Windows server environments which should be a market advantage. The market for high availability and related software is expected to grow at 4-6% as complexity increases in server environments and a greater proportion of servers implement or upgrade their disaster recovery, replication, data migration and high availability systems.

While the overall industry is expected to grow, Vision's sales of IBM System i licenses are expected to grow at a slower rate. Though the IBM System i platform continues to be a well established machine in numerous transaction intensive environments, it is a mature line.

The ratings also consider the challenges of integrating the Double-Take acquisition, turning around its performance and improving its maintenance renewal rates to bring the performance up to industry levels. Double-Take, though well regarded in the industry, has experienced revenue declines. These declines likely reflect shortcomings in its product lineup that Vision must remedy to match industry growth.

Vision has made several acquisitions in the last several years and appears to have successfully integrated them, though none have been the size of Double-Take. Considering the challenges required in fixing Double-Take though, the ratings are viewed as weakly positioned in the B2 category given the high debt and financial leverage compared to other software companies also at the B2 rating level.

Ratings could face downward pressure if Double-Take revenues continue to decline or if leverage is expected to exceed 6x for an extended period. Given the company's willingness to use leverage as evidenced by this transaction, an upgrade is unlikely.

Liquidity is expected to be good post the dividend transaction driven by expectations of positive free cash flow and a small ($15 million) but undrawn revolver. Both businesses historically generated positive free cash flow although with smaller interest burdens.

The following rating was downgraded:

Corporate family rating to B2 from B1

The following ratings were unchanged

Probability of default: B2

Speculative Grade Liquidity Rating: SGL-2

The following ratings were assigned:

Sr. Secured Revolver due 2015, B1 (LGD3 -- 31%)

Sr. Secured First Lien Term Loan due 2016, B1 (LGD3 -- 31%)

Sr. Secured Second Lien Term Loan due 2017 Caa1 (LGD5 -- 85%)

Ratings on the existing debt facilities will be withdrawn at closing. Ratings on the proposed debt instruments were determined in conjunction with Moody's Loss Given Default Methodology. The first lien debt are rated B1, the same as the previous first lien debt which was similar in amount. The second lien debt rated at Caa1 to reflects the relatively lower priority in recovery of that instrument.

Moody's most recent rating action was June 17, 2010 when Moody's assigned first time ratings to Vision Solutions. The principal methodology used in rating Vision was Moody's Global Software Methodology, published in May 2009 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Vision Solutions, Inc., headquartered in Irvine, CA, is a provider of recovery and related software for IBM Power Systems and Windows based servers. Vision is majority owned and controlled by the private equity firm, Thoma Bravo. The company had pro forma sales of approximately $178 million for the fiscal year ended October 31, 2010.

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, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining 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
Matthew B. Jones
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Robert Jankowitz
Senior Vice President
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.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades Vision Solutions CFR to B2 on dividend recap
No Related Data.
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