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I AGREE
08 Feb 2011
Approximately $430 million of rated debt affected
New York, February 08, 2011 -- Moody's Investors Service downgraded Datatel, Inc.'s
("Datatel" or the "Company") Corporate Family
Rating to B2 from B1, and assigned B1 ratings to the Company's
proposed $295 million of first-lien senior secured credit
facilities and a Caa1 rating to the proposed $135 million second-lien
term loan. The Company plans to utilize net proceeds from the proposed
credit facilities and about $12 million of cash on hand to refinance
$277 million of existing debt and fund a $110 million dividend
to its shareholders. The outlook for ratings is stable.
The existing ratings for the Company's credit facilities were affirmed
and will be withdrawn upon their full repayment at close of the transaction.
Today's rating actions are subject to completion of the proposed refinancing
and dividend recapitalization transactions and Moody's review of final
documentation.
Moody's has taken the following rating actions:
Issuer: Datatel, Inc.
..Corporate Family Rating -- Lowered to B2
from B1
..Probability of Default Rating -- Lowered
to B2 from B1
....Proposed US$40 million 1st Lien
Revolver due 2016 -- Assigned, B1, LGD3,
32%
....Proposed US$255 million 1st Lien
Term Loan due 2017 -- Assigned, B1, LGD3,
32%
....Proposed US$135 million 2nd Lien
Term Loan due 2018 -- Assigned, Caa1, LGD5,
86%
....US$40 million 1st Lien Revolver
due 2014 -- Affirmed, Ba3, LGD3, 32%,
to be withdrawn
....US$165 million 1st Lien Term Loan
due 2015 -- Affirmed, Ba3, LGD3, 32%,
to be withdrawn
....US$100 million 2nd Lien Term Loan
due 2016 -- Affirmed, B3, LGD5, 86%,
to be withdrawn
RATINGS RATIONALE
The downgrade of Datatel's Corporate Family Rating (CFR) to B2 primarily
reflects the high financial risk tolerance and shareholder orientation
of the Company's financial sponsors. The proposed debt-funded
distribution to the Company's shareholders is expected to increase Datatel's
Debt-to-EBITDA leverage by about 2.0x to 6.8x
based on LTM 3Q EBITDA (incorporating Moody's standard analytical adjustments).
Moody's believes that the deterioration in the Company's credit profile
resulting from the increase in debt, which follows the Company's
leveraged buyout in December 2009, is no longer supportive of a
B1 CFR given the Company's business risk profile. Notwithstanding
Datatel's strong operating performance and good free cash flow generation,
the downgrade considers the uncertainty that anticipated deleveraging
may not be realized or continue to get postponed as shareholder distributions
are prioritized over debt reduction.
Datatel's B2 CFR reflects the Company's strong and defensible market position
as a leading provider of enterprise resource planning (ERP) software solutions
to the North American higher education institutions. The Company's
customer base has steadily grown and it now provides ERP solutions to
about 800 institutions. The rating is supported by Datatel's high
levels of recurring maintenance revenue and its very high customer retention
rates in the 98% range, which provide very good near-term
visibility into the Company's cash flow generation. However,
the rating is constrained by the Company's small scale relative to some
of its larger competitors, its niche market focus, and high
financial risk tolerance.
The stable ratings outlook reflects Moody's expectation that Datatel's
market position and profitability will continue to improve over the next
12-to-18 months, its credit metrics should improve
driven by organic EBITDA growth and debt repayment, and that the
Company will maintain good liquidity over this period.
What Could Change the Rating -- Up
Moody's does not anticipate upward rating momentum in the near term,
given Datatel's weak credit metrics subsequent to the proposed dividend
recapitalization and its track record of shareholder-oriented fiscal
policies.
What Could Change the Rating -- Down
Datatel's rating could be downgraded if the Company's operating
performance falls short of expectations and its debt-to-EBITDA
leverage remains above 6.5x over an extended period of time.
The rating could come under downward pressure if the Company's competitive
position becomes weak, free cash flow declines to less than 5%
of total debt, or liquidity deteriorates unexpectedly. Additionally,
large debt-funded acquisitions or shareholder returns which result
in leverage exceeding 6.5x for a prolonged period of time,
could put downward pressure on the rating.
For further details, refer to Moody's Credit Opinion on Datatel,
Inc. on www.moodys.com.
Moody's last rating action was on November 19, 2009, when
Moody's assigned ratings to Datatel's new credit facilities in conjunction
with the Company's leveraged buyout by private equity sponsors Hellman
& Friedman LLC and JMI Equity.
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 Fairfax, VA, Datatel provides ERP software
solutions and professional business services to higher education institutions
in North America.
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 assigning/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
Raj Joshi
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.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's lowers Datatel's CFR to B2; Outlook is stable
No Related Data.
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