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Rating Action:

Moody's rates SunGard secured debt at Ba3; CFR affirmed at B2

Global Credit Research - 20 Feb 2013

About $7.5 billion of rated debt

New York, February 20, 2013 -- Moody's Investors Service assigned a Ba3 rating to SunGard Data Systems Inc.'s (SunGard) proposed $2 billion senior secured term loan B due 2020. All other ratings, including the B2 corporate family rating (CFR), were affirmed. The rating outlook is stable. Proceeds from the new debt are expected to be used to repay the $1.7 billion term loan due 2016 and a portion of the $908 million term loan due 2017.

RATINGS RATIONALE

The B2 corporate family rating (CFR) reflects our expectation that SunGard's financial leverage will likely remain elevated in the mid to high 5 times range through 2013. The rating also incorporates the underperformance of the Availability Services (AS) business relative to the Financial Systems (FS) business. AS' revenues and profits have deteriorated in recent years, as SunGard has not executed effectively in a recovery/business continuity industry that is otherwise showing growth.

SunGard has made solid progress in reducing debt during 2012. Total reported debt was reduced by $1.2 billion to $6.7 billion as of December 31, 2012 driven by the sale of its Higher Education (HE) business, in which net proceeds of $1.22 billion were used to repay some of its senior secured credit facility term loans. SunGard also repaid $717 million of other debt, however, this was offset by new debt of $720 million to fund a dividend payment. With the debt reduction, adjusted debt to EBITDA has improved by over a turn to about 5.7 times as of December 31, 2012.

The dividend payment issued in December 2012 to the private equity owners was a reversal of SunGard's recent debt reduction initiatives. We believe this will likely delay the anticipated initial public offering (IPO). For a viable IPO story, we think that SunGard will have to demonstrate sustained organic revenue growth in its core FS business and stabilize the AS business.

Consistent revenue and profitability growth (in the low single digits) with adjusted debt to EBITDA under 5x on a sustained basis could result in a higher rating. The rating could be lowered if revenue or operating profitability were to decline (e.g., continued revenue and operating margin erosion in Availability Services) such that the company's ratio of adjusted debt to EBITDA were to exceed 6.5x or free cash flow were to fall below $300 million on a sustained basis.

The stable outlook reflects our expectation of flat revenue growth in 2013 given the weakness in the global financial services industry and the time required to turnaround the Availability Services business. We expect modest improvement to its financial leverage arising from cost savings and annual free cash flow of about $400 million. The stable outlook also assumes SunGard will not increase its debt leverage significantly or make any further dividend payments to its private equity sponsors.

Ratings assigned at Sungard Data Systems Inc.:

Senior Secured Term Loan B, Tranche E -- rated Ba3 (LGD 2, 27%)

Senior Secured Revolving Credit Facility due 2018 -- rated Ba3 (LGD 2, 27%)

Ratings affirmed at Sungard Data Systems Inc.:

Corporate Family Rating -- rated B2

Probability of Default -- rated B2-PD

Speculative Grade Liquidity Rating -- rated SGL-1

Senior Unsecured Global Notes due 2018 -- affirmed at Caa1 and a LGD point estimates changed to (LGD 5, 78% from 75%)

Senior Unsecured Global Notes due 2020 -- affirmed at Caa1 and a LGD point estimates changed to (LGD 5, 78% from 75%)

Senior Subordinated Global Notes due 2019 -- affirmed at Caa1 (LGD 6, 93%)

Senior Secured Revolving Credit Facility due 2016 -- affirmed at Ba3 and a LGD point estimates changed to (LGD 2, 27% from 22%)

Senior Secured Term Loan B, Tranche A due 2014 -- affirmed at Ba3 and a LGD point estimates changed to (LGD 2, 27% from 22%)

Senior Secured Term Loan B due 2016 -- affirmed at Ba3 and a LGD point estimates changed to (LGD 2, 27% from 22%)

Senior Secured Term Loan due 2014 -- affirmed at Ba3 and a LGD point estimates changed to (LGD 2, 27% from 22%)

Senior Secured Term Loan C due 2017 -- affirmed at Ba3 and a LGD point estimates changed to (LGD 2, 27% from 22%)

Senior Secured Term Loan B, Tranche D due 2020 -- affirmed at Ba3 and a LGD point estimates changed to (LGD 2, 27% from 28%)

Moody's affirmed the following at SunGard Data Systems Inc. (Old)

Senior Global Notes due 2014 -- affirmed at B3 (LGD4-64%)

The rating outlook is stable.

With over $4.2 billion of projected annual revenues, SunGard Data Systems Inc. is a provider of software and IT services, and is owned by a consortium of private equity investors (including Bain, Blackstone, KKR, Silver Lake, Texas Pacific Group, GS Partners, and Providence Equity).

The principal methodology used in this rating was the Global Business & Consumer Service Industry Methodology published in October 2010. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

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.

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.

Stephen Sohn
VP - Senior Credit Officer
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

Robert P Jankowitz
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 rates SunGard secured debt at Ba3; CFR affirmed at B2
No Related Data.

 

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