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Rating Action:

Moody's revises Activant's outlook to stable from negative

03 Nov 2010

Approximately $540 million in debt affected

New York, November 03, 2010 -- Moody's Investors Service affirmed Activant Solutions, Inc.'s B2 CFR and related ratings, assigned B1 ratings to the new extended secured term loan and revised the company's ratings outlook to stable from negative. The outlook revision was based on the loosening of financial maintenance covenants and extension of senior loan maturities in the proposed senior debt amendment and extension as well as stabilization of revenues after several years of declines. The company's Speculative Grade Liquidity rating will be revised to SGL-2 from SGL-3 pending the completion of the amendment and extension, reflecting the resultant improved liquidity. The amendment and extension are expected to pass, however, if they do not, the ratings could face downward pressure.

RATINGS RATIONALE

The amendment alleviates a May 2011 near term revolver maturity as well as significant step-downs in financial covenants. The amendment extends the maturity of a minimum of $250 million of the existing $319 million Term Loan B to 2016 from 2013 and a minimum of $33 million of the existing $40 million revolving loans to 2013 from 2011. Lenders not participating in the amendment will keep their original maturity dates. The amendment also delays the step down in financial maintenance covenants (and the final step down in the Total Leverage Ratio to 3.75x will be effectively pushed back to March 31, 2013 from December 31, 2010). The near term liquidity also improves significantly as a result of the extension of the revolver and loosened covenants.

Revenues have stabilized over the past several quarters after several years of year over year organic revenue declines. Activant's end markets were hard hit by the downturn and while new system sales were particularly hard hit, service revenues held fairly flat. The company was also able to maintain EBITDA and cash flow levels during this period through significant cost cutting measures.

Activant's B2 corporate family rating (CFR) reflects the company's high level of debt particularly given the modest organic growth characteristics of the company and its susceptibility to economic cycles. The ratings also incorporate the company's acquisition appetite and potential for further debt financed acquisitions. However, these risks are partially mitigated by the generally high recurring nature of the company's business and incumbent cash flows which stem from Activant's expertise and strong customer following in the automotive, hardline/lumber and wholesale and distribution markets.

The following ratings were affirmed:

Corporate Family Rating, B2

Probability of Default Rating, B2

Senior secured revolving credit facility due 2011 -- B1 LGD3 (36%)

Senior secured term loan due 2013 -- B1 LGD3 (36%)

$114 million senior subordinated notes due 2016 -- Caa1, LGD5 (89%)

The following ratings and outlook were assigned

Senior secured revolving credit facility due 2013 -- B1 LGD3 (36%)

Senior secured term loan due 2016 -- B1 LGD3 (36%)

Ratings outlook: stable

The following will be revised pending closing of the amendment and extension:

Speculative Grade Liquidity: SGL-2 from SGL-3

Moody's most recent rating announcement on Activant was June 3, 2008, when Moody's revised Activant's outlook to negative and Speculative Grade Liquidity to SGL-3.

The principal methodologies used in this rating were Moody's Global Software Methodology 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.

Activant is a leading provider of enterprise software and systems to small to medium sized retail and wholesale businesses in the automotive parts, hardlines and lumber, and wholesale and distribution business industries in the United States and Canada. Activant is headquartered in Livermore, CA.

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 a credit rating.

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Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

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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
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
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Moody's revises Activant's outlook to stable from negative
No Related Data.
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