TEXT-S&P assigns Blue Coat Systems revolving credit 'BB-' ratings
Oct 5 - Standard & Poor's Ratings Services said today that it assigned its 'BB-' issue-level rating to Sunnyvale, Calif.-based Blue Coat Systems Inc.'s $25 million revolving credit facility (undrawn at closing) and $500 million first-lien term loan. Blue Coat intends to use the proceeds to redeem $487.8 million of its existing first- and second-lien term loans. However, the additional amount of first-lien debt in the new capital structure brings our estimated first-lien recovery to the low end of our '2' (70%-90%) recovery rating boundary, and we would likely lower the first-lien debt rating if the company incurred any further material amounts of first-lien debt. Blue Coat is refinancing its second-lien credit facilities as part of this transaction. The corporate credit rating and outlook are unaffected by the change of capital structure, as there is a very small amount of incremental debt. Pro forma for the transaction, the company's operating lease-adjusted debt to adjusted EBITDA is in the mid-4x area as of the latest 12 months ended July 31, 2012. Our adjusted EBITDA adds back the deferred revenue fair value adjustment of $45.3 million, resulting from purchase accounting for the Thoma Bravo acquisition on Feb. 15, 2012, restructuring expenses, acquisition transaction fees, and stock-based compensation expenses. We expect modest reduction in leverage in the near-to-intermediate term as the company benefits from the latest restructuring efforts and the recent increase in security and WAN optimization product bookings. The rating on Blue Coat reflects the company's "weak" business risk profile, characterized by its narrow product focus and significant competition from larger players, and its "aggressive" financial risk profile. The company's diversified customer base, significant level of recurring revenue, and moderate free cash flow generation partially offset these factors. (For the complete corporate credit rating rationale, see the summary analysis on Blue Coat, published Aug. 24, 2012, on RatingsDirect. For the complete recovery analysis, see the recovery report on Blue Coat, to be published as soon as possible following the release of this article.) RELATED CRITERIA AND RESEARCH -- Issuer Ranking: Global Technology Ratings, Strongest To Weakest, Sept. 27, 2012 -- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012 -- Industry Economic Outlook: Despite Economic Headwinds, Global Technology Shows Balanced Ratings Trend, July 9, 2012 -- Performance For U.S. Semiconductor Equipment Makers Has Been Volatile, But Ratings Remain Stable, June 11, 2012 -- Top 10 Investor Questions: How Will The Global Technology Industry Fare Amid An Economy In Flux?, April 26, 2012 -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011 -- Key Credit Factors: Methodology And Assumptions On Risks In The Global High Technology Industry, Oct. 15, 2009 -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 RATINGS LIST Blue Coat Systems Inc. Corporate Credit Rating B+/Stable/-- New Ratings Blue Coat Systems Inc. $25 mil. revolving credit facility BB- Recovery Rating 2 $500 mil. first-lien term loan BB- Recovery Rating 2 Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.