TEXT - S&P affirms Sungard 'B' rating

Thu Dec 6, 2012 10:42am EST

Overview
     -- U.S. software and technology services company SunGard Data Systems 
Inc. is issuing $720 million of incremental term loan B to fund a planned $750 
million dividend payment to shareholders. It is also amending its current 
agreement to allow for the borrowing and payment of the dividend, as well as 
to allow for additional operating flexibility.
     -- We are affirming our 'B+' corporate credit rating on SunGard. The 
existing issue-level ratings on the outstanding debt are also affirmed and the 
recovery ratings are unchanged.
     -- In addition, we are assigning a 'BB' issue-level rating to the 
proposed incremental term loan B.
     -- The stable outlook reflects the company's strong market position and 
consistent operating performance.

Rating Action
On Dec. 6, 2012, Standard & Poor's Ratings Services affirmed its 'B+' 
corporate credit rating on Wayne, Pa.-based SunGard Data Systems Inc. The 
outlook is stable.

We also affirmed our 'BB' issue-level rating on the company's existing senior 
secured notes, term loan B, and revolving credit facility (two notches above 
the corporate credit rating). The recovery rating on this debt remains '1', 
indicating our expectation that lenders can expect very high (90% to 100%) 
recovery in the event of a payment default.

In addition, we are assigning our 'BB' bank loan rating with a recovery rating 
of '1' to the new extended term loan B tranche D.

We affirmed our 'B' issue-level rating on the outstanding senior notes. The 
'5' recovery rating indicates our expectation that lenders that can expect 
modest recovery (10% to 30%) in the event of a payment default. Our 'B-' 
rating on the outstanding subordinated notes is unchanged. The recovery rating 
on the notes is '6', indicating our expectation of negligible (0% to 10%) 
recovery in the event of a payment default.

Rationale
The ratings on software and technology services company SunGard Data Systems 
Inc. reflect Standard & Poor's Ratings Services' expectation that the 
company's "satisfactory" business risk profile and significant base of 
recurring revenues will continue to support its "highly leveraged" financial 
risk profile. The ratings also reflect SunGard's healthy cash flow generation 
and strong position in the fragmented market for investment-support processing 
software.

SunGard reported revenues of $3.1 billion for the nine months ended Sept. 30, 
2012, compared with $3.3 billion the prior year. The Financial Systems 
segment, which accounts for nearly two-thirds of revenues, experienced a 5% 
decline (4% decline on a constant currency basis), largely because of a 
decline in the broker/dealer business and several significant license 
transactions that occurred in 2011 with no comparable deals in 2012. The 
Availability Services segment (about 33% of total revenues) reported a 4% 
decline (down 3% on a constant currency basis), largely because of decreases 
in recovery services. This segment has suffered pressure from mature disaster 
recovery market conditions, a shift in customer demand to broader availability 
solutions, and competitive pricing pressure. EBITDA of $1.2 billion and 
margins of 29.9% for the 12 months ended September compared with the year 
earlier level of $1.3 billion and 29.2%, respectively. SunGard has previously 
indicated that it is evaluating alternatives with respect to its Availability 
Services segment, including a potential spinoff of the business. However, the 
success, timing, and capital structure of SunGard following any potential 
actions are uncertain and we are currently not incorporating them into our 
ratings or outlook. We will assess the effect of any transaction if and when 
there is a proposal to evaluate. The company closed on the sale of its Higher 
Education business, which accounted for 11% of its revenues in 2011, in 
January 2012 for $1.775 billion.

EBITDA margins are subject to moderate seasonal variation, but have 
consistently been in the mid- to high-20% area on an annual basis. SunGard's 
revenue and earnings predictability benefits from high contractually recurring 
revenues, high customer switching costs, and defensible market positions. We 
expect moderate acquisition activity will enhance organic growth opportunities 
and product portfolio diversity.

The ratio of total debt to EBITDA was 5.7x as of Sept. 30, 2012, compared with 
6.7x at year-end 2011. The company applied net proceeds of $1.2 billion from 
the sale of the Higher Education business in January to debt repayment. With 
the contemplated dividend and associated financing, pro forma year-end 2012  
leverage will be about 6.8x, in line with the year-earlier level. The current 
rating and outlook incorporate the expectation that the company will largely 
use free operating cash flow for internal investment and acquisitions in the 
future. As a result, we expect total adjusted debt to EBITDA to remain in the 
mid-6x area over the medium term. While a spinoff of the Availability Services 
segment would reduce business diversity and cash flow, it could potentially 
also reduce the remaining debt burden at SunGard.

Liquidity
SunGard has "adequate" liquidity, with sources of cash likely to substantially 
exceed uses for the next 12 to 24 months. Cash sources include cash and 
short-term investment balances of $752 million as of Sept. 30, 2012, and 
likely positive annual discretionary cash flow in the near term. We expect 
uses to include moderate working capital investments and annual capital 
expenditures of about $300 million.

Relevant aspects of SunGard's liquidity, in our view, are as follows:
     -- We see coverage of uses to be in excess of 1.5x for the next 12 
months, in part reflecting minimal near-term debt maturities.
     -- We expect that net sources would be positive in the near term, even 
with a 30% decline in EBITDA from December 2011 full-year levels.
     -- In addition to cash balances, access to revolving credit 
facilities--totaling $880 million and maturing in November 2016--provide 
liquidity.
     -- SunGard expects to amend its existing credit agreement to  provide  
adequate headroom under its financial covenants following the dividend.
     -- We expect the company would use some of its cash to repay debt.

Recovery rating
We rate SunGard's secured debt 'BB' (two notches above the corporate credit 
rating) with a recovery rating of '1', indicating our expectation of very high 
(90% to 100%) recovery in the event of a payment default. We rate the 
unsecured senior debt 'B', one notch below our corporate credit rating) with a 
recovery rating of '5', indicating our expectation of modest recovery (10% to 
30%). We rate the subordinated debt 'B-' (two notches below the corporate 
credit rating) with a recovery rating of '6', indicating our expectation of 
negligible (0% to 10%) recovery. (For the complete recovery analysis, see 
Standard & Poor's the recovery report on SunGard published Feb. 24, 2012, on 
RatingsDirect.

Outlook
Our stable outlook reflects SunGard's strong market position in diversified 
market segments and consistent operating performance. The dividend 
recapitalization is in line with our view that the company's private-equity 
ownership structure is likely to prevent sustained debt reduction and 
currently limits any potential for an upgrade. The company's defensible market 
positions and high recurring revenue base lessen the potential for credit 
deterioration. However, sustained leverage in excess of 7x because of 
acquisitions or shareholder-friendly initiatives could lead to lower ratings.

Related Criteria And Research
     -- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012
     -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
     -- Use Of CreditWatch And Outlooks, Sept. 14, 2009
     -- Criteria Guidelines For Recovery Ratings, Aug. 10, 2009
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
     -- 2008 Corporate Criteria: Rating Each Issue, April 15, 2008
     -- 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008


Temporary contact number: Jacob Schlanger (917-371-5651)

Ratings List

Ratings Affirmed

SunGard Data Systems Inc.
 Corporate Credit Rating                B+/Stable/--       

SunGard Data Systems Inc.
 Senior Secured                         BB                 
  Recovery Rating                       1

 Senior Unsecured                       B                  
  Recovery Rating                       5
 Subordinated                           B-                 
  Recovery Rating                       6

New Rating

SunGard Data Systems Inc.
 Senior Secured
  US$720 mil term B tranche D bank ln   BB                 
  due 2019                              
   Recovery Rating                      1