Research Update: Linux Software And Service Provider SUSE Downgraded To 'B+' On Debt-Funded Delisting; Outlook Stable

Private equity firm EQT, the majority owner of Linux software and service provider SUSE, is privatizing the publicly listed company with funding supported by a new €500 million term loan. We forecast the transaction will send S&P Global Ratings-adjusted debt to EBITDA over 5.0x in fiscals 2023-2024 (ending Oct. 31), from 3.3x in fiscal 2022, and materially lower free operating cash flow (FOCF) to debt to below 10.0% over the same period, from 18.4% in fiscal 2022. Although we think SUSE's sound profitability, cash flow, and prudent leverage target supports its credit quality, the company's topline growth is likely to be up against persistent headwinds over the short term. We therefore lowered our issuer credit and issue ratings on SUSE

...- Private equity firm EQT, the majority owner of Linux software and service provider SUSE, is privatizing the publicly listed company with funding supported by a new 500 million term loan. - We forecast the transaction will send S&P Global Ratings-adjusted debt to EBITDA over 5.0x in fiscals 2023-2024 (ending Oct. 31), from 3.3x in fiscal 2022, and materially lower free operating cash flow (FOCF) to debt to below 10.0% over the same period, from 18.4% in fiscal 2022. - Although we think SUSE's sound profitability, cash flow, and prudent leverage target supports its credit quality, the company's topline growth is likely to be up against persistent headwinds over the short term. - We therefore lowered our issuer credit and issue ratings on SUSE and its senior secured debt to 'B+' from '##-', and removed the ratings from CreditWatch negative, where we placed them on Aug. 24, 2023. Also, we assigned our 'B+' issue rating to the new 500 million term loan. - The stable outlook reflects our view...

Research Update