Research Update: Linux Software And Services Provider Marcel LUX IV (SUSE) Rated 'B'; Outlook Stable

In March 2019, private equity investor EQT completed the leveraged buyout of software solutions provider SUSE Linux from Micro Focus for about $2.5 billion, funded by about $970 million of term loans, and sponsor equity. We forecast weak debt metrics for SUSE and see carve-out related uncertainties, while SUSE also has a small scale by revenues, strong dependency on its key server product, and a lack of intellectual property compared with software peers. We view positively the company's predominantly subscription-based business model and high free cash flow conversion. We are assigning our 'B' ratings to newly formed intermediate holding company Marcel LUX IV (SUSE) and to the $700 million equivalent secured first-lien term loan and $81 million revolving credit facility.

...- In March 2019, private equity investor EQT completed the leveraged buyout of software solutions provider SUSE Linux from Micro Focus for about $2.5 billion, funded by about $970 million of term loans, and sponsor equity. - We forecast weak debt metrics for SUSE and see carve-out related uncertainties, while SUSE also has a small scale by revenues, strong dependency on its key server product, and a lack of intellectual property compared with software peers. - We view positively the company's predominantly subscription-based business model and high free cash flow conversion. - We are assigning our 'B' ratings to newly formed intermediate holding company Marcel LUX IV (SUSE) and to the $700 million equivalent secured first-lien term loan and $81 million revolving credit facility. - The stable outlook reflects our expectation that strong revenue growth and adjusted EBITDA margins of 24%-26% in the 12 months following transaction close will enable SUSE to reduce adjusted debt to EBITDA (excluding...

Research Update