Research Update: Marcel LUX IV Assigned 'B' Preliminary Rating On Expected Leveraged Buyout Of SUSE; Outlook Stable

In July 2018, private equity investor EQT Partners signed a definitive agreement to acquire software solutions provider SUSE Linux from Micro Focus for $2.535 billion cash. The transaction will be funded by $675 million equivalent first-lien term loans, $270 million second-lien term loans, and sponsor equity. The rating is constrained by our forecast debt metrics, carve-out related uncertainties, SUSE's small scale and strong dependency on its key server product, and lack of intellectual property compared with software peers. The rating is supported by the company's predominantly subscription-based business model and high free cash flow conversion. We are assigning our preliminary 'B' ratings to newly formed intermediate holding company Marcel LUX IV (SUSE) and to the proposed $675 million secured term

...+ In July 2018, private equity investor EQT Partners signed a definitive agreement to acquire software solutions provider SUSE Linux from Micro Focus for $2.535 billion cash. + The transaction will be funded by $675 million equivalent first-lien term loans, $270 million second-lien term loans, and sponsor equity. + The rating is constrained by our forecast debt metrics, carve-out related uncertainties, SUSE's small scale and strong dependency on its key server product, and lack of intellectual property compared with software peers. The rating is supported by the company's predominantly subscription-based business model and high free cash flow conversion. + We are assigning our preliminary 'B' ratings to newly formed intermediate holding company Marcel LUX IV (SUSE) and to the proposed $675 million secured 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...

Research Update