- Rating affirmed at B2
- Firm refinancing $2B in loans
- LBO was harbinger of club deals
Even so, the credit rating agency affirmed its B2 rating on the Wayne, Pa., company, which has $7.5 billion of rated debt. In Moody’s system, a B rating is considered speculative and subject to high credit risk.
When SunGard was taken private in August 2005 in an $11.4 billion buyout, it stood as the largest take-private of a technology company ever and the second-largest LBO of any kind. The transaction—led by Silver Lake and including The Blackstone Group LP, Kohlberg, Kravis, Roberts & Co. LP, Providence Equity Partners LLC and HarbourVest Partners LLC—heralded an age of mega deals undertaken by consortia of buyout shops.
Moody’s report came as SunGard taps the debt market to refinance its loans with a new $2 billion loan at a lower spread, as sister service Thomson Reuters Loan Pricing Corp. reported. About a third of SunGard’s revenue comes from its computer back-up business, which provides emergency housing for banks and other businesses that could suffer disruptions as a result of accidents, weather, terrorism or other causes. More than 60 percent comes from its financial systems unit, which offers a range of data processing systems.
In its most recent earnings report, from the quarter ended Sept. 30, SunGard fell to an operating loss of $279 million, in contrast to operating income of $63 million a year earlier. Revenue fell almost 6 percent to $1.035 billion. The weak third quarter also pulled down the company’s nine-month results, with an operating loss of $122 million reversing operating income of $190 million through the first three quarters of 2011, and revenue down nearly 5 percent to $3.1 billion.
“SunGard has not executed effectively in a recovery/business continuity industry that is otherwise showing growth,” Moody’s said in its rating report. Even so, the ratings agency reported, SunGard reduced its total debt by $1.2 billion to $6.7 billion as of Dec. 31, largely as the result of the company’s sale of its higher education business, using its $1.22 billion proceeds to pay down some of its senior loans. SunGard sold the unit last year for $1.78 billion to buyout shop Hellman & Friedman LLC, which said at the time of the deal’s announcement in August that it planned to combine the business with its portfolio company Datatel, which develops software for colleges and universities.
SunGard also repaid $717 million of other debt last year, Moody’s said. However, this was offset by new debt of $720 million to fund a dividend payment. Sister Web site peHUB reported in December that the payout was the company’s first in seven years of sponsor backing. Moody’s said SunGard’s debt ratio has improved by more than a turn to about 5.7x EBITDA as of Dec. 31, Moody’s said.
Neither SunGard nor Silver Lake replied by deadline to a request for comment.