Moody's: Blue Coat loans B2

Moody's Investors Service said it assigned a B2 (LGD3, 49%) rating to Blue Coat Systems, Inc.'s proposed senior secured credit facilities comprising a $25 million revolving credit facility due 2018 and a $675 million first-lien term loan.

The agency also affirmed Blue Coat's B2 corporate family rating, affirmed its $25 million senior secured revolver due 2017 and $500 million senior secured first-lien term loan due 2018 at B2 (LGD3, 33%) and revised its probability of default rating to B2-PD from B3-PD. The outlook is stable.

Proceeds, coupled with about $33 million of cash on hand, will be used to refinance existing credit facilities and to fund an acquisition of a target company.

Notwithstanding the strategic merits of the combination, the debt-financed purchase of the target company, which does not generate profits and has modest revenues, will erode Blue Coat's financial cushion in the existing B2 corporate family rating, the agency said. Moody's expects Blue Coat's total debt-to-EBITDA ratio to increase by about 1.3 times to 4.3 times.

The affirmation of the B2 corporate family rating reflects Moody's view that Blue Coat will prioritize integrating its recent acquisitions and also recognizes Blue Coat's meaningful improvement in profitability through cost efficiencies and improved sales execution in the last 12 months, the agency said.

Moody's said the revision of the probability of default rating reflects the lack of a maintenance covenant in the term loan facility and, as a result, the potential for lower recovery for the new credit facilities relative to the previous facilities.

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