S&P rates Cloud Software notes B-

S&P said it assigned B- issue-level and 5 recovery ratings to Cloud Software Group Inc.'s (formerly Tibco Software Inc.) planned $3.8376 billion of senior secured second-lien notes due September 2029. The 5 recovery rating indicates modest (10%-30%; rounded estimate: 15%) recovery in default.

Under the proposed transaction, the company will use the proceeds and cash on hand, to refinance all the outstanding borrowings under the second-lien bridge facility issued in connection with its recent merger and held by respective affiliates of the bank group that supported the leveraged buyout.

Concurrently, S&P said it assigned B issue-level and 3 recovery ratings to Cloud Software's previously issued first-lien euro-denominated term loans, which include a €500 million term loan it used to finance the merger and an incremental term loan B (€250 million of aggregate principal) it issued on Jan. 27. The 3 recovery rating indicates meaningful (50%-70%; rounded estimate: 55%) recovery in default.

The company used the incremental term loan to repay about $271.4 million of the principal outstanding on its $2.5 billion first-lien term loan A due 2028, which it issued at the time of the merger.

“Since the close of the merger, Cloud Software has made significant progress in integrating Citrix and Tibco, including actioning roughly $432 million of its targeted $485 million of cost savings. While this puts the company slightly ahead of our initial expectations, there remain uncertainties regarding the timing of any remaining cash outflows tied to its recent actions, the costs to achieve the remaining synergies, and the long-term impact of the merger on its customer relationships and future operating prospects. However, its progress tempers the risk of integration missteps and cost-saving delays and bolsters our confidence that its improving profitability and cash flow generation will support a gradual reduction in its leverage to about 8.5x by the end of fiscal year 2024.

“As such, our B issuer credit rating and stable outlook on Cloud Software, as well as our B issue-level rating and 3 recovery rating on its $4.05 billion first-lien term loan B due 2029, $4 billion of first lien notes due 2029, 2027 Citrix rollover notes, and $1 billion of revolving credit facilities due 2027, are unchanged,” S&P said in a press release.

The outlook is stable.

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