Moody's rates WatchGuard, loans B2

Moody's Investors Service said it assigned first-time ratings to WatchGuard Technologies, Inc., including a B3 corporate family rating, a B3-PD probability of default rating and B2 ratings to the planned $550 million senior secured first-lien term loan and $75 million revolving credit facility.

The proceeds, an unrated $200 million second-lien term loan and a portion of new cash from a fund advised by Vector Capital, as well as the rollover equity from Vector Capital and management will be used to finance the acquisition of WatchGuard.

“WatchGuard's B3 CFR reflects the company's very high leverage at the close of the acquisition. Adjusted for multiple non-recurring expenses WatchGuard's debt/EBITDA is around 10x (or around 8x on a cash-based leverage including the change in deferred revenue and stock-based compensation minus change in deferred commission) as of March 31, 2022. Moody's expects that revenue growth in the mid-single digit range, similar to historic growth rates, as well as actioned and planned cost savings will allow WatchGuard to reduce its cash adjusted leverage to around 7x by the end of 2023,” the agency said in a press release.

The outlook is stable.

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