S&P cuts Rocket Software, rates loans B, B-

S&P said it lowered its issuer credit rating on Rocket Software Inc. to B from B+. The outlook is stable.

At the same time, S&P assigned a B issue-level rating to the company's proposed $1.24 billion senior secured first-lien term loan and $125 million revolving credit facility. The 3 recovery rating indicates an expectation of meaningful (50%-70%; rounded estimate: 60%) recovery in the event of a payment default.

S&P also assigned a B- issue level rating to the company's proposed $320 million second-lien term loan. The 5 recovery rating indicates an expectation for modest (10%-30%; rounded estimate: 10%) recovery of principal in the event of a payment default.

“The downgrade reflects the increase in S&P Global Ratings-adjusted leverage to the high-6x area following close of the proposed transaction, which is above our downside leverage threshold of 6x,” S&P said in a news release.

“It also reflects our expectation that leverage will stay above 6x over the next 12-24 months, given the company's acquisitive track record and its intention to use its free cash flow to fund tuck-in acquisitions.”

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