S&P rates Micro Focus loans BB-

S&P said it assigned its BB- issue rating to the $885 million and $2.6 billion pari passu senior secured term loans to be borrowed by MA FinanceCo., LLC, a subsidiary of Micro Focus International plc and Seattle SpinCo Inc., a company that will be wholly owned by Micro Focus and hold the assets of HPE Software.

The recovery rating is 3, indicating an expectation of meaningful (rounded estimate: 55%) recovery prospects in the event of default.

The pari passu status will be achieved through a customary intercreditor agreement and a shared guarantee and identical collateral package.

The agency also affirmed its BB- issue ratings on Micro Focus' outstanding senior secured debt, comprising a $1,103 million term loan B, $412 million term loan C and increased $500 million revolving credit facility (RCF). The recovery rating is unchanged at 3.

S&P said the recovery rating is supported by the limited amount of prior-ranking liabilities and the senior position of the debt in the capital structure, but constrained by the large amount of pari passu secured debt and the security and guarantee package. The agency views this package as weak because it is primarily comprised of share pledges over all obligors' shares, bank accounts, intercompany receivables and certain low value tangible assets.

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