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Citrix Systems, Inc. -- Moody's affirms Citrix's Baa3 senior unsecured rating upon Wrike debt financing; outlook stable

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Rating Action: Moody's affirms Citrix's Baa3 senior unsecured rating upon Wrike debt financing; outlook stableGlobal Credit Research - 09 Feb 2021New York, February 09, 2021 -- Moody's Investors Service ("Moody's") affirmed Citrix Systems, Inc.'s (Citrix) Baa3 senior unsecured rating and assigned a Baa3 rating to the proposed note offering. The net proceeds from the proposed notes and a new senior unsecured term loan (unrated), along with cash on hand, will be used to fund the $2.25 billion acquisition of Wrike. The outlook is stable.Although adjusted leverage increases significantly at close of the acquisition, Moody's expects Citrix will pay down debt quickly and return leverage and debt to historic levels within two years of closing. Debt to EBITDA pro forma for the transaction will be approximately 4.8x based on September 2020 trailing results, up from actual leverage of 2.7x. Moody's expects Citrix to reduce leverage to below 3x over the next two years through a combination of debt repayment and profit growth.The Wrike acquisition adds a fast growing set of work management and related collaboration tools to Citrix's virtual workspace and network software and appliances. However, Wrike's products are largely outside of Citrix's current line-up, and the potential synergies of merging the two companies is not immediately clear. Nevertheless, both Wrike's and Citrix's Workspace products should benefit as more employees work remotely with Wrike's products being integrated into Citrix's Workspace offerings.Citrix's financial policies has been relatively disciplined historically. Debt to EBITDA has ranged between 1.5x and 3.0x over the last five years as Citrix used debt to fund acquisitions and share buybacks while applying strong levels of free cash flow to repay debt in intervening periods. Historically, buybacks and acquisitions have often exceeded free cash flow generation, but Moody's expects that Citrix will slow acquisition and buyback activity until Wrike is largely integrated and debt approaches historic levels.RATINGS RATIONALECitrix's Baa3 rating reflects the company's leading market positions in several segments of the virtualization, mobile application and network infrastructure markets and strong free cash flow. Citrix is the largest provider in the workspace, desktop and application virtualization software market. This market should grow at strong single digit rates over the next several years driven by functionality and security requirements of remote workers. Revenue growth at Citrix is somewhat muted by the shift to a subscription model though growth should still achieve mid-single digit levels as the company goes through the transition. Moody's expects the Workspace segment (approximately 75% of revenues) to grow at solid levels while the Networking segment (approximately 22% of revenues) will likely have more volatile and flatter multi-year growth. Tempering the credit profile is the evolving technology landscape, competition from larger as well as niche competitors and Citrix's share buyback and acquisition appetite.Liquidity is robust based on high levels of cash and investments, free cash flow and an undrawn $250 million revolving credit facility (unrated). Citrix held approximately $877 million of cash and short-term investments as of December 31, 2020, a portion of which will be used to fund the Wrike acquisition. The company is expected to have over $650 million of cash at close of the transaction. Moody's expects that Citrix will generate in excess of $800 million of free cash flow after dividends in the 12 months following closing.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe stable outlook reflects Moody's expectation of mid-single digit revenue growth, substantial free cash flow generation and ample liquidity levels. Moody's also expects that Citrix will direct a significant portion of free cash flow towards the repayment of debt driving leverage to below 3x over the next two years.Although unlikely in the near term given the acquisition financing, the ratings could be upgraded if Citrix continues organic growth in revenues, profits and cash flow, diversifies its product base and demonstrates a commitment to very conservative financial policies. The ratings could be downgraded if performance deteriorates, leverage is not on track to fall below3x by the end of 2022 or Citrix adopts more aggressive financial policies.Assignments:..Issuer: Citrix Systems, Inc.....Senior Unsecured Regular Bond/Debenture, Assigned Baa3Affirmations:..Issuer: Citrix Systems, Inc.....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3Outlook Actions:..Issuer: Citrix Systems, Inc.....Outlook, Remains StableCitrix Systems, Inc. is a global provider of virtualization, mobile application and network infrastructure software. The company had revenues of $3.2 billion in the twelve months ended December 31, 2020.The principal methodology used in these ratings was Software Industry published in August 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1130740. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Matthew B. Jones VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Stephen Sohn Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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