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Marcel Lux Debtco S.a.r.l. -- Moody's places SUSE's B3 ratings on review for upgrade

Rating Action: Moody's places SUSE's B3 ratings on review for upgradeGlobal Credit Research - 30 Apr 2021Frankfurt am Main, April 30, 2021 -- Moody's Investors Service ("Moody's") has today placed on review for upgrade the B3 corporate family rating (CFR) and the B3-PD probability of default rating (PDR) of Marcel Lux IV S.a.r.l. (SUSE), the top entity of SUSE's restricted group. Concurrently, Moody's has placed on review for upgrade the B2 instrument ratings on the E300 million guaranteed senior secured term loan B2 and the $81 million guaranteed senior secured revolving credit facility borrowed by Marcel Bidco GmbH; as well as the B2 instrument rating on the $360 million guaranteed senior secured term loan B1 issued by Marcel Bidco LLC. Moody's has also placed on review for upgrade the B2 instrument ratings on the $300 million guaranteed term loan B borrowed by Marcel Lux Debtco S.a.r.l. The outlook for Marcel Lux IV S.a.r.l., Marcel Bidco GmbH, Marcel Bidco LLC and Marcel Lux Debtco S.a.r.l. has been changed to ratings under review from stable.RATINGS RATIONALE/FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe review follows SUSE's announced intention to float on 26 April 2021. Private equity owner EQT will consequently reduce its stake in SUSE but will retain its majority post the initial public offering (IPO). The proceeds of the IPO will primarily be used to repay parts of the company's outstanding debt. Provided for a successful IPO, we expect repayments of around $500 million mainly allocated towards the higher priced $270 million second lien facility (unrated) and the remainder being used to repay first lien loans. Consequently, Moody's adjusted leverage will significantly improve towards a range of 4.5x-5.0x based on our latest base case and we also consider the announced improvement of the financial policy.The intention to float of SUSE is credit positive given the expected improvement of the capital structure and related meaningful reduction of interest costs. With regards to the financial policy, SUSE stated to adhere to a maximum target leverage of 3.5x (management adjusted) as well as to maintain a strong liquidity position and remain disciplined and opportunistic with regards to M&A.A near-term upgrade of SUSE's ratings is dependent on the successful IPO and the planned debt repayments thereafter. The pricing of the IPO is expected in Mid-May and debt repayments to follow closely thereafter. In case that the IPO does not materialize or the proceeds are lower than expected, the ratings could be confirmed at the recent level.As Moody's has noted prior to the review process, SUSE's ratings could experience downwards pressure from free cash flow (after interest) turning negative or lack of EBITDA growth. Leverage increasing above 8x could in any case strain the rating as would a significant weakening of the company's liquidity profile. Any shareholder distributions as well as debt-funded acquisition will create negative pressure on the rating as well.Prior to the review process, Moody's said that SUSE's rating could experience positive pressure from SUSE's continued strong performance in its core market and return to visible reported EBITDA growth following the dilution from the Rancher acquisition such that Moody's adjusted debt/EBITDA declines sustainably below 6.5x while the free cash flow generation is maintained at or above 5% free cash flow/debt (Moody's adjusted).ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONSMoody's takes into account the impact of environmental, social and governance (ESG) factors when assessing companies' credit quality. SUSE's ratings factor in its current private equity ownership, illustrated by its high financial leverage.PRINCIPAL METHODOLOGYThe 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.COMPANY PROFILESUSE is an open-source software products provider with headquarters in Nuremberg, Germany, and was founded in 1992. Until 2018, the company was part of Micro Focus, which acquired SUSE as part of the acquisition of Attachmate in 2014. EQT has acquired SUSE in 2018 for a total cash consideration of $2.5 billion and the transaction was finally closed in February 2019. In July 2020 SUSE announced the acquisition of Rancher Labs, an open-source provider of container orchestration software. SUSE develops, delivers and supports commercial open-source software products and is specialised in "paid Linux" OS. Predominantly through its core product, SUSE Linux Enterprise Server (SLES), which accounts for more than 80% of its revenue, the company provides its software and services to over 13,400 customers worldwide and generated $503 million revenues in fiscal year 2020 (pro forma the Rancher acquisition).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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.At least one ESG consideration was material to the credit rating action(s) announced and described above.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. Dirk Goedde Asst Vice President - Analyst Corporate Finance Group Moody's Deutschland GmbH An der Welle 5 Frankfurt am Main 60322 Germany JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Christian Hendker, CFA Associate Managing Director Corporate Finance Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody's Deutschland GmbH An der Welle 5 Frankfurt am Main 60322 Germany JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 © 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. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. 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MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000.MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements. ​

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