Moody's rates Veracode B3, loans B2

Moody's Investors Service said it gave a B3 corporate family rating and B3-PD probability of default rating to Mitnick Corp. Purchaser, Inc. (Veracode) following the acquisition by private equity firm TA Associates. Concurrently, Moody's assigned a B2 rating to the expected $580 million senior secured first-lien term loan and the $75 million revolving credit facility.

“Veracode's B3 CFR reflects the company's high pro-forma leverage of around 8x debt/cash EBITDA (Moody's adjusted, including the change in deferred revenue and stock based compensation, and the expensing of capitalized sales commissions and software development costs), small business scale, and exposure to the fragmented and highly competitive application security market. Moody's anticipates that Veracode's private equity owner will pursue aggressive financial policies, a key ESG consideration, that will sustain high leverage levels,” the agency said in a press release.

First-lien loan proceeds, an unrated $235 million second-lien term loan and new cash equity will be used to acquire the majority ownership of Veracode from private equity firm Thoma Bravo. The $75 million first-lien revolving credit facility is expected to be undrawn at close.

Upon the full repayment of debt at the close of the transaction, the CFR, PDR and debt instrument ratings for the company under Thoma Bravo will be withdrawn, the agency said.

The outlook is stable. “The stable outlook reflects Moody's expectation for organic revenue and earnings growth in the high single to low teens digit percentage range over the next 12-18 months, with leverage declining to around 7x debt/cash EBITDA and free cash flow to debt in the mid-single digit range.”

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