Moody’s downgrades Accuvant

Moody’s Investors Service said it downgraded AF Borrower LLC’s (Accuvant) corporate family rating to B3 from B2, probability of default rating to B3-PD from B2-PD, first-lien senior secured bank credit facility to B2 (LGD 3) from B1 (LGD 3) and second-lien senior secured bank credit facility to Caa2 (LGD 5) from Caa1 (LGD 5).

AF Borrower is a recently formed entity set up to combine Accuvant, Inc. and Fishnet Security, Inc., two value-added resellers of security software and services, Moody’s said.

The downgrade was driven by the proposed increase in debt to fund a distribution to shareholders, the agency said.

The outlook is positive.

The downgrade was driven by the significant increase in debt shortly after closing the merger of Accuvant and FishNet in January 2015 and the elimination of equity from the capital structure, Moody’s said.

The proposed shareholder distribution effectively takes out all the equity invested in the company, the agency added.

Leverage, pro forma for certain transaction costs and the proposed distribution is just less than 8x based on March 2015 results of the combined companies, Moody’s said.

Leverage of more than 6x is considered exceptionally high for a low margin value-added-reseller, the agency said.

Free cash flow also is expected to be modest over the next year, Moody’s said.

Although the ratings were downgraded, they have potential to be upgraded if the company successfully integrates the two companies, growth remains exceptionally strong and the company refrains from additional debt-financed distributions, the agency said.

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