Moody’s rates Brocade convertibles Ba2

Moody’s Investors Service said it affirmed Brocade Communication Systems Inc.’s Ba2 corporate family rating and assigned a Ba2 rating to the proposed convertible notes.

The Ba2-PD probability of default rating and the existing ratings on the secured and unsecured notes are unchanged until closing of the transaction.

The outlook is stable.

The company will use the proceeds to redeem the outstanding $300 million secured notes due 2020 and for general corporate purposes.

Brocade also announced that it will cancel its $125 million revolving credit facility coincident with the convertible note transaction, Moody’s said.

Upon the funding of the new notes and subsequent debt redemption, the agency said it expects to withdraw the ratings on the 2020 secured notes, revise the probability of default rating to Ba1 from Ba2 and upgrade the $300 million unsecured notes due 2023 to Ba2 from Ba3.

Upon closing of the convertibles, retirement of the secured bonds and termination of the revolver, the convertible debt and the existing $300 million unsecured notes will be the only debt in the capital structure and both are expected to be rated the same level as the Ba2 corporate family rating, Moody’s said.

The ratings are constrained by the company’s relatively small scale compared to its main competitor, Cisco, and as well the challenge of maintaining market position as the storage and data networking markets evolve, the agency said.

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