Moody's rates SoftLayer loans B2

Moody's Investors Service said it assigned a B2 corporate family rating and a B3 probability of default rating to SoftLayer Technologies, Inc., along with a B2 (LGD3, 31%) rating to the company's new $230 million senior secured credit facility, consisting of a $20 million revolver, a $20 million delayed-draw term loan and a $190 million term loan B.

The outlook is stable.

Borrowings will be used to refinance existing debt and help fund a $483 million leveraged buyout of the company by GI Partners, which will assume a 65% stake in the company, with the balance of equity held by management.

The ratings reflect the challenges of solidifying a defensible competitive position in the fragmented hosting segment of the data center services industry, the company's high pro-forma financial leverage with a debt-to-EBITDA ratio of 4.3 times and its small scale and short operating history, Moody's said.

SoftLayer is expected to generate negative free cash flow and may subsequently have a constrained liquidity profile over the next two years as the company adds server capacity in new data center facilities, the agency added.

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