S&P could lower AVG

S&P said it placed its BB long-term corporate credit and issue ratings on AVG Technologies NV on CreditWatch with negative implications.

The CreditWatch placement follows AVG's announcement that it entered into an agreement to be acquired by its competitor, Avast, for a total consideration of $1.3 billion.

Avast is planning to fund this transaction through committed debt financing of $1.685 billion, which the agency understands will also include an undrawn revolving credit facility and the refinancing of both Avast and AVG's outstanding debt.

S&P said it expects the pro forma S&P-adjusted leverage for the combined group to peak at 4.5 times to 5 times in 2016, before accounting for any potential cost synergies of merging the two businesses.

Therefore, the agency placed its current ratings on Avast on CreditWatch with negative implications, reflecting a potential downgrade to B+. S&P anticipates that AVG will be a core subsidiary to Avast as it will be fully owned, debt will be refinanced at the Avast level, and it expects both businesses to merge their operations in order to gain the benefits of increased scale and merger-related synergies.

As a result, S&P said it will most likely cap its ratings on AVG at the level of the rating on Avast when the transaction completes.

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