Moody's rates Stratus first-lien loans B1, second-lien loan Caa1

Moody's Investors Service said it assigned a B1 ratings to Stratus Technologies Inc.'s proposed $30 million revolving credit facility due 2011 and $175 million first-lien term loan due 2011 and a Caa1 rating to its proposed $125 million second-lien term loan due 2012. The company's B2 corporate family rating was affirmed, and the outlook is stable.

Proceeds from the first-lien term loan and second-lien term loan will be used to refinance existing $145 million senior notes and repurchase $130 million preferred stock held largely by the company's sponsors.

Moody's said the ratings reflect product transitioning that is near completion, good visibility from the company's high proportion of recurring services revenue, the company's recent track record of free cash flow generation and debt reduction and credit statistics that are within the boundary of the current rating category.

The rating also considers the increase in leverage as part of the proposed recapitalization and associated financial risk, the modest scale of the company, weak organic growth partly reflecting the company's niche product nature, the uncertainty whether ftServer products will be able to fully offset the expected declines of legacy Continuum products going forward, a continued lack of profitability and limited asset protection from a small base of tangible assets, the agency said.

Pro forma debt to adjusted EDITDA will be an estimated 4.7x.

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