Moody’s rates Olive Merger Sub loans B2, Caa2

Moody's Investors Service said it assigned a B3 corporate family rating to Olive Merger Sub, Inc., a new entity formed to acquire Optiv, Inc.

The agency also assigned a B2 rating to the proposed first-lien debt facilities and a Caa2 to the proposed second-lien facilities.

Optiv is being acquired by KKR from Blackstone, Investcorp and Sverica for $1.9 billion. Olive Merger Sub will merge into Optiv shortly after closing.

The outlook is stable.

At closing, Optiv's existing ratings will be withdrawn.

Moody’s said the B3 corporate family rating reflects the very high leverage of the company and modest free cash flow.

Leverage pro forma for the acquisition was about 8 times as of the LTM period ended Sept. 30 (adjusted for certain one-time charges and pro forma for certain cost cuts already completed) and pro forma free cash flow to debt was negative 1%, both weak metrics for a low margin (roughly 6% of gross revenue) value-added-reseller.

“We expect the company to achieve double-digit revenue growth over the next several years however, driven by strong security software industry trends and the strength of the company's domestic coverage, distribution capabilities and security service offerings,” Moody’s said in a news release.

“As a result of the strong growth profile, the company has the potential to reduce leverage to well under 7 times and improve free cash flow to debt above 5% over the next eighteen months in the absence of additional debt financed acquisitions.

“The ratings could be upgraded if the company remains on track to achieve these results,” the agency added.

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