S&P gives Marcel Lux IV loan B

S&P said it assigned Marcel Lux IV Sarl’s planned $300 million first-lien term loan a B rating with a 3 recovery rating.

Proceeds will be used to help acquire Rancher Labs for $530 million.

“We forecast that the majority debt-funded transaction, coupled with loss-making Rancher’s business and high integration costs, will materially increase SUSE’s S&P Global Ratings-adjusted pro forma leverage to about 9.2x in fiscal 2020 and 7.5x in 2021, much higher than our previous expectation of 6.6x and close to downside trigger of 8x,” the agency said in a press release.

“Nevertheless, we think SUSE’s strong cash flow generation ability, with a forecast pro forma free operating cash flow (FOCF) of more than $75 million and FOCF to debt of about 6.3% in 2021, currently continues to support the B ratings,” S&P said.

S&P also revised the outlook to negative from stable and affirmed its ratings on the company. “The negative outlook reflects the limited headroom under the rating over the next 12 months, in light of weaker credit metrics compared with B rated software peers because of the Rancher acquisition,” the agency said.

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