S&P rates Sophos loan B-

S&P said it assigned preliminary B- ratings to Surf Intermediate I Ltd. and its planned $125 million first-lien senior secured revolving credit facility and the $1.43 billion first-lien senior secured term loans. In addition, the company will issue a $520 million second-lien term loan and about $2.2 billion of preferred equity certificates. The proceeds will be used to fund the buyout of Sophos.

The preliminary B- rating on the new holding company Surf Intermediate, reflects the highly leveraged capital structure but favorable growth prospects in the business-to-business (B2B) cyber security segment. “Following the closing of the transaction, we expect about 10x S&P Global Ratings-adjusted debt to cash-based EBITDA in fiscal 2020, falling to 8.5x-9x in fiscal 2021,” said S&P in a press release.

“Ownership by a financial sponsor with a track record of aggressive financial policy limits the potential for leverage reduction over the medium term. Our rating on Sophos is also constrained because being owned by financial sponsors with a proven appetite for acquisitions as part of the ownership strategy could make it less likely to reduce debt in the medium term,” said S&P.

The outlook is stable.

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