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April 15, 2014

Stratus parent credit rating improves

The credit rating for the parent company of Stratus Technologies has improved after the Maynard-based company announced it was being sold to a private equity firm.

Moody’s Investors Service last week issued Stratus a corporate family rating of B2 (equivalent to a B on the S&P or Fitch scales) due to the challenges associated with transitioning from a declining legacy platform business to a software company. That’s up from the Caa1 (CCC+) rating issued to Stratus in December due to concerns that the company’s debt load wasn’t sustainable for the long term.

Though Stratus’s newer software offerings have considerable growth prospects due to the rise of cloud computing and virtualized environments, Moody’s said the company faces substantial competition in that sector. That will force Stratus to invest heavily in sales and technology over the next several years, Moody’s said and is expected to reduce the company’s profitability.

“We’re very pleased with the rating,” said Bob Laufer, the company’s chief financial officer.

Stratus develops products and services aimed at preventing downtime and lost data.

Moody’s expects revenues to remain flat as Stratus’s software growth will offset the decline in the legacy server business. Stratus is expected to generate profits of more than $50 million with free cash flow of more than $20 million for the fiscal year ending February 2015, according to Moody’s.

Manhattan-based Siris Capital Group announced March 31 that it will acquire Stratus for $352 million and will aim to expand its technology into the cloud. The deal is subject to shareholder and regulatory approvals, and expected to close by the end of May.

The deal will lower the company’s debt by some $100 million and extend the maturation date out to 2021, Laufer said. It’s being financed through a $225 million, seven-year loan and a $20 million, five-year revolving credit facility.  

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