Moody's Downgrades Stratus
The credit rating for the parent company of Stratus Technologies was downgraded last week due to concerns that the Maynard-based company’s debt position wasn’t sustainable in the long term.
Moody’s Investors Service said it has lowered Stratus’ corporate family rating from a B3 to a Caa1 (equivalent to a B- to a CCC+ downgrade on the S&P or Fitch scale) given an elevated probability that the company will default if it’s unable to refinance its debt.
Stratus, which develops products and services to help prevent downtime and lost data, has a debt-to-earnings ratio of nearly 6 to 1 with much of the company’s debt maturing in the next 18 months, Moody’s said. There is therefore a high probability that Stratus will need to restructure its debt before then, Moody’s said.
The share of the company owned by second lien note holders will increase from 30 percent to more than 50 percent by May 2014 unless Stratus pays all outstanding principal and interest on its $102 million high-risk payment in kind loan (under which a borrower doesn’t have to pay any money to the lender until the loan matures or is refinanced), Moody’s said. Stratus currently has just $14 million on hand, though free cash flow is expected to be slightly positive over the next year.
Stratus also faces challenges in transitioning from legacy proprietary servers to newer software products, Moody’s said. The credit rating agency believes competitors such as IBM, Hewlett-Packard and Dell have far greater resources to adapt to the changing information technology landscape than Stratus has.
The company said the downgrade will have no impact on business operations.
“The ratings downgrade is technical in nature and date dependent,” spokeswoman Sally Bate said in a statement. “We are currently working with an investment banker to refinance our debt and feel confident this will be done before the end of our fiscal first quarter which ends in May.”
Updated at 10 a.m. Wednesday with comment from Stratus.
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