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S&P removes Micro Focus from CreditWatch, affirms ratings

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S&P removes Micro Focus from CreditWatch, affirms ratings

S&P Global Ratings affirmed application software company Micro Focus International PLC's issuer and issue ratings at BB-, and removed the company from CreditWatch, where it was placed with negative implications March 22. The outlook is negative.

The rating agency said the affirmation is based on the assumption that Micro Focus' efforts to fix its IT issues and enhance its sales force may improve revenue decline rates, and that some of the company's adverse working capital impact from invoicing issues might normalize in the six months ending in October.

S&P added that the company could achieve adjusted net leverage of approximately 4.0x in 2018 by generating free operating cash flows of up to $670 million, despite expectations of a 7% to 9% decline in revenue from lower license fees.

The rating agency said that the negative outlook assigned to Micro Focus reflects uncertainty about the company's performance because of execution issues linked to the $8.8 billion acquisition of Hewlett Packard Enterprise Co.'s software business.

The company earlier cited lower license income and one-off transitional effects related to the acquisition as reasons for a potential revenue decline of between 6% and 9%.

S&P Global said that delays in the resolution of these issues could negatively impact EBITDA margin improvements, license revenues or free operating cash flows.

It also said that while the company plans to address recent attrition issues by hiring 40 to 50 new sales representatives, it will need time to train them and get them up and running. Thus, it may take some time for license fees to stabilize.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found here.