S&P Removes Symantec (SYMC) from CreditWatch Negative

S&P Global Ratings said it affirmed its 'BBB-' corporate credit rating on Symantec Corp. (Nasdaq: SYMC), and removed all ratings from CreditWatch, where we had placed them with negative implications on June 13, 2016. The outlook is negative.

We also assigned our 'BBB-' issue-level rating to Symantec's announced $2.8 billion unsecured term loans and $1.25 billion convertible notes. In addition, we affirmed our 'BBB-' rating on Symantec's existing unsecured debt.

"The rating actions reflect Symantec's increasing debt balance, which will reach approximately $7.3 billion at the close of its acquisition of Blue Coat and lead to pro forma adjusted net leverage temporarily as high as the mid-3x area, which is significantly greater than the company's track record of operating in a net cash position," said S&P Global Ratings credit analyst James Thomas.

We believe the contribution of Blue Coat's business is a credit positive and the firm will be able to delever through strong free cash flow generation and use of balance sheet cash. However, the negative financial impact of higher leverage and acquisition integration risk of Blue Coat, which recently acquired Elastica Inc. for $280 million in November 2015, outweighs the company's stronger business profile over the near term. We see a meaningful risk that Symantec may not be able to reduce its adjusted leverage to below 2x by the fourth quarter of fiscal 2018 (approximately 18 months after transaction close), in which case we would consider a downgrade.

The negative outlook on Symantec reflects our expectation that the company's adjusted net leverage will exceed 3.5x subsequent to the firm's acquisition of Blue Coat and gradually subside below 2x over the following 18 months. Although we believe that the firm has a credible path to reduce leverage rapidly after the transaction, there is minimal room for any adverse developments in the rating, whether from the company's failure to pursue expected debt repayment plans or due to unexpected operating challenges.

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