Moody's Investor Service, February 12, 2014 report: "Rating Action: Moody's assigns B2 CFR to Riverbed Technology; outlook stable"

Source: Moody's Investor Service, February 12, 2014 report

Rating Action: Moody's assigns B2 CFR to Riverbed Technology; outlook stable

Global Credit Research - 12 Feb 2015

New York, February 25, 2015 -- Moody's Investors Service ("Moody's") assigned to Riverbed Technology, Inc. (Riverbed) a B2 Corporate Family Rating (CFR) and a B2-PD Probability of Default Rating (PDR). Moody's also assigned a B1 to Riverbed's proposed first lien credit facilities consisting of a revolving credit facility and term loan, and assigned a Caa1 to Riverbed's proposed senior unsecured notes. The proceeds from the new debt issuances with about $1.5 billion of sponsor equity will be used to finance the acquisition of Riverbed by private equity sponsors Thoma Bravo, LLC and Teachers' Private Capital for approximately $3.6 billion in an all cash transaction. About $510 million of Riverbed's existing debt will be refinanced. The ratings outlook is stable.

RATINGS RATIONALE

Riverbed's B2 CFR is driven by Riverbed's very high initial financial leverage and modest growth prospects. The ratings are supported by Riverbed's leading position in the WAN Optimization (WANOp) market and niche position in the fast growing Application Performance and Network Performance Management markets. Leverage at closing is estimated between 6.5x and 7x pro forma for certain cost savings underway and expected shortly after closing as well as Moody's standard analytical adjustments for operating leases. However, leverage based on actual September 2014 trailing results is approximately 8x. Given the high leverage and risks inherent in the substantial restructuring, the company is considered weakly positioned in the B2 rating category, with little cushion if the restructuring falters. Actual leverage should decline towards 6x by the end of 2016 from the realization of cost synergies and from modest debt repayments required under its credit agreement.

Riverbed, which developed the WAN Optimization market, is by far the industry's largest player in this niche market with an estimated 50% market share and has maintained its leadership position competing with other larger, resource rich competitors such as Cisco Systems. Though the WAN Optimization market is mature, we expect modest overall WAN segment growth. The ratings are also supported by a history of consistent free cash flow generation. We anticipate free cash flow to total debt in the 5% range and interest coverage (EBITDA-Capex/Interest) in the 2x range in 2016.

Liquidity is good based expected cash at closing of $25 million, an undrawn $100 million revolver and positive free cash flow. Free cash flow will be reduced but still positive in the first year due to restructuring and other transaction related costs.

The WAN Optimization market is mature and though growing modestly, new product sales have slowed in recent years. The slowdown is driven by significant improvements in network bandwidths and wireless capabilities and improving application development that facilitate more efficient application delivery which reduces latency across networks thus reducing the need for WAN Optimization products. Though Riverbed's WANOp product sales have declined in recent years, growth in WANOp service and support revenues have more than offset the decline. If new product sales continue to decline however, service and support revenues will eventually decline as well.

Riverbed has expanded its product portfolio in the high growth Application Performance (APM) and Network Performance Management (NPM) markets which currently represent 25% of sales. Riverbed faced integration issues however after its acquisition of OPNET in 2012 (which added a well regarded APM portfolio) and has not grown as fast as other APM and NPM industry players. Riverbed's APM and NPM revenues are expected to grow at mid single digit rates over the next several years.

The stable outlook is based on Moody's expectation that Riverbed will reduce the cost structure with only minor disruption to the business and leverage will decline towards 6x.

Moody's could downgrade Riverbed's ratings if restructuring materially disrupts the business, liquidity weakens or the company experiences delays in planned cost saving initiatives such that leverage remains elevated. Furthermore, the ratings could also be downgraded if total debt to EBITDA is sustained above 7x and free cash flow to debt is expected to remain below 5%.

Though unlikely in the near to medium term, Moody's could upgrade Riverbed's ratings if it sustains growth in the WAN optimization business and maintains leverage below 5x and free cash flow to debt greater than 10% of total debt.

Issuer -- Riverbed Technology, Inc. (NEW)

Corporate Family Rating -- B2

Probability of Default Rating -- B2-PD

Senior Secured Revolving Credit Facility -- B1 (LGD3)

Senior Secured 1st Lien Term Loan Facility -- B1 (LGD3)

Senior Unsecured Notes -- Caa1 (LGD5)

Outlook -- Stable

Headquartered in San Francisco, CA, Riverbed is a leading provider of WAN optimization products and services. The company reported $1.1 billion in revenue in the last twelve months ended September 30. 2014.

The principal methodology used in these ratings was Global Software Industry published in October 2012. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Matthew B. Jones
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Lenny J. Ajzenman
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. ("MIS") AND ITS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND CREDIT RATINGS AND RESEARCH PUBLICATIONS PUBLISHED BY MOODY'S ("MOODY'S PUBLICATION") MAY INCLUDE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY'S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY'S OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. CREDIT RATINGS AND MOODY'S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY'S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY'S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY'S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

MOODY'S CREDIT RATINGS AND MOODY'S PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS FOR RETAIL INVESTORS TO CONSIDER MOODY'S CREDIT RATINGS OR MOODY'S PUBLICATIONS IN MAKING ANY INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.

ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT.

All information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided "AS IS" without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing the Moody’s Publications.

To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.

To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.

NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER.

MIS, a wholly-owned credit rating agency subsidiary of Moody’s Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MIS have, prior to assignment of any rating, agreed to pay to MIS for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MIS's ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading "Shareholder Relations — Corporate Governance — Director and Shareholder Affiliation Policy."

For Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY'S affiliate, Moody's Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody's Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to "wholesale clients" within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY'S that you are, or are accessing the document as a representative of, a "wholesale client" and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to "retail clients" within the meaning of section 761G of the Corporations Act 2001. MOODY'S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail clients. It would be dangerous for "retail clients" to make any investment decision based on MOODY'S credit rating. If in doubt you should contact your financial or other professional adviser.