Fitch Ratings has upgraded Micro Focus International plc's (Micro Focus) and its subsidiaries' - MA FinanceCo, LLC and Seattle SpinCo, Inc - Long-Term Issuer Default Ratings (IDR) to 'BB+' from 'BB-' and removed them from Rating Watch Positive (RWP).
The Outlook is Negative. Fitch has also subsequently withdrawn the ratings.
Fitch has also withdrawn the senior secured instrument ratings at MA FinanceCo, LLC and Seattle SpinCo, Inc. A full list of rating actions is below.
The rating actions follow the completion of Open Text Corporation's (Open Text, BB+/Negative) acquisition of Micro Focus on 31 January 2023. The IDRs for Micro Focus and its subsidiaries are now aligned with its parent, Open Text, based on Fitch's Parent and Subsidiary Linkage Criteria (PSL). OpenText has repaid all existing debt at Micro Focus.
The ratings IDR of Micro Focus and its subsidiaries have been withdrawn for commercial reasons. The senior secured instrument ratings have been withdrawn as the debt has been repaid. Fitch will no longer provide ratings or analytical coverage of these companies.
Key Rating Drivers
Acquisition Completed, Existing Debt Repaid: Open Text has acquired Micro Focus for a reported USD5.8 billion, equivalent to 6.7x Micro Focus' trailing 12-month (TTM) company-defined EBITDA. The acquisition was funded using a combination of USD1 billion of senior secured notes, a fully drawn USD3.585 billion acquisition term loan, an USD450 million draw on its revolving credit facility (RCF) and existing cash. All existing debt at Micro Focus has been repaid as part of the transaction.
Rating Equalisation on Withdrawal: Fitch sees strong strategic and operational incentives between Micro Focus and OpenText, which drives the equalisation of their ratings. Micro Focus is now 100% owned by Open Text and strategically important to its operations. Fitch believes the acquisition will enable Open Text to significantly increase its scale with annualised total revenue of USD6 billion, in line with the company's 2021 publicly stated goal of doubling revenue over the next five to seven years. Fitch expects the acquisition to drive organic growth in the cloud segments as Open Text transitions Micro Focus' customers to Open Text's cloud infrastructure.
Derivation Summary
No longer applicable
Key Assumptions
No longer applicable.
RATING SENSITIVITIES
No longer applicable.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.
Liquidity and Debt Structure
All existing debt at Micro Focus has been repaid. No longer applicable.
Sources of Information
The principal sources of information used in the analysis are described in the Applicable Criteria.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
Micro Focus' IDRs are linked to Open Text's.
ESG Considerations
Micro Focus' ESG Relevance Score has been revised to '3' from '4' following the rating upgrade. Micro Focus's ESG Relevance Score was at '4' for 'Management Strategy', due to continued deterioration in operating results following the challenging integration of the HPE carve-out acquisition. Fitch believes this is no longer affecting the rating, which is upgraded following the acquisition by Open Text.
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
MICRO FOCUS INTERNATIONAL 
