OTTAWA – Moody’s Investors Service, Inc. has downgraded its rating for Corel Corp., saying there’s an increased probability of default by the Ottawa-based software company.
The New York-based credit-rating agency says its negative outlook considers Corel’s uncertain growth prospects and the impending maturity of long-term loans in May.
The Corel corporate family rating falls to Caa1 from B3. On the Moody’s rating scale, anything below triple-B is considered below investment grade and C ratings denote an high probability of a default by the debt issuer.
Corel is best known for its CorelDraw graphics programs, but it has acquired numerous other software products over the years to boost revenue.
Its financial results are no longer released to the public as the company has been taken private. However, companies reveal detailed financial information to the agencies like Moody’s that rate corporate debt.
“The downgrade of Corel’s corporate family rating reflects the company’s weak free cash flow generation and Moody’s view that the company’s strategy of replacing declining revenue from its mature products with acquisitions is unlikely to be sustained in the long-term absent a meaningful infusion of capital,” Moody’s said in a statement Tuesday.
“The negative outlook considers Corel’s impending term loan maturities in May 2012 and the uncertain long term growth prospects for the company’s mature products.”
On the positive side, Moody’s says Corel still has positive free cash flow — albeit declining — and relatively low leverage. Moody’s didn’t say how much term debt will mature in May or the size of Corel’s total debt load.