March addendum - AVG Shelves IPO Plans, Eyes up to $300 mln Bond. Update to $235 mln Dividend Loan Story

March 9 update -

AVG Technologies Raises Rate on $235 Million Loan for Dividend

March 9 (Bloomberg) -- AVG Technologies, the provider of Internet security software, raised the interest rate and increased the discount on a $235 million term loan it’s seeking to pay a shareholder dividend, according to a person with knowledge of the transaction.

The five-year loan will pay 6 percentage points more than the London interbank offered rate, compared with 4.75 percentage points to 5 percentage points more than the lending benchmark initially proposed, said the person who declined to be identified because the terms are private. The floor on Libor is unchanged at 1.5 percent. For the complete release:

http://www.businessweek.com/news/2011-03-09/avg-technologies-raises-rate-on-235-million-loan-for-dividend.html

There could be a variety of reasons why the yield was sweetened.

February 11 update -

AVG shelves Initial Public Offering (IPO) plans, eyes up to $300 mln bond

AVG Technologies has shelved plans for an initial public offering (IPO) and will instead seek to raise up to $300 million in a bond issue according to a story on February 9 in Reuters. Sources close to the discussions told Reuters the IPO was delayed because of disagreements among shareholders, who instead decided to sell bonds and later make a large dividend payout. Dariusz Pronczuk, managing director at Enterprise Investors (owns 34% of AVG) in quoted in the story.

There may be some interesting chats among vendors at RSA in San Francisco next week. AVG Technologies isn't one of the official participants, but then again, a lot of companies not on the exhibition floor are "around". WWGGD? What would Gordon Gecko do? It was slow in the IPO world in Europe last year, while it increased in Silicon Valley. It'll be interesting to see how this is interpreted on the east side of the pond, by those who follow IPO activity on the London Exchange and the Warsaw Stock Exchange.

http://www.forexyard.com/en/news/AVG-shelves-IPO-plans-eyes-up-to-300-mln-bond-2011-02-09T110616Z

For additional details on the whole Initial Public Offering story, go to “September Addendum - AVG Technologies Prepares to Go Public”
http://kensek.blogspot.com/2010/07/avg-technologies-prepares-to-go-public.html


Original Blog

According to a February 7th Bloomberg story -

AVG Technologies, the provider of Internet security software, set initial pricing on a $235 million term loan to pay a dividend to shareholders, according to a person with knowledge of the transaction.

The five-year debt will pay an interest rate of 4.75 percentage points to 5 percentage points more than the London interbank offered rate, said the person, who declined to be identified because the terms are private. Libor, the rate banks charge to lend to each other, will have a 1.5 percent floor, the person said.

For the complete release:
http://www.bloomberg.com/news/2011-02-07/avg-technologies-sets-pricing-on-235-million-dividend-loan.html

Some questions:

• Typically, aren’t dividends paid out from cash earnings (as opposed to accounting earnings) instead of via a loan?
• Isn’t part of the purpose for AVG Technologies Initial Public Offering (IPO) to allow the investors to realize a real return on their investment?
• It’s common in Silicon Valley for firms to not pay cash dividends. The logic behind this is they can invest the retained cash to ultimately create increased shareholder value through an increase in stock price. Until a company has IPOed, there is no public stock price nor a way to immediately receive a return. Is the company not seeing investment opportunities or is this because of pressure from the investors?

Standard & Poor's Ratings

According to a February 3rd article, “Software Company AVG Technologies Assigned 'B+' Long-Term Rating; Proposed $235 Mil. Loan Rated 'B+'; Outlook Stable” Standard & Poor’s assigned a preliminary “B+” long-term corporate credit rating to AVG Technologies and their “B+” issue rating to the proposed loan.

Some of the figures used in the analysis, “in 2010, we understand that AVG generated about $216 million of revenues and $89.6 million of EBITDA--resulting in what we consider to be a solid EBITDA margin of 41%. In our view, AVG will generate meaningful free cash flows and maintain solid operating margins very close to or above 40% in the coming quarters.”

For the complete article - http://www.standardandpoors.com

About Standard & Poor’s Letter Ratings

The general meaning of the credit rating opinions is below.

‘AAA’—Extremely strong capacity to meet financial commitments. Highest Rating.
‘AA’—Very strong capacity to meet financial commitments.
‘A’—Strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances.
‘BBB’—Adequate capacity to meet financial commitments, but more subject to adverse economic conditions.
‘BBB-‘—Considered lowest investment grade by market participants.
‘BB+’—Considered highest speculative grade by market participants.
‘BB’—Less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions.
‘B’—More vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments.
‘CCC’—Cu
rrently vulnerable and dependent on favorable business, financial and economic conditions to meet financial commitments.
‘CC’—Currently highly vulnerable.
‘C’—Currently highly vulnerable obligations and other defined circumstances.
‘D’—Payment default on financial commitments.

http://www.standardandpoors.com/ratings/definitions-and-faqs/en/us


A quote that has withstood the test of time – “Happiness is positive cash flow.”