Corporate ratings of Micro Focus have been placed on review for a downgrade by Moody's following the Newbury, Berkshire-based software firm's proposal for an $8.8bn (£6.6bn) merger with HPE Software, the software business segment of Hewlett Packard Enterprise.
In a statement the ratings agency said it had placed on review for downgrade the B1 corporate family rating (CFR), the B1-PD probability of default rating (PDR) for Micro Focus, as the company's merger target "is much larger in size than Micro Focus" itself.
Moody's said its review will "mainly but not exclusively focus" on a more detailed analysis of the financial impact of the merger and the resulting credit metrics, implementation costs, possible synergies and its time horizon as well as the ability and timeline of deleveraging.
Micro Focus has secured a total of $5.5bn of debt financing related to the transaction including a revolving credit facility of $500m.
These commitments are deemed by analysts to be sufficient to finance the $2.5bn cash payment to HPE Software, a $400m cash distribution to current Micro Focus' shareholders, fees and royalties as well as the refinancing of Micro Focus outstanding debt of around $2.1bn.
Moody's expects to close the review within the next three months and anticipates that a possible downgrade will be limited to one notch.