S&P cuts IBM rating one notch on announced Red Hat acquisition

By William Hoffman

NEW YORK (IFR) - S&P downgraded International Business Machines (IBM) on Monday to A from A+, following the announced US$34bn acquisition of open source software solutions provider Red Hat.

Moody's also placed its A1 rating of the technology company under review for downgrade following the announcement.

S&P expects the acquisition will be funded through a combination of cash on hand and new debt issuance, which pushed bonds wider on Monday.

IBM's 4.7% 2046 issue was 14bp wider at T+125bp, according to MarketAxess.

IBM's debt leverage is likely to rise to around 2.4x compared with 1x currently, according to S&P.

Lazard Ltd offered financial advice to IBM, alongside Goldman Sachs Group Inc and JPMorgan Chase & Co , which also provided financing for the deal.

Paul, Weiss, Rifkind, Wharton & Garrison LLP provided legal advice to IBM.

Guggenheim Partners LLC and Morgan Stanley were financial advisers to Red Hat, while Skadden, Arps, Slate, Meagher & Flom LLP offered legal advice to the company on the deal.

(Reporting by William Hoffman; Editing by Jack Doran)