Synopsys: 6-Pt Benchmark Issuance for Ansys Deal

• Synopsys is in the market with its inaugural bond deal – a 6-part SEC-registered offering of senior unsecured notes to partially fund the cash-and-stock acquisition of Ansys.
• Expected bond issuance is ~$10 bn across 2, 3, 5, 7, 10, and 30Y maturities; there are SMR provisions attached to the 2, 3, 5, and 7Y tranches.
• We see fair value for SNPS wide to AVGO, but inside ORCL and DELL; we think rating upgrades for SNPS are likely 3-4 years after deal close and CDNS (A3/BBB+/A-) represents the tighter end of where SNPS could trade over the medium term.
• We are buyers of the new issues at 30 bp inside IPT for the 2, 3, 5, and 7Y notes and 25 bp inside IPT for the 10 and 30Y notes.
• Synopsys and Ansys brings together two specialty design software leaders with complementary portfolios; there is emerging demand to merge semiconductor engineering with analog engineering as compute scaling has shifted from a chip-centric approach to a system-centric approach.
• We estimate the company would be able to comfortably pay down ~$4 bn of debt (even without realizing synergies) in the first two years following the deal, which would get the company close to its short-term <2x gross leverage target.

Synopsys (Baa1/BBB/NR), a leader in electronic design automation (EDA) software is in the market with its inaugural bond deal – a 6-part SEC-registered offering of senior unsecured notes spanning 2, 3, 5, 7, 10, and 30Y maturities. Proceeds will be used to partially fund the cash-and-stock acquisition of Ansys, a physics simulation & analysis software company. Per the company, expected bond issuance is ~$10 bn, which along with $4.3 bn in term loans and cash on hand will comprise the cash portion of the deal consideration.

The 2, 3, 5, 7Y tranches will feature a special mandatory redemption provision at 101 in the event the Ansys merger does not close before the Special Mandatory Redemption End Date (Jan 31, 2026 although could be extended). The company expects the deal to close in the first half of calendar 2025. The 10 and 30Y tranches will not have the SMR provision and will be used for GCP in the event the deal is not completed (China regulatory approval is the major hurdle remaining). All 6 tranches will have change of control provisions at 101 (coincident with downgrades to below IG by at least two rating agencies). The new issues also have make-whole call provisions, and par calls at 1 months prior to maturity for the 3 and 5Y, 2 months for the 7Y, 3 months for the 10Y, and 6 months for the 30Y.