RATINGS RATIONALE

SafeNet expects to apply the proceeds, net of expected taxes and transaction fees, from the sale of its GS business to pare total debt by about 50%. A portion of the proceeds will be held in escrow and would be utilized to pay debt upon release of funds from escrow. SafeNet's GS business has experienced declining revenues since 2009 due to the company's mature products and weak demand by the U.S. Department of Defense and its agencies . The proposed transaction will not alter the company's total debt-to-EBITDA leverage (approximately 4.6x, Moody's adjusted) and the company will divest a business with uncertain prospects. However, the GS business had strong EBITDA margins relative to the retained businesses and the GS businesses has historically supported SafeNet's credit profile due to the high barriers to entry in the classified government data products market. SafeNet's continuing operations will comprise Data Protection and software rights management (SRM) segments. Although SafeNet's user authentication products in the data protection segment and its software rights management offering are well-regarded, the company's competitive risks will increase as it will derive all of its revenues from the intensely competitive enterprise data protection and SRM markets. The carve-out of a high margin GS business will reduce the company's flexibility to invest in business or pursue small acquisitions.

However, Moody's affirmed SafeNet's B2 CFR to reflect the company's moderate financial leverage and good growth prospects for the company's remaining businesses, especially the enterprise data protection segment which represents a fast growing market. The rating is supported by SafeNet's good projected levels of free cash flow in the low-to-mid teen percentages of total debt, which will be bolstered by the expiry of an interest rate hedging agreement.

The B2 rating is constrained by SafeNet's limited operating scale and product portfolio. The rating additionally considers propensity for high financial risk tolerance by the company's financial sponsors.

Moody's revised SafeNet's debt instrument ratings upward to reflect improved recovery prospects for the first and second lien credit facilities as a result of the proposed repayment of a substantial portion of first lien debt.

Moody's could downgrade SafeNet's ratings if the company's liquidity weakens and anticipated free cash flow does not materialize. The rating could be downgraded if Moody's believes that SafeNet is unable to sustain total debt-to-EBITDA leverage below 5.5x and free cash flow/Debt ratio remains below 5% (both metrics Moody's adjusted).

Given the company's shareholder-oriented policies a ratings upgrade is unlikely in the next 12 to 18 months. However, Moody's could upgrade SafeNet's ratings if the company demonstrates sustainable earnings growth driven by strong revenue growth and if it could maintain leverage below 4.0x (Moody's adjusted) and free cash flow/total debt in excess of 15%, incorporating potential for debt-financed distributions to shareholders and ongoing modest-sized acquisitions.

Moody's has taken the following rating actions:

..Issuer: SafeNet, Inc.

..Corporate Family Rating -- affirmed at B2

..Probability of Default Rating -- affirmed at B2

....$25 million first lien secured revolving credit facility due April 2013 -- Upgraded to Ba2 (LGD2, 13%) from B1 (LGD3, 32%)

....$221 million (originally $250 million) first lien secured credit facility due April 2014 -- Upgraded to Ba2 (LGD2, 13%) from B1 (LGD3, 32%)

....$131 million second lien secured credit facility due April 2015 -- Upgraded to B3 (LGD4, 64%) from Caa1 (LGD 5, 81%)

Outlook action:

..Outlook: Stable

The principal methodology used in rating SafeNet was the Global Software Industry Methodology published in October 2012. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Headquartered in Belcamp, MD, SafeNet provides data security solutions to government and enterprise customers. Pro forma for the proposed divestiture of GS business SafeNet reported approximately $335 million in revenue in the LTM June 2012 period. Funds affiliated to private equity firm Vector Capital own majority interest in SafeNet.

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Raj Joshi Analyst Corporate Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Alexandra S. Parker MD - Corporate Finance Corporate Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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