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Global Credit Research |
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Rating Action |
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15 NOV 2004 |
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MOODY'S ASSIGNS Ba1 TO COMPUTER ASSOCIATES' PROPOSED $750 MILLION
SENIOR UNSECURED NOTES; OUTLOOK STABLE |
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Approximately
$2.3 Billion of Debt Affected
New York, November 15, 2004
-- Moody's Investors Service assigned a Ba1 to Computer Associates
International's proposed $750 million senior unsecured notes. Proceeds
of the current offering will be used to refinance $825 million senior
notes due in April 2005. Concurrently, Moody's assigned a senior implied
rating of Ba1. The rating outlook is stable.
The Ba1 rating and stable
outlook reflect Moody's expectation for sustained growth in client
billings and bookings, strengthened corporate governance structure,
conservative acquisition strategy and share repurchase policy, and
improved liquidity.
Moody's would view positively
CA's fulfillment of the terms of the Deferred Prosecution Agreement (DPA)
with the Department of Justice and the SEC regarding their investigation
of CA's prior accounting mismanagement, recruitment of a permanent CEO
and CFO, continued evidence that the company has not suffered a
deterioration in bookings and billings due to adverse factors over the
past two years, and the company's maintenance of financial flexibility
from internal and external liquidity sources. Continued progress on
these matters could lead to a positive outlook in the near term and a
subsequent ratings upgrade.
Conversely, failure to meet
the terms of the DPA, a departure from the company's conservatism
towards acquisitions, share repurchases, and dividends, or deterioration
in bookings and billings could place downward pressure on the rating.
Moody's views CA's DPA
settlement with the SEC and DOJ and the corporate governance changes
instituted since the revelation of its accounting mismanagement as
positive developments in the company's efforts to further dissociate
itself from legacy problems and normalize its operations. According to
the terms of the DPA settlement, CA must install an Independent Examiner
(candidate to be approved by the government per terms of the DPA) by
December 2004. While these improvements diminish the likelihood that the
governmental prosecutors would place criminal charges on CA, the 18
month option, starting once the Independent Examiner is installed, for
the government to charge CA under terms of the DPA remains a credit
issue.
Given the breadth of its
product portfolio and the non-discretionary nature of CA's software,
Moody's expects CA will continue to achieve client billings, bookings,
and free cash flow growth. For the first half of its fiscal year ending
March 31, 2005, customer billings have increased 2% year over year.
Moody's also believes CA will continue to pursue bolt on acquisitions
similar in size to the recent $340 million Netegrity acquisition to
augment its organic growth.
CA has over $2.2 billion
available cash balance and generates annual free cash flow (defined as
cash flow from operations less capital expenditures less dividends)
approximating $1.2 billion. The company intends to renew its $470
million revolver before its January 2005 expiry with terms and
conditions providing equal or greater financial flexibility to those of
the current facility.
The current $750 million
notes offering refinances near term maturities of the $825 million in
senior notes due April 2005. CA can also call $660 million 5% senior
convertible notes due March 2007 and exercise its call spread in March
2005. Moody's notes that the 5% convertible notes are currently in the
money ($24.83 exercise price versus Friday's $29.70 closing price). The
next material notes maturity is not until April 2008 when $350 million
senior notes mature.
Headquartered in Islandia,
New York, Computer Associates International is an enterprise software
vendor for enterprise management, security, and storage applications.
New York
John D. Moore
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Brian Oak
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
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© Copyright 2004,
Moody's Investors Service, Inc. and/or its licensors including Moody's
Assurance Company, Inc. (together, "MOODY'S"). All rights reserved.
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