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Credit Ratings

CA Inc. Placed on CreditWatch Negative; Ratings Lowered To 'BB'
Primary Credit Analyst:
Philip Schrank, New York (1) 212-438-7859;
Publication date: 05-Jul-06, 12:23:31 EST
Reprinted from RatingsDirect

NEW YORK (Standard & Poor's) July 5, 2006--Standard & Poor's Rating Services 
said today that it lowered its corporate credit and senior unsecured debt 
ratings on Islandia, N.Y.-based CA Inc. to 'BB' from 'BBB-', and placed them 
on CreditWatch with negative implications. 
      "The rating action follows the company's announcement that its board of 
directors authorized a $2 billion share repurchase that partly will be 
debt-financed," said Standard & Poor's credit analyst Philip Schrank. The 
rating downgrades reflect our assessment that CA no longer possesses an 
investment-grade financial policy in light of the announced share repurchases. 
If the repurchase is financed solely with debt, pro forma total debt to EBITDA 
could rise to above the 4x range from about 2x currently. However, liquidity 
is provided by cash of $1.9 billion as of March 31, 2006, compared with about 
$1.8 billion of debt securities. Additionally, CA did not meet the deadline 
for filing its 10-K, and likely will need to restate previously reported 
results and report additional material weaknesses. The delay is from 
accounting issues surrounding its stock option grants and revenue recognition. 
As a result of the filing delay, CA could violate the terms of both its bank 
agreement and bond indentures. Under the undrawn $1 billion revolving credit 
facility, an event of default occurs if the lenders gives a notice of default, 
and CA has 30 days to cure from receiving a notice. Under the bond indenture, 
an event of default will occur if CA receives a notice of default from the 
trustee or the holders of 25% in aggregate principal amount of the outstanding 
debt of such series, and CA does not cure within 90 days of receiving the 
     At the 'BB' rating level, our expectation is that CA will continue to 
generate free cash flow exceeding $1 billion, and manage its debt levels at 
about 4x or below over the intermediate term. We expect acquisitions to 
continue, albeit at a more moderate pace. Rating support is provided by a 
stable revenue base, favorable business prospects, and strong cash flow 
generation. The company's diversified, high-margin software portfolio is 
viewed as defensible because of high switching costs and entrenched customer 
     We will meet with management to evaluate the pro forma capital structure 
and financing plans, review management's financial policy and growth 
initiatives, and the progress toward filing its financial statements. 

     Complete ratings information is available to subscribers of 
RatingsDirect, Standard & Poor's Web-based credit analysis system, at All ratings affected by this rating action can be found 
on Standard & Poor's public Web site at; under Credit 
Ratings in the left navigation bar, select Find a Rating, then Credit Ratings 
Analytic services provided by Standard & Poor’s Ratings Services (“Ratings Services”) are the result of separate activities designed to preserve the independence and objectivity of ratings opinions. Credit ratings issued by Ratings Services are solely statements of opinion and not statements of fact or recommendations to purchase, hold, or sell any securities or make any other investment decisions. Accordingly, any user of credit ratings issued by Ratings Services should not rely on any such ratings or other opinion issued by Ratings Services in making any investment decision. Ratings are based on information received by Ratings Services. Other divisions of Standard & Poor’s may have information that is not available to Ratings Services. Standard & Poor’s has established policies and procedures to maintain the confidentiality of non-public information received during the ratings process.

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