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Moody's Investors Services

Global Credit Research

Rating Action

15 NOV 2004


Rating Action: Computer Associates International, Inc.




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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