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Moody's Investors Services
Global Credit Research
Rating Action
28 DEC 2004
 
Rating Action: Computer Associates International, Inc.

 
MOODY'S ASSIGNED COMPUTER ASSOCIATES INTERNATIONAL A SPECULATIVE GRADE LIQUIDITY RATING OF SGL-1

 

New York, December 28, 2004 -- Moody's Investors Service assigned a speculative grade liquidity rating of SGL-1 to Computer Associates International. This rating is supported by the company's substantial liquidity, represented by its (i) approximate $2.2 billion cash and marketable securities excluding proceeds received from $1 billion senior notes offering on November 15, 2004; (ii) supplemental liquidity support in the form of an undrawn $1 billion revolving credit facility; and (iii) anticipated strong cash flow generation during the next twelve months, factoring in some expected improvement in client billings and bookings.

This SGL-1 liquidity rating reflects Moody's expectation that the company will continue to report strong operating performance, with growth to cash flows and client billings. Moody's expects that the company will generate meaningful free cash flow of $1.2 billion (defined as cash flow from operations less capital expenditures less dividends) during the next twelve months. Coupled with the aforementioned cash and cash equivalents balance, the company is expected to maintain significant liquidity to meet the moderate interest expense and capital expenditure requirements.

Moody's notes that $1 billion notes offering on November 15, 2004 will be used to refinance 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 Wednesday's $30.88 closing price). The next material notes maturity is not until April 2008 when $350 million senior notes mature.

Additionally in December 2004, CA replaced its $470 million unsecured revolver with a $1 billion four year unsecured revolver, which provides supplemental liquidity support. The new revolving credit facility has significant improvements in terms of reduced financial covenants, greater flexibility with regard to restrictive payments and elimination of material adverse change clause. Moody's notes that the company is expected to remain well within compliance with the financial covenants for the next twelve months. Further, the company has potential to secure additional alternate liquidity support, specifically, based on terms to its existing credit agreement, CA is permitted to secure up to $900 million in additional indebtedness through an AR securitization program and other liens securing debt.

Headquartered in Islandia, New York, Computer Associates International is an enterprise software vendor for enterprise management, security, and storage applications.

New York
Brian Oak
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
John Moore
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
 

 


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