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December 20, 2007 |
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CA INC: Fitch Affirms 'BB+' Issuer Default Rating Fitch Ratings has affirmed these ratings of CA, Inc.: -- Issuer Default Rating at 'BB+'; -- Senior unsecured revolving credit facility at 'BB+'; -- Senior unsecured debt at 'BB+'. Additionally, Fitch has revised the Rating Outlook on CA to Stable from Negative. Fitch's actions affect approximately US$2.8 billion of total debt, including the company's US$1.0 billion RCF. The Stable Rating Outlook reflects CA's consistent operating and financial performance and Fitch's expectation that the company would utilize its financial flexibility provided by excess cash and free cash flow to finance any intermediate acquisition, dividends or share buyback activity. Fitch believes that significant near-term acquisition activity appears limited given management's current focus on integrating previous acquisitions and improving operating efficiency. Also considered in revising the Rating Outlook to Stable is CA's successful refinancing and extension of its RCF to August 2012 and CA's progress in resolving outstanding accounting issues, including complete resolution of all material weaknesses. Positive rating actions could occur if: -- No significant capital structure changes occur over the next year with a commitment to limit acquisition and share buybacks to excess cash on hand and free cash flow; -- Credit protection measures trend positively through growth in operating profits and/or debt reduction; -- CA's recurring revenue model limits the potential financial stress from a less favorable macro-economic environment, particularly in the U.S., which accounted for approximately 54% of the company's total revenue over the last twelve months. Negative rating actions could occur if: -- CA's financial performance declines materially in the event of an economic downturn in the U.S., particularly for the financial services vertical, indicating a less resilient business model relative to Fitch's expectations; -- Significant debt-financed acquisitions with considerable integration risk and/or unrelated to core business. Ratings concerns center on a slowing and more challenging mainframe market, the likelihood for additional albeit less significant restructuring costs, and strong competition from larger companies with strong financial flexibility. Fitch believes the company's lack of participation in the software industry's ongoing consolidation activity could constrain longer term revenue growth rates. The ratings continue to be supported by CA's: i) solid recurring revenue profile, driven by the high barriers to entry with significant 'switching' costs associated with the software industry; ii) consistent annual free cash flow approximating US$750 million to US$1 billion; and iii) size, diversity, and quality of the company's installed base (approximately 98% of Fortune 500) and depth of product line. Credit protection measures remain solid for the rating category and Fitch expects that they will remain flat over the intermediate term. Total debt to cash flow from operations was 2 times for the latest twelve months ended Sept. 30, 2007, compared to 2.4x for the fiscal year ended March 31, 2007, and 1.3x for fiscal year 2006. Fitch believes liquidity at Sept. 30, 2007 was solid and supported by: i) approximately US$1.9 billion of cash and cash equivalents (approximately 66% overseas); ii) US$1 billion senior unsecured RCF due August 2012, of which approximately US$250 million is undrawn and available; and iii) aforementioned consistent annual free cash flow. Free cash flow for fiscal year 2008 ending March 31, 2008 is anticipated to be adversely impacted by cash restructuring and higher cash tax payments but should increase going forward as the company's restructuring initiatives begin to translate into higher profitability and capital spending on the company's global SAP implementation trends downward. Total debt as of Sept. 30, 2007 was approximately US$2.6 billion, consisting primarily of: i) US$750 million of borrowings outstanding under the company's RCF; ii) US$350 million senior notes due April 2008; iii) US$460 million convertible senior notes due 2009; iv) US$500 million senior notes due 2009; and v) US$500 million senior notes due 2014. |
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