NEW YORK - (Business Wire) Fitch Ratings has assigned a 'BBB' rating to CA, Inc.'s (CA) offering of $750 million senior unsecured 10-year notes. The Rating Outlook is Stable. Fitch currently rates CA as follows:
--Issuer Default rating (IDR) 'BBB';
--$1 billion senior unsecured revolving credit facility (RCF) due August 2012 'BBB';
--Senior unsecured debt 'BBB'.
A portion of the proceeds is expected to be used to repay $500 million of the $750 million drawn under the RCF. The remainder will augment the company's already significant cash balance, which is expected to be used for the repayment of $636 million of debt due in December 2009.
Pro forma for the issuance and RCF repayment, Fitch estimates total debt on Sept. 30 of $2.2 billion, consisting of i) $176 million of senior unsecured notes due December 2009; ii) $460 million of convertible senior unsecured notes due December 2009, which have a conversion price of $20.04 per share; iii) $250 million outstanding under the RCF; iv) $500 million senior unsecured notes due 2014; and v) the $750 million aforementioned notes, due 2019.
The ratings incorporate CA's solid credit metrics, which have improved significantly in recent years driven by growth in operating profit as well as significant debt reduction. Fitch estimates that the $250 million net increase in debt from the transaction and RCF repayment will cause pro forma leverage on Sept. 30 to increase 0.1 times (x), to 1.3x. However, Fitch estimates that gross leverage will decline below 1.0x upon the December debt repayment. The company's $1 billion net cash position will remain unchanged. Pro forma interest coverage on Sept. 30 will deteriorate to approximately 12.0x from the current 16.8x as a result of the higher interest rate associated with the new debt, although the December debt repayment will drive some upside to this metric in 2010.
The ratings and Stable Outlook also incorporate Fitch's expectations that CA's financial policy will remain conservative, and that the company will utilize the financial flexibility provided by its strong free cash flow to finance most of its acquisition, dividend and share buyback activity. Fitch believes that CA retains flexibility at current ratings to increase debt, given current low leverage, recurring revenue, high operating margins and strong free cash flow, and expectations that total leverage will remain below 2.0x.
Fitch's longer-term ratings concerns for CA center principally on competition from larger companies with superior financial flexibility, as well as lower organic growth rates, which could require a more aggressive acquisition strategy to maintain its competitive position.
Fitch believes the company's liquidity on Sept. 30, 2009 pro forma for the transaction was solid and supported by: i) $3.3 billion of cash, approximately 60% of which is located in the U.S.; ii) $750 million availability under the company's $1 billion RCF. In addition, CA generates solid free cash flow of more than $750 million annually.
Additional information is available at 'www.fitchratings.com'.
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Fitch Ratings, New York
Melissa L. Link-Cohen, CFA, 212-908-0611
Nick P. Nilarp, CFA, 212-908-0649
or
Media Relations:
Cindy Stoller, 212-908-0526
Email: cindy.stoller@fitchratings.com
