Moody's downgrades CA debt rating to junk
- 15 March, 2004 11:50
Credit ratings firm, Moody's Investors Service, has downgraded Computer Associates International (CA) to junk status, citing intensifying industry competition and the uncertainty associated with continuing government investigations into the company's past accounting.
The change is unlikely to soon affect CA's operations.
The company had been focused for the past year on paying down its debt, which stands at $US2.3 billion, and was not currently looking to borrow further, CA executives have said.
The downgrade does indicate, however, the extent of some financiers' concerns about CA's stability.
Moody's began reviewing CA for a possible downgrade in October. Since then, CA has dismissed its chief financial officer (CFO) and several other financial executives for alleged accounting improprieties, and received a Wells Notice from the US Securities and Exchange Commission. This indicates that the agency is likely to bring a civil case against CA for violations.
Meanwhile, one of the dismissed executives, former senior vice-president of finance, Lloyd Silverstein, pleaded guilty in January to charges of accounting fraud.
Moody's cited those events in its report on its downgrade.
It also cited greater competition to CA from vendors including HP and IBM, which Moody's sees "weakening a more co-operative framework that historically existed".
CA's alliance with Electronic Data Systems, which is weathering its own financial challenges amidst a sharp sales drop-off, was a risk factor, given the importance of the alliance to CA's product distribution strategy, Moody's said. CA strongly disagreed with Moody's downgrade decision, the company said.
Interim CFO, Douglas Robinson, said the downgrade ignored CA's underlying current strength and strong future prospects.
CA has reduced its debt by $US826 million so far this fiscal year, which ended on March 31, he said.
Against its debt, CA had $US1.4 billion in cash and liquid assets as of December 31, along with $US470 million in untapped credit and close to $US4 billion in deferred revenue, Robinson said.
Moody's acknowledged the company's deferred revenue backlog, ongoing product development and improving corporate governance as positive factors.
CA's revamped board of directors and key new executive hires in the past two years were helping to strengthen the company, Moody's said.