Fitch Revises CA, Inc.'s Outlook to Positive; Aff's IDR at 'BB+'

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has revised CA, Inc.'s (CA) Rating Outlook to Positive from Stable. The following ratings are affirmed:

--Issuer default rating (IDR) at 'BB+';

--Senior unsecured revolving credit facility (RCF) at 'BB+';

--Senior unsecured debt at 'BB+'.

Fitch's actions affect approximately $2.5 billion of total debt, including the company's $1 billion revolving credit facility.

The Positive Outlook reflects the continued improvement in the company's credit metrics and strong financial results. CA's credit protection measures have strengthened, particularly leverage, driven by both growth in operating profits as well as debt reduction. Fitch estimates that total debt/last 12 months (LTM) Operating EBITDA was 1.5 times (x) as of company's fiscal second-quarter 2009 (2Q09) (ended June 30, 2008), versus 2.3x at fiscal 2Q08. In addition, CA's recent operating and financial results are trending positively, evidenced by solid top-line growth, margin improvement, and strong free cash flow. Results have been supported by the company's recurring revenue model, which has heretofore limited the negative impacts of the less favorable macroeconomic environment and which Fitch expects will continue to be the case.

The ratings consider that CA has become more conservative over the last two years, as the company has curtailed acquisitions and share repurchases and has undertaken moderate debt reduction. Fitch believes that the company's policies will remain fairly conservative over the intermediate term and that CA would utilize its financial flexibility provided by excess cash and free cash flow to finance acquisition, dividend, or share buyback activity. While Fitch anticipates the company will refinance $960 million of debt maturing in December 2009, Fitch believes that CA is likely to retain excess liquidity over the near term to potentially meet these obligations with cash on hand, given current market conditions. Fitch believes that significant near-term acquisition activity appears limited given management's current focus on integrating previous acquisitions and improving operating efficiency.

Positive rating actions could occur if:

--No significant capital structure changes occur over the next year with acquisition and share buyback activity largely financed with excess cash on hand and free cash flow;

--CA's recurring revenue model continues to shelter the company from financial stress due to the economic downturn, particularly in the U.S.;

--There is evidence of the company's ability to repay or refinance its 2009 maturities, given that approximately 65% of the cash on hand is located outside the U.S., and a significant amount of free cash flow is generated overseas.

Ratings concerns center on whether CA will maintain a consistent approach to its financial strategy over the long term, despite Fitch's comfort with the company's intermediate-term policies. Additional concerns include competition from larger companies with superior financial flexibility. Finally, 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: solid recurring revenue profile, driven by the high barriers to entry with significant 'switching' costs associated with the software industry; consistent annual free cash flow approximating $750 million to $1 billion; and the size, diversity, and quality of the company's installed base (approximately 98% of Fortune 500) and depth of product line. Credit protection measures are strong for the rating category and Fitch expects that they could improve over the intermediate term from operating profit growth and, less likely, debt reduction.

Fitch believes liquidity at June 30, 2008 was sufficient and supported by: approximately $2.4 billion of cash and cash equivalents (approximately 65% overseas); $1 billion senior unsecured RCF due August 2012, of which $250 million is undrawn and available; and the aforementioned consistent annual free cash flow. Free cash flow for fiscal 2009 ending March 31, 2009 is anticipated to be affected slightly 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.

Total debt as of June 30, 2008 was approximately $2.2 billion, consisting primarily of: $750 million of borrowings outstanding under the company's RCF; $460 million convertible senior notes due December 2009, which have a conversion price of $20.04 per share; $500 million senior notes due December 2009; and $500 million senior notes due 2014.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.