Fitch Affirms Hewlett-Packard's IDR at A+'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the ratings of Hewlett-Packard Company (HP) and Electronic Data Systems LLC (EDS), a wholly owned subsidiary whose debt is fully and unconditionally guaranteed by HP, as follows:

--Long-term Issuer Default Rating (IDR) at 'A+';

--Senior credit facilities at 'A+';

--Senior unsecured debt at 'A+';

--Short-term IDR at 'F1';

--Commercial paper (CP) at 'F1'.

EDS

--Long-term IDR at 'A+';

--Senior unsecured debt at 'A+'.

In addition, Fitch has affirmed Hewlett-Packard International Bank PLC's short-term IDR and CP rating at 'F1'.

The Rating Outlook is Stable. Approximately $30 billion of debt is affected by Fitch's actions, including two undrawn, credit facilities with $7.5 billion of aggregate borrowing capacity.

The ratings and Outlook are supported by HP's:

--Strong financial flexibility and liquidity provided by nearly $13 billion of cash (primarily offshore), consistent annual free cash flow (FCF) in excess $7 billion in the last three fiscal years and $7.5 billion of undrawn credit facility capacity. Fitch projects $9 billion of FCF in fiscal 2011 (ends Oct. 31) compared with $7 billion in the prior year.

--Broad product portfolio with strong worldwide market share positions in enterprise servers (#1), printing (#1), personal computers (#1) and IT services (#2);

--Significant recurring revenue primarily via printer supplies, outsourcing and technology services, and software maintenance (33% of total revenue).

--Extensive market coverage due to established multi-channel distribution model.

--Geographically diversified revenue base with approximately 66% of revenue derived from outside the U.S.

Rating concerns include:

--Risk of core debt (non-financing) increases to achieve financial and/or business objectives, such as sizable debt-financed share repurchases, particularly in light of HP's pressured stock price, and/or acquisitions, resulting in a material reduction of credit protection measures.

--Consistent, material increases in cash dividends long-term, which could pressure FCF and financial flexibility in the absence of commensurate growth in profitability, thereby necessitating further increases in core debt to fund acquisitions and/or share repurchases.

--Weak consumer demand in mature markets, which Fitch attributes to a shift in consumer demand priorities toward tablets and smart phones, and overall economic uncertainty.

--The potential threat to HP's highly profitable printer supplies business from strong adoption of tablets and/or remanufactured/counterfeit cartridges.

In addition to its significant cash position and consistent FCF, HP's liquidity is further supported by two undrawn revolving credit facilities, which had aggregate capacity of $7.5 billion as of April 2011, and multiple revolving trade receivables facilities with $299 million of available capacity as of April 30, 2011. HP's revolving credit facilities consist of a $4.5 billion credit facility expiring in February 2015 and a $3 billion facility expiring in May 2012.

HP's credit facilities primarily serve as a backstop for the company's CP program, the capacity of which was increased to $16 billion from $10 billion in May 2008 to facilitate the acquisition of EDS. HP's aggregate credit facility capacity of $7.5 billion provides only 47% backup to the $16 billion CP program, well below the typical 100% backup required for an 'F1' CP rating.

Nonetheless, Fitch assigns an 'F1' rating to HP's CP based on the company's strong total liquidity package, consisting of a sizable cash position and strong FCF, and expectations that total CP outstanding will not materially exceed the total capacity of the credit facility backstop. CP issuance well in excess of the total facility backstop of $7.5 billion and/or a material decline in liquidity would likely result in negative rating actions.

Total debt was $22.9 billion as of April 30, 2011, consisting of $3.4 billion of CP, $5 billion of other short-term debt, including current portion of long-term debt, and $14.5 billion of long-term debt. Fitch estimates $10.8 billion, or 47% of total debt, is attributable to HP's customer-financing business. Fitch estimates HP has no long-term debt maturities in the remainder of fiscal 2011 ending Oct. 31, 2011 followed by approximately $4 billion of maturities in fiscal 2012.

HP's core (non-financing) leverage (core debt/core EBITDA) increased to 0.7 times (x) as of April 30, 2011 from 0.5x in the prior year and core interest coverage remained strong in excess of 100x. Total leverage increased to 1.2x at April 30, 2011 from 1x in the prior year. Total interest coverage increased to 41x in the latest 12 months ended April 30, 2011 compared with approximately 38x in the year-ago period.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 13, 2010).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646

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