Moody’s downgrades CA debt rating to junk

Credit ratings firm Moody’s Investors Service downgraded Computer Associates International to junk status Thursday, citing intensifying industry competition and the uncertainty associated with continuing government investigations into the company’s past accounting.

Credit ratings firm Moody’s Investors Service downgraded Computer Associates International to junk status Thursday, 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 has been focused for the past year on paying down its debt, which stands at $2.3 billion, and is 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 Islandia, N.Y.-based CA for a possible downgrade in October. Since then, CA has dismissed its chief financial officer and several other financial executives for alleged accounting improprieties, and received from the U.S. Securities and Exchange Commission a “Wells Notice” indicating 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 cooperative framework that historically existed.” CA’s alliance with Electronic Data Systems Corp., which is weathering its own financial challenges amidst a sharp sales drop-off, is a risk factor, given the importance of the alliance to CA’s product distribution strategy, Moody’s said.

CA strongly disagrees with Moody’s downgrade decision, the company said in a written statement. Interim CFO Douglas Robinson said the downgrade ignores CA’s underlying current strength and strong future prospects.

CA has reduced its debt by $826 million so far this fiscal year, which ends March 31, he said. Against its debt, CA had $1.4 billion in cash and liquid assets as of Dec. 31, along with $470 million in untapped credit and close to $4 billion in deferred revenue, according to Robinson.

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 are helping to strengthen the company, Moody’s said.