Fitch Affirms Computer Science's IDR at 'BBB'; Outlook Revised to Positive

  Fitch Affirms Computer Science's IDR at 'BBB'; Outlook Revised to Positive

Business Wire

NEW YORK -- March 7, 2014

Fitch Ratings has affirmed Computer Sciences Corp.'s (NYSE: CSC) Issuer
Default Rating (IDR) at 'BBB' and revised the Rating Outlook to Positive from
Stable. Furthermore, Fitch has withdrawn the short-term IDR and commercial
paper rating of 'F3'. A full list of ratings follows at the end of this
release.

KEY RATING DRIVERS

The revision in the Rating Outlook to Positive reflects CSC's:

--Strengthened free cash flow (FCF) and materially improved cash flow metrics.
FCF has primarily benefitted from operating margin expansion as a result of
the company's significant 2012-2014 cost reduction program and declining
capital intensity, albeit at a cost to revenue growth in the Global
Infrastructure Services segment.

Fitch estimates FCF-to-total adjusted debt increased to nearly 15% in the
latest 12 months (LTM) ended Dec. 27, 2013, compared with 3.7% in fiscal 2013
(March 31), excluding a $500 million discretionary pension contribution in the
current period and a one-time cash receipt of $126 million from the U.K.'s
National Health Service in the year-ago period.

--Stabilizing total contract backlog, which is a key determinant of future
revenues. CSC's total contract backlog stabilized at $30.7 billion for two
consecutive quarters, with funded and unfunded backlog relatively flat as
well, despite declining average contract durations in both commercial and
public sectors. Fitch estimates 80.5% of total revenue in fiscal 2014 will be
derived from backlog reported at the end of fiscal 2013.

--Improved new contract due diligence and services delivery execution
reflected in greater overall profitability, including net favorable
adjustments to percentage of completion models. CSC made considerable
investments in people and processes to improve the company's ability to bid
accurately on new contracts and then successfully execute against the contract
bid model through better services delivery.

Rating strengths include:

--A significant percentage of CSC's total revenue is recurring from long-term
services contracts.

--CSC's strong total liquidity, consisting of cash and available borrowing
capacity under its committed revolving credit facility (RCF). CSC upsized its
RCF to $2.5 billion, increasing total liquidity by 29% year-over-year to
nearly $4.7 billion, net of letters of credit, as of Dec. 27, 2013. CSC's
one-year liquidity coverage ratio has improved to the mid-4x range, reflecting
stronger profitability, lower capital intensity and manageable debt
maturities.

--CSC has a diverse revenue mix with respect to service offerings and
end-markets served, with commercial and government representing 68% and 32%,
respectively, of total fiscal 2013 revenue. Furthermore, CSC addresses a broad
range of industries within the commercial sector.

Rating concerns include:

--Weak organic revenue growth. Fitch estimates CSC's organic revenue growth
declined 1.3% in fiscal 2013 (March 31) and 7.6% and the first nine months of
fiscal 2014 ended Dec. 27, 2013, excluding the effects of the federal
government shutdown, acquisitions, divestitures (including Paxus, an
Australian IT staffing company accounted for as continuing operations) and
currency fluctuations.

EBITDA pressures from the revenue declines have been more than offset to date
through CSC's substantial cost reduction program from fiscal 2012-2014.
However, Fitch believes the most significant of the cost savings opportunities
at CSC will largely be captured by the end of fiscal 2014 (March 31),
potentially resulting in profitability pressures in the absence of improved
revenue performance. CSC's revenue growth is likely contingent on the
commercial sector, given continued spending pressures in the U.S. federal
market, particularly Department of Defense (DoD).

--Unresolved SEC investigations. Despite concluding an internal investigation,
CSC remains subject to an ongoing investigation by the SEC's Division of
Enforcement and its Division of Corporation Finance. CSC's discussions to date
with the SEC Enforcement Staff have yet to yield a resolution to the
investigation.

On Dec. 11, 2013, CSC received a Wells notice from the SEC Enforcement Staff,
which could lead to the SEC filing a civil enforcement action or
administrative proceeding against the company. On Jan. 14, 2014, CSC made a
Wells submission to convince the SEC such an action is not warranted. Fitch
believes an SEC settlement, if any, will be manageable in the context of the
company's solid liquidity position.

--Spending pressures in the U.S. federal market, particularly DoD, due to the
significant federal budget deficit. CSC's North American Public Sector (NPS)
accounted for 32% of total revenue in the LTM ended Dec. 27, 2013. CSC's NPS
derives the majority of its revenue from the DoD (61%), which faces greater
budget spending cuts than do civil agencies.

RATING SENSITIVITIES

Positive:

--Increase in new business signings, particularly next generation IT, and
solid renewals strengthens backlog, ultimately converting to improving revenue
trends and profitable revenue growth.

Negative:

--Revenue declines accelerate, well in excess of the overall market,
indicating a lack of competitiveness with new product offerings and/or greater
than expected erosion of traditional infrastructure outsourcing demand.

--Significant debt-financed acquisitions and/or share repurchases that result
in a material deterioration in credit protection measures.

As of Dec. 27, 2013, total liquidity was nearly $4.7 billion, consisting of an
undrawn $2.5 billion (RCF) due January 2019 and approximately $2.3 billion of
cash. About $1.1 billion of CSC's cash is held offshore, a portion of which is
accessible in a tax-efficient manner through settlement of inter-company loans
or return of capital distributions. CSC has substantial cushion under its
financial covenants, which consist of minimum interest coverage and maximum
leverage of 3x.

Total debt was approximately $2.8 billion as of Dec. 27, 2013, primarily
consisting of:

--$422 million note payable (Libor + 17 bps) due Dec. 2014;

--$350 million of 2.50% term notes due September 2015;

--$938 million of 6.50% term notes due March 2018;

--$409 million of 4.45% term notes due September 2022.

Fitch has affirmed the following ratings:

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

--Senior unsecured debt at 'BBB';

--Unsecured RCF at 'BBB'.

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

Applicable Criteria and Related Research:

--'Corporate Rating Methodology, Including Short-Term Ratings and Parent and
Subsidiary Linkage' (Aug. 5, 2013).

Applicable Criteria and Related Research:

Corporate Rating Methodology: Including Short-Term Ratings and Parent and
Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=822988

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Contact:

Fitch Ratings
John M. Witt, CFA, +1-212-908-0673
Senior Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Jason Pompeii, +1-312-368-3210
Senior Director
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