Moody's cuts Computer Associates to junk

Moody's Investors Service said it downgraded Computer Associates' senior unsecured rating to Ba1 from Baa3 and its short-term rating to Not Prime from Prime-3.

The outlook is stable.

Moody's said the downgrade reflects: 1) uncertainty associated with the continuing SEC and DOJ joint investigation into the company's revenue recognition practices that in part reflects a history of corporate governance concerns, 2) moderating financial flexibility in the face of near-term debt maturities and an undrawn revolving credit facility expiring January 2005 that contains borrowing representations, which potentially restrict availability under certain circumstances, and 3) intensifying competition from integrated and non-integrated IT vendors.

Moody's said these factors are compounded by uncertainty regarding the organic foundation of recurring revenue resulting from the October 2000 change in revenue recognition, which has impaired period to period analytical comparability.

The stable outlook reflects the company's: 1) substantial backlog of contracts from a diverse set of creditworthy clients, 2) continued investment in product development for addressable enterprise markets, 3) forecasts for measured acquisition plans and share repurchases, and 4) improving corporate governance.

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