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Published on 10/28/2011 in the Prospect News Convertibles Daily and Prospect News Investment Grade Daily.

Fitch: HP news a boon

Fitch Ratings said it said believes Hewlett-Packard Co.'s announcement that it will retain its personal systems group favorably affects the company's credit profile, thereby greatly reducing the risk of a two-notch ratings downgrade.

In a recent special report titled "Quantifying the Downside Risk to HP's ratings," Fitch indicated that a two-notch downgrade was most probable in the worst case scenario, which assumed HP divests the group and receives no remuneration, the $11 billion acquisition of Autonomy Co. plc was fully debt financed, and the company fails to commit to an aggressive debt reduction program.

HP's decision to retain the group eliminates the primary consideration for a two-notch downgrade, Fitch noted.

A one-notch downgrade may still be warranted based on significant growth in outstanding debt utilized to finance acquisitions and share repurchases and deterioration in the company's financial performance and liquidity in the first nine months of fiscal 2011 ended July 31, the agency added.


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