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NEW YORK--([ BUSINESS WIRE ])--Fitch Ratings has assigned 'BBB' ratings to Computer Sciences Corp.'s (NYSE: CSC) offering of three- and 10-year senior unsecured notes and its $250 million delayed draw term loan facility due 2016. Net proceeds are expected to be used to redeem a portion of the $1 billion of senior notes maturing in 2013.

The Rating Outlook is Negative.

CSC's ratings and Negative Outlook continue to reflect:

--Profitability pressures from underperforming contracts and risk associated with the remediation of these contracts.

--Risk of incremental problem contracts and CSC's ability to win new contracts under a more stringent bid process.

--Risk of organizational disruption from the significant, albeit necessary, number of changes being implemented.

--Pressured U.S. federal IT spending, including the effects of sequestration scheduled to be implemented on Jan. 3, 2013, risk of default associated with the next upcoming debt-ceiling debate expected in late 2012 or early 2013 and cost containment measures due to fiscal pressures. CSC's North American Public Sector accounted for 36% of total fiscal 2012 revenue.

--Sovereign debt challenges and weak economic environment in Europe (25% of CSC's revenue).

--Ongoing SEC investigation into accounting adjustments and related disclosures.

The ratings are supported by CSC's:

--Recurring revenue from long-term contracts (75%-80% of total revenue).

--Target of $1 billion - $1.2 billion in profitability improvement in 12 to 18 months through cost savings and remediation of problem contracts. Cost savings will be derived from headcount reductions, procurement savings and real estate consolidation.

--Diversified revenue mix with respect to service offerings and end markets served with commercial and government representing 64% and 36%, of total fiscal 2012 revenue, respectively. Furthermore, CSC addresses a broad range of industries within the commercial sector.

--Adequate total liquidity of $2.5 billion, consisting of an undrawn $1.5 billion RCF due March 2015 and approximately $1 billion of cash as of June 29, 2012. Approximately $684 million of CSC's cash is held offshore but is accessible without material adverse tax implications due to intercompany loans from the parent to its foreign subsidiaries.

--Significant market opportunities in cybersecurity, healthcare, cloud, application modernization, and datacenter transformation, particularly for the federal government.

The ratings could be stabilized if:

--CSC achieves its profitability improvement target of $1 billion in the next 12 - 18 months, resulting in a rebound in FCF.

A negative rating action could occur in the event CSC:

--Profitability remains well below historical levels resulting in further deterioration of credit protection measures;

--Discloses additional material problem contracts;

--Experiences a significant decline in contract signings in a trailing 12 month period, indicating a lack of competitiveness under the more stringent bid process.

--Confronts a material reduction in federal spending that causes NPS revenue to decline in excess of the forecasted mid-single digit rate and is not partially offset by commercial sector growth.

CSC's liquidity was adequate as of June 29, 2012 supported by $1 billion of cash and equivalents and an undrawn $1.5 billion RCF expiring in March 2015. Financial covenants consist of minimum interest coverage and maximum leverage of 3x.

Furthermore, CSC could monetize its credit reporting business by exercising a put option prior to Aug. 1, 2013 that requires Equifax Inc. (Equifax) to purchase the business for cash within 180 days after the option exercise date. Although the purchase price will be determined by a third-party appraiser and is subject to negotiation, Equifax, based on an internal analysis, most recently estimated the fair value of the business to be $650 million - $750 million, as of Dec. 31, 2011.

Total debt was approximately $2.7 billion as of June 29, 2012, primarily consisting of:

--$700 million of 5.50% term notes due March 2013;

--$300 million of 5.00% term notes, due February 2013; and

--$1 billion of 6.50% term notes due March 2018.

Fitch continues to rate CSC as follows:

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

--Senior unsecured debt 'BBB';

--Revolving credit facility 'BBB';

--Short-term IDR 'F3';

--Commercial paper 'F3'.

Additional information is available at '[ www.fitchratings.com ]'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 8, 2012).

Applicable Criteria and Related Research:

Corporate Rating Methodology

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460 ]

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