Credit protection on Computer Sciences Corp. widened this week on buyout rumors. The computer consulting and services provider is reported to be talking to private-equity firms about a possible leveraged buyout or break-up and sale of the company.
Five-year credit-default swap spreads on CSC widened to about 145 basis points Monday from about 37 bps Friday on a report of the talks in the Wall Street Journal. Spreads narrowed slightly Tuesday and then jumped to about 151 bps Wednesday, with hedge funds buying protection.
The news follows in the wake of this year's USD11.3 billion buyout of Sungard Data Systems Inc., the largest buyout of a public technology company to date--"[A] clear catalyst for larger LBOs in the technology space," according to Paul Hsi, an analyst at Moody's Investors Service in New York. CSC has seen stable increases in revenue and earnings, but has been losing market share to fast-growing outsourcing firms in India, narrowing profit margins.
All three ratings agencies maintained stable outlooks on the news. CSC senior unsecured debt is rated A3 by Moody's and single A by Standard & Poor's and Fitch Ratings. LBOs typically add debt and lead to a lower credit rating. Neither CSC itself nor Texas Pacific Group, Warburg Pincus or The Blackstone Group--the three firms rumored as potential buyers--have issued comments.
