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Computer Associates Emerges From Scandal, Cashes In

Computer Associates has closed on a four-year, $1 billion revolver that has improved pricing over its previous $470 million line after the company resolved a messy accounting scandal that led to an executive shuffle and a Securities Exchange Commission investigation.

Computer Associates has closed on a four-year, $1 billion revolver that has improved pricing over its previous $470 million line after the company resolved a messy accounting scandal that led to an executive shuffle and a Securities Exchange Commission investigation. "I think that any bank that chooses to work with CA has done their homework and understands the company and its business," said Mary Stravinskas, senior v.p. and treasurer for Computer Associates. "Because they do a lot of research and are comfortable with their position, they're able to understand and be less reactionary to something that might be written in the newspaper."

Bank of America, Citigroup and J.P. Morgan were the lead arrangers on both the new and old revolver. "I think that clearly while the SEC and Justice Department situation was unresolved, it provided a drag and an unknown," said one banker involved in the facility. This clearly affected the size and pricing of the previous facility. The $470 million revolver was put in place in December of 2002 and had replaced a $1 billion credit. The pricing on the current facility is LIBOR plus 1% as opposed to LIBOR plus 3% on the former facility.

Computer Associates and three of its top employees agreed to settlements on securities fraud charges filed by the SEC in September, 2004. The SEC found that Computer Associates recognized $3.3 billion in premature revenue between 1998 and 2000.

Now Computer Associates is focused on growth and acquisitions. "The company has identified a number of areas in which we aim to grow. Expanding internationally is one of them and expanding our indirect and channel business is another. We will not rule out acquisitions that will add strategically to our software company," noted Stravinskas.

Computer Associates did change its covenant structure due to problems that emerged during the Islandia, New York-based company's accounting problems. The changes represent a shift in larger software accounting practices. "Our covenants are based on EBITDA-to-cash flow covenants and an interest-coverage covenant. We changed our business model in 2000 and went from an upfront revenue recognition model, which most software companies were following, and we have since recognized revenue over the extent of the contract," commented Stravinskas.

Other lenders involved in the credit facility are ABN Amro, The Bank of Nova Scotia, BNP Paribas, The Bank of Tokyo-Mitsubishi, Barclays Bank, Credit Suisse First Boston, UFJ Bank, UBS, San Paolo IMI, North Fork Bank, Key Corporate Capital, Deutsche Bank, Wachovia Bank, Wells Fargo Bank andGoldman Sachs' funding vehicle William Street Commitment Corp.

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