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Global Credit Research - 22 Jul 2010
Term loan due 2011 diminishes liquidity profile strength
New York, July 22, 2010 -- Moody's Investors Service has affirmed the Ba2 corporate family
and probability of default ratings of CACI International, Inc.
The positive ratings outlook continues. CACI's speculative grade
liquidity rating has been lowered to SGL-3 from SGL-1.
The Ba2 corporate family rating affirmation reflects CACI's growing
scale, sustained moderate leverage, good cash flow generation
and likelihood that demand from the U.S. Department of Defense,
including the U.S. Army, should remain favorable into
2012. Beyond 2012, moderation of U.S. defense
budgets should begin tempering CACI's strong organic revenue growth
rates. Credit metrics are strong for the rating level, but
relatively high revenue concentration exists, and the company has
signaled renewed acquisition spend upcoming.
The positive outlook reflects our expectation that CACI will likely be
able to manage its expansion plans within parameters that support a higher
rating. CACI's focus on expanding its federal health and
energy business lines would help diversify revenues and may help offset
ebbing defense-related demand beyond 2012. Operating margins
should not decline further as low margin material and other non-direct
labor revenues decline as a percentage of total revenues. As well,
good cash flow characteristics of the service business model, internal
growth over the next couple of years, and the company's historically
prudent capital structure management should limit borrowing for acquisitions.
The speculative grade liquidity rating downgrade to SGL-3 from
SGL-1 reflects an adequate but diminished liquidity profile.
In May 2011 CACI's $279 million senior secured term loan
matures and its $240 million (undrawn) revolver expires.
As of March 2010, the company had $175 million of cash on
hand. In our view internal cash flow generation and the cash on
hand would adequately cover the maturity and expected operating requirements,
but room for error would not be large. (The speculative grade liquidity
analysis assumes no market access for refinancing needs.) The SGL-3
encompasses the recently announced $50 million share repurchase
authorization. However, the rating does not envision conversion
of CACI's convertible subordinated notes due 2014, which require
cash settlement of the $300 million principal amount; likelihood
of conversion near-term appears sufficiently low to exclude it
from the 12-month liquidity projection. The company plans
to refinance the maturity during the third quarter of 2010 and the SGL-3
rating would likely improve with a new or extended bank credit facility.
Upward rating potential could accelerate after CACI addresses the 2011
term loan maturity. Rating upgrade would depend on expectation
of continued positive organic revenue growth, return on assets approaching
5% and a sustained good liquidity profile. While the positive
outlook acknowledges that acquisitions could temporarily increase financial
leverage, it assumes rapid de-levering to the low 3.0
times range thereafter. Although not contemplated, downward
rating momentum could develop without liquidity profile improvement,
or if margin erosion continues with leverage exceeding 4.0 times.
The ratings are:
Corporate family and probability of default Ba2
$240 million senior secured revolver due May 2011 Baa3 LGD 2,
$279 million senior secured term loan B due May 2011 Baa3 LGD 2,
Speculative grade liquidity to SGL-3 from SGL-1
Moody's last rating action on CACI occurred January 15, 2010 when
the Ba2 corporate family rating was affirmed and the rating outlook was
changed to positive from stable. For further information please
refer to the credit opinion on moodys.com. The principal
methodology used in rating CACI was Aerospace / Defense, published
in July 2010, which can be found at www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating CACI can also be found in the Rating
Methodologies sub-directory on Moody's website.
CACI International Inc, based in Arlington, VA, provides
information technology services and solutions for the U.S.
Department of Defense, federal civilian agencies, the government
of the United Kingdom as well as large commercial enterprises and state
and local governments. Last twelve months ended March 2010 revenues
were $3.0 billion.
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's affirms CACI's Ba2 CFR with positive outlook, SGL rating to SGL-3
No Related Data.
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