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Announcement:

Moody's affirms Unisys' B1 CFR; outlook changed to positive

22 Feb 2011

Over $800 million of debt rated

New York, February 22, 2011 -- Moody's Investors Service has affirmed Unisys' B1 corporate family rating (CFR) and all other ratings, and also changed the rating outlook to positive from stable. This outlook change follows today's announcement by Unisys of plans to issue mandatory convertible preferred stock, redeem secured notes, and tender for additional bonds which Moody' estimates will reduce secured debt by up to $390 million. Upon completion of the transactions, the loss given default assessments will be revised based on the remaining debt balances.

The positive outlook reflects Unisys' planned reduction of leverage (about 4x prior to the proposed tender, adjusted for pension liability and operating leases) as well as improvements in operating performance, including solid recurring free cash flow. Given the relatively high cash balance ($828 million as of December 31, 2010 compared to reported debt of $824 million) of the company and the company's stated objective to reduce debt by 75% by the end of 2013, we expect the company will continue to pay down debt throughout 2011. The positive outlook also considers our expectation that Unisys will grow revenues by low single digits over the next year with modest profitability and free cash flow consistent with recent levels arising from a more streamlined services portfolio.

The B1 CFR is supported by a diversified services portfolio, which includes a relatively stable Public Services portfolio (40%+ of total revenues) and international revenues which account for more than half of total revenues. The B1 rating is constrained by a significant unfunded pension liability of nearly $1.4 billion and the company's modest size relative to much larger competitors with greater financial resources and a higher offshore labor mix.

Unisys' rating could be upgraded if the company were to demonstrate sustainable organic revenue growth, solid improvements in operating margins, consistent free cash flow, and a meaningful reduction in leverage (i.e., Moody's adjusted debt to EBITDA, including unfunded pension obligations, of less than 3x and free cash flow to debt of at least 10% on a sustained basis).

The proposed preferred stock issuance is expected to be $225 million of gross proceeds, with the ability of the underwriters to exercise a 15% green-shoe to bring the full issue as high as $259 million. The net proceeds from the preferred stock issuance will be used primarily to claw back up to $98.7 million face value of the 12.75% senior secured notes due in 2014 and $86.3 million face value of the 14.25% senior secured notes due in 2015. Simultaneously, the company also announced that it will tender for additional secured notes using a maximum of $220 million of cash on hand.

The following ratings were affirmed (assessments revised):

Corporate family rating of B1;

Probability-of-default rating of B1;

$385 million 12.75% Senior Secured 1st Lien Notes due 2014 ($375 million outstanding) of Ba1 (LGD 1, 8%);

$247 million 14.25% Senior Secured 2nd Lien Notes due 2015 of Ba2 (LGD 2, 21% from 20%);

$400 million 8% Senior Unsecured Notes due 2012 ($68 million outstanding) of B2 (LGD 4, 67%);

$210 million 12.5% Senior Unsecured Notes due 2016 ($151 million outstanding) of B2 (LGD 4, 67%);

Speculative Grade Liquidity (SGL) rating of SGL-2

The last rating action was taken on August 13, 2010 when Moody's upgraded Unisys' PDR to B1 from B3 based on Unisys' improved operating performance over the last year including solid free cash flow, reduced balance sheet debt, improved liquidity profile and credit metrics.

The principal methodology used in rating Unisys was the Global Business and Consumer Service Industry, which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory.

Headquartered in Blue Bell, Pennsylvania, Unisys Corporation provides I/T services and technology hardware to commercial and governmental clients worldwide.

New York
Stephen Sohn
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Russell Solomon
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms Unisys' B1 CFR; outlook changed to positive
No Related Data.
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