[0] Fitch Affirms Unisys' `BBB-' Credit Rating.

Business Editors

NEW YORK--(BUSINESS WIRE)--Aug. 8, 2000

Fitch has affirmed its `BBB-' senior unsecured debt rating of Unisys Corporation.

The rating reflects the solid capital structure and comfortable fixed obligation position Unisys has achieved through reducing or refinancing debt and eliminating preferred stock. At the same time, Fitch changed Unisys' Rating Outlook from Positive to Stable to reflect a slower expected pace for further balance-sheet improvements, largely due to transitions in the information technology (IT) services industry.

Unisys has made dramatic strides in reducing its financial and business risk. From September 1997 through June 2000, it cut aggregate debt by $1.35 billion and eliminated its convertible preferred stock, reducing interest and dividends by more than $275 million annually. In that period, debt and preferred stock went from 97% of invested capital to 31%.

In April 2000, it further reduced fixed payments by redeeming $400 million of 12% coupon notes. Funding came one-third from cash, one-third from the existing $400 million revolver, and one-third from a special-purpose one-year credit agreement. The company is likely to continue extricating itself from high-priced debt. The remaining $334 million of 11 3/4% notes are callable in October 2001.

Along with significant financial improvement, Unisys has broadened its operational base to focus on better possibilities for profitable growth. Services now generate some 70% of revenues, balancing hardware in earnings contribution.

However, operating improvements have lagged in recent periods, reflecting broader transitions in the IT services industry. The industry received a boost as organizations expedited replacement of old systems possibly unable to make the year 2000 transition. With Y2K successfully past, that business has fallen off. Services providers now are shifting their efforts toward helping clients move from just static Web site usage to substantive operational Internet reliance. However, this activity is now primarily in the planning and proposal stage, resulting in the slower growth felt by Unisys and most IT services competitors.

Fitch expects e-business to re-energize IT services, but until it does and bolsters funds from operations, Unisys may have to slow its debt reduction efforts. Accordingly, Fitch has changed Unisys' Rating Outlook to Stable. Fitch expects Unisys to meet its goal of repaying by April 2000 the approximately $300 million of short-term borrowings used in the redemption of the 12% notes, but lower-than-expected earnings and an increase in working capital in the second quarter make achieving that goal somewhat less certain.

If Unisys does meet the goal, adjusted debt should be approximately 37% of invested capital compared to the current 44%, and EBITDA should be more than 12 times interest compared to the second quarter's 9.1 times. However, Fitch does not currently anticipate taking additional rating action until there is better clarity as to the direction of the business.

With prior-12-month revenues of $7.1 billion, Unisys is one of the top 10 U.S.-based providers of IT services, hardware, software, and repeatable solutions, with strengths in such end-markets as financial services, transportation, telecom, government and publishing. At June 30, Unisys had $938 million of debt outstanding and $183 million of cash.

Fitch is an international rating agency that provides global capital market investors with the highest quality ratings and research. Dual headquartered in New York and London with a major office in Chicago, Fitch rates entities in 75 countries and has some 1,100 employees in more than 40 local offices worldwide. The agency, which is a combination of Fitch IBCA and Duff & Phelps Credit Rating Co., provides ratings for Financial Institutions, Insurance, Corporates, Structured Finance, Sovereigns and Public Finance Markets worldwide.