Comdisco's Debt Ratings Affirmed At `A-/F2'; Outlook Negative By Fitch.

Business Editors

NEW YORK--(BUSINESS WIRE)--Aug. 1, 2000

Comdisco Inc.'s (CDO) ratings are affirmed at `A-' and `F2' for senior debt and commercial paper, respectively, by Fitch. Concurrent with the affirmations, the Rating Outlook for CDO's debt was changed to Negative from Stable. Approximately $5.5 billion of debt securities are affected by Fitch's actions.

The change in the Rating Outlook reflects Fitch's view that CDO's risk profile has gradually increased over the last two years. The acquisition of Prism Communications Services (Prism) in 1999 and the rapid expansion of the Ventures business segment in fiscal 2000 have been major drivers in the change in CDO's risk profile. While Fitch anticipated that Prism would report operating losses, the losses have significantly exceeded expectations. Instead of maintaining a majority ownership in Prism and completing an initial public offering (IPO) in 2000 as originally planned, management has engaged investment bankers to explore their strategic options.

CDO has been engaged in venture leasing since 1987. Historically, Ventures was a niche business that complemented the company's other technology equipment businesses. Over the last three years, due to the vibrant IPO market, Ventures has become an increasingly important contributor to CDO's overall profitability. As such, management has aggressively grown the business. Venture loans outstanding at March 31, 2000 stood at $524 million, a 105% increase (annualized) over the September 30, 1999 total. Due to the recent increase in loan volume, a significant portion of this portfolio is unseasoned loans.

In addition to the rapid growth of this portfolio, Fitch is concerned about the impact that Ventures has had on CDO's balance sheet. Because CDO receives equity warrants as part of its compensation in many of the transactions it funds, management is required, when possible, to value the unexercised warrants on a quarterly basis. Under U.S. GAAP, the tax-adjusted value of warrants in the money but not sold is included in CDO's equity base. At June 30, 2000, $218 million of tax-adjusted unrealized security gains were included in CDO's equity base of $1.244 billion. While the segments of the technology sector in which CDO holds warrants have performed favorably to date, there is no guarantee that this trend will continue in future periods. Thus, given the high proportion of unrealized equity gains, CDO's book equity is exposed to the volatility of public equity markets.

As a result of the high proportion unrealized equity gains as a component of book equity, CDO's leverage, defined as debt divided by book equity, could fluctuate significantly. At March 31, 2000, leverage stood at 4.7 times (x), which was in the low end of management's targeted range of 4.5- 6.5x. However, if the company's tax-adjusted unrealized equity gains were reduced by 50%, leverage would have been 5.1x at March 31, 2000. While Fitch is comfortable with the company's leverage target range, the book equity base exposure to market risk could result in leverage exceeding the company's target range.

Fitch's rating concerns are somewhat mitigated by CDO's significant cash flow from operations. At June 30, 2000, despite sizable investments in the infrastructure for its Web and network businesses, cash flow in excess of debt requirements remained good. However, limited seasoning of venture loans may affect the quality of future cash flows. In addition to its cash flow, CDO has good business diversity and a solid operating history. To management's credit, the company has expanded beyond its core lease product into services. The services business provides CDO with recurring fee-based revenue as well as differentiating itself from `money-on-money' lessors. Additionally, throughout its history, CDO has successfully operated against some of the largest leasing companies in the world.

Comdisco Inc. is a worldwide company offering financial solutions that reduce technology cost and risk and services that support technology infrastructure. CDO's businesses are Leasing, Technology Services, Ventures and Prism. These businesses well position CDO as a broad-range provider of information technology solutions and services. The Leasing unit provides leasing and remarketing of distributed systems and communications equipment. Leasing also provides leasing and technology lifecycle management services for the semiconductor manufacturing, pharmaceutical and communications industries. Technology Services offers business continuity, desktop management, network, and Web services and software. Ventures provides venture debt and venture leasing to emerging technology companies. Prism Communication Services is a leading-edge connectivity provider that offers a high-speed, always-on digital network.

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.