Compaq Corp.'s `A-', `F2' Ratings Affirmed By Fitch.Business Editors NEW YORK--(BUSINESS WIRE)--Dec. 1, 2000 Compaq Computer Corporation's (Compaq) senior unsecured debt Unsecured debt Debt that does not identify specific assets that the debtholder is entitled to in case of default. and revolving credit Revolving Credit A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customers current cash flow needs. facility ratings are affirmed at `A-' and the company's commercial paper (CP) program is affirmed at `F2' by Fitch. This affirmation follows Compaq's Board of Director's authorization on Dec. 1, 2000, to repurchase up to $1.0 billion of common stock. Compaq intends to fund the stock repurchase Stock repurchase A firm's repurchase of outstanding shares of its common stock. with a combination of cash and borrowings from its $1.5 billion Compaq Corporation's CP program. The incremental Additional or increased growth, bulk, quantity, number, or value; enlarged. Incremental cost is additional or increased cost of an item or service apart from its actual cost. debt is expected to be fully reduced by the end of 2001. The Rating Outlook is Stable. Fitch's ratings reflect Compaq's credit protection measures, along with its strong industry position, solid operational and financial execution by the management team, the breadth of its product line, the stability of cash flows added by its services offerings, and the wide geographic revenue base. The ratings also recognize the competitive nature of the computer industry, the necessity for constant new product introductions, the challenges Compaq's traditional indirect personal computer (PC) distribution model faces from the more streamlined direct model of its competitors, and the need to further expand its revenues beyond the PC. Leverage as measured by total debt to latest twelve months EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become (earnings before interest, taxes, depreciation, and amortization Earnings before interest, taxes, depreciation, and amortization (EBITDA) A financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. ) was approximately 0.3x as of Sept. 30, 2000, and this is expected to temporarily increase due to additional borrowings to support the stock repurchase program. However, it is not expected to exceed 1.0x and, based on the company's projections, this incremental debt is expected to be fully reduced by the end of 2001. Fitch is comfortable with this short-term increase in leverage as the company continues to improve its cash flow through a combination of revenue growth and the successful implementation of an aggressive cost cutting program. Assuming the inclusion of customer-supported financing in total debt, leverage and coverage ratios remain manageable at this rating level. However, the partially debt-funded stock repurchase plan stock repurchase plan 1. See buyback. 2. See self-tender. does reduce Compaq's flexibility within its rating category. |
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