CSC Issues Bonds Worth $700mn

Computer Sciences Corporation (CSC - Analyst Report) recently raised $700 million through the sale of bonds. The company issued bonds after a period of over three years.

The proceeds from the sale of the bonds will be used mainly to repay debts. CSC made two $350 million issues having redemption periods of three and 10-years. The 2.5% coupon rate three year debt is priced to yield 220 basis points higher than similar-maturity Treasuries, while the 4.45%, 10-year bonds are expected to generate a spread of 280 basis points.

This is the second debenture issue that the company is expected to issue after 3 years. The company had issued debentures in February 2009, wherein the company sold around $1.7 billion of debt in two segregated segments.

Moreover, the company is also planning to raise a term loan of $250 million, where Bank of Tokyo-Mitsubishi UFJ Ltd. and Bank of America Corp will be the lead bankers. A syndicate of lenders has submitted their credit commitment for the planned credit to the lead arrangers and they have a credit period of four years.

CSC’s new management team is taking the necessary steps to implement a multi-year strategy, which ultimately will help them to improve CSC’s competitive positioning. CSC is also focusing on proper execution of the projects in hand.

On the other hand, CSC is being affected by the reduction in government orders coupled with reduced business in the financial vertical. Moreover, weaker demand in Europe is also affecting its business.

Uncertainty regarding the NHS order renewal had been weighing on Computer Sciences’ shares, which have been on a decline over the past few months. But now we believe that the contract revival will act as a catalyst, driving up share prices.

Despite strong European exposure, strained federal budgets and stiff competition from Accenture plc (ACN - Snapshot Report) and Hewlett-Packard Company (HPQ - Analyst Report), Computer Sciences retains a Zacks #2 Rank, implying a short-term Buy rating.