8 February 2002 Computer Associates (CA) has been plunged into crisis following the collapse of its proposed $1 billion (€1.14bn) bond offering. The Islandia, New York-based software company blamed credit reference agency Moody’s for the setback.
Ironically, CA CEO Sanjay Kumar was at an IT symposium organised by investment bank Goldman Sachs in La Quinta, California when ratings agency Moody’s declared that it was putting CA’s $3.6 billion (€4.12bn) debt on review.
This could lead to a downgrade in the company’s credit worthiness. Moody’s announcement caused CA shares to plunge 20% in the wake of the announcement.
Kumar ended up spending most of his time at La Quinta justifying his company’s strategy, prospects and finances. CA’s CEO was eventually forced to cancel the two bond issues that were intended to raise a combined $1 billion (€1.14bn).
CA had intended the money to be used for paying off some of its debt. An aggrieved Kumar resorted to lambasting Moody’s for its poor timing.
The debt had been amassed as a result of CA’s acquisition strategy. Whereas rivals tend to use equity to pay for acquisitions, CA has preferred to raise loans instead.
Moody’s decision comes in the aftermath of the scandal engulfing energy giant Enron. Ratings agencies – often accused of complacency in the past – want to show that they are capable of applying more rigorous financial assessment criteria in a manner that is sharp, strict and timely.