Moody's Lifts Outlook on Science Applications Int'l (SAIC) to Positive

Moody's Investors Service has changed the rating outlook of Science Applications International Corp. (SAIC) to positive from stable and affirmed the Ba3 Corporate Family Rating. Concurrently, a Ba2 rating has been assigned to the pending first lien credit agreement amendment/extension.

RATINGS RATIONALE

The rating outlook change to positive considers progress made since the company was spun-off from its former owner three years ago, and debt reduction/credit metric gains since the Scitor acquisition of May 2015. A supportive 1x book to bill ratio and an improving US defense budgetary environment also benefit the rating outlook. With the Scitor acquisition integrated, SAIC's presence within the intelligence community --which ended with the spin-off -- has been re-established and revenue diversity by agency has broadened.

In Moody's view, M&A activity remains an ongoing element of SAIC's growth strategy, but the company's tolerance for financial risk has become clearer and the probability of a highly leveraging acquisition has lessened.

The Ba3 CFR reflects SAIC's well-known brand, steady backlog and contract performance track record within the US Department of Defense and intelligence community. Credit metrics are expected to be strong for the rating level with debt/EBITDA likely to remain in the low 3x range with funds from operation to debt above 20% near term.

The Speculative Grade Liquidity rating of SGL-2, denoting a good liquidity profile, has been affirmed. The pending credit agreement revision would extend the revolver maturity to 2021 and eliminate the near-term schedule term loan amortization. Expected good covenant headroom and a cash balance maintained at $150 million also support the SGL-2.

Upward rating momentum would depend on achievement of organic revenue growth in coming quarters as defense outlays begin to gradually rise after several years of decline, an improving book to bill ratio and continued good liquidity. An expectation that a leveraged acquisition would not push debt/EBITDA above 4x or funds from operation to debt below 15% would likely accompany a rating upgrade.

Downward rating pressure would follow debt/EBITDA above 5x, significant contract loss, impairment charges, or a diminished liquidity profile.

..Issuer: Science Applications International Corp

Affirmations:

.... Corporate Family Rating, Affirmed Ba3

.... Probability of Default Rating, Affirmed Ba3-PD

.... Speculative Grade Liquidity Rating, Affirmed SGL-2

....Senior Secured Bank Credit Facility, Affirmed Ba2 (LGD3)

Assignments:

....Senior Secured Bank Credit Facility, Assigned Ba2 (LGD3)

Outlook Actions:

....Outlook, Changed To Positive From Stable

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