Moody's Investors Service ("Moody's") has placed the ratings of Computer Sciences (NYSE: CSC) under review for downgrade following CSC's announcement of its plan to divide into two separate, publicly traded companies, in a transaction which will effect a spin-off of its North American Public Sector ("NPS") business. The ratings placed under review include the Baa2 senior unsecured ratings.

RATINGS RATIONALE

The rating review reflects Moody's view that CSC's planned spin-off plan will result in a smaller business with less business diversity and profitability than the current combined business. The company has indicated that at the closing of the spin, leverage for standalone CSC will be about 1x (.5x on a net debt to EBITDA basis) and for NPS will be about 2.5x (2x on a net debt basis). However, specific capitalization plans, including the allocation of cash balances, for standalone CSC and NPS have not been announced.

Moody's review will focus primarily on the expected long term capital structure, liquidity profile, shareholder return policies, operating strategy and growth prospects of the remaining commercial business, where revenue declines persist. The review will also consider the smaller scale and reduced diversification post-spin. Post separation, CSC's commercial business will have over $8 billion in revenues, while NPS will have over $4 billion in revenues, but at higher profitability (operating margins of about 14% before corporate overhead) than the commercial unit (about 11%). CSC's senior unsecured ratings will likely either be confirmed at Baa2 or downgraded by one notch to Baa3 upon completion of the review.

NPS' contribution to revenue visibility is noteworthy since defense/intelligence agency contracts are typically of longer tenor than commercial-sector contracts. Additionally, NPS holds a strong position within the defense services market, as evidenced by superior operating margins and proven capacity to prime the kind of large, enterprise IT projects that national security agencies will depend on contractors for.

Rating actions:

Issuer: Computer Sciences Corporation

Senior Unsecured Rating -- Baa2 Under Review for Downgrade

Senior Unsecured Shelf, (P)Baa2 Under Review for Downgrade

Subordinated Shelf, (P)Baa3 Under Review for Downgrade

Preferred Stock Shelf, (P)Ba1 Under Review for Downgrade

The principal methodology used in these ratings was Business and Consumer Service Industry published in December 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.