Computer Associates International Inc, which was forced to cancel a US$1 billion debt sale, tapped a bank credit line as its short-term financing costs soared.
The company -- based in Islandia, New York -- whose shares have plunged 45 percent this month, has borrowed US$1.4 billion of US$3 billion in credit lines arranged by Credit Suisse First Boston, said Ira Zar, Computer Associates' chief financial officer.
The money was used to pay back other debt, Zar said.
Computer Associates is the third company in the Standard & Poor's 500 Index to turn to bank financing as investor concerns that businesses' accounting practices have overstated profits.
Tyco International Ltd and Qwest Communications International Inc stopped selling commercial paper as investors demanded higher yields and shorter terms.
"Liquidity and access to the capital markets is absolutely vital at the moment," said Robert Truesdell, who doesn't own Computer Associates' debt in the US$4 billion in fixed-income investments he oversees at M&T Capital Advisors Group in Buffalo.
The FBI and the Securities and Exchange Commission are investigating how Computer Associates recorded sales of software and maintenance fees, Newsday and the New York Times reported.
The software maker's shares fell US$2.01, or 9.6 percent, to US$18.90, after falling 17 percent Wednesday.
Its 6.375 percent coupon note, due in 2005, is trading at US$0.86 on the dollar, down from US$0.93 on Monday, traders said. The yield has risen to 11.84 percent from 9 percent.
The fifth-biggest software maker canceled its bond sale after Moody's Investors Service said it was considering lowering the company's credit rating.
Moody's review crimped the company's short-term financing because fewer investors can buy commercial paper from a company that may be downgraded soon.
Computer Associates pays about 95 basis points above benchmark lending rates to borrow on its credit lines, Zar said.
That is about 2.9 percent for one- or two-month loans, compared to the 3 percent yield it offered investors on two-week commercial paper Thursday. That rate was almost 75 basis points above comparably rated companies.
A basis point equals 0.01 percentage point.
Last week, the software company offered to pay investors 5 basis points more in yield than Qwest's financing arm for one-month commercial paper, which unsecured debt often used to finance day-to-day operations.
The company hasn't "drawn on its credit lines to pay down its commercial paper obligations," Computer Associates said in a statement. Its "financial position is strong," the company said.
Zar said the company had drawn US$800 million of its US$2 billion credit line, leaving US$1.2 billion available and US$600 million of its US$1 billion credit line, leaving US$400 million available.
Borrowers with the same ratings as Computer Associates are expected to have back-up credit lines for each US$1 of commercial paper outstanding.
The company had planned to use the US$1 billion bond sale to pay down debt on the US$2 billion line. Instead, it paid down US$600 million with the funds available from the US$1 billion line, Zar said. He said the company now has between US$450 million and US$500 million in cash.
Zar, who was paid US$1.3 million last year in salary and bonus, said the company incurred "no new debt."
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