Fitch Places Affiliated Computer Services on Rating Watch Negative On LBO Offer

Business Wire, March 20, 2007

NEW YORK -- Fitch Ratings has placed Affiliated Computer Services, Inc. (ACS) on Rating Watch Negative following the proposed offer from Darwin Deason, founder and current chairman of ACS, and Cerberus Capital Management L.P. (Cerberus) to acquire the company in a leveraged buyout (LBO) transaction valued at $8.2 billion, including existing debt.

The following ratings are affected:

--Issuer Default Rating (IDR) 'BB';

--Senior secured revolving credit facility at 'BB';

--Senior secured term loan at 'BB';

--Senior notes at 'BB-'.

Approximately $3.3 billion of debt, including the $1 billion revolving facility, is affected by Fitch's action.

Resolution of the Negative Rating Watch is contingent on the following factors:

--The decision reached by ACS' Board of Directors to accept or reject the offer following a review of the transaction;

--The degree of leverage utilized in financing the acquisition should the Board approve the transaction;

--The acquirer's ability to arrange what Fitch believes will be approximately $6 billion of debt financing, assuming a 30% equity contribution.

Fitch believes ACS' credit metrics proforma for the transaction support an IDR in the 'B' category. Based on the proposed offer price and a 30% equity contribution, Fitch estimates pro forma leverage (total debt/operating EBITDA) may increase to 6.3 times (x) from 2.8x as of Dec. 31, 2006 (bank-defined = 2.4x) due to a projected $3.3 billion increase in outstanding debt to $6 billion in order to finance the transaction. Fitch believes proforma interest coverage (operating EBITDA/ gross interest expense) may decline to 1.7x from 7.1x for the latest 12 months (LTM) ended Dec. 31, 2006 (bank-defined = 7.4x).

Fitch believes the majority of outstanding debt will be refinanced in an LBO transaction. Total debt as of Dec. 31, 2006 was approximately $2.6 billion, consisting primarily of $1.8 billion of secured term loans due 2013, $275 million of borrowings under the revolving credit facility, $250 million of senior notes due June 2010 and $250 million of senior notes due June 2015. Under the terms of the credit facility agreement, consummation of the proposed transaction would be an event of default, requiring immediate repayment of all outstanding borrowings under the facility due to a change of control provision and likely violation of financial covenants in the agreement, including maximum consolidated total leverage ratio of 4x and interest coverage covenant of 4.5x.

The indenture governing ACS' $500 million of senior notes offers no protection in the event of an LBO. ACS previously granted equal and ratable liens in favor of the holders of the senior notes in all assets other than accounts receivable when it obtained the current secured credit facility. The 'BB-' rating for the senior notes incorporates the fact that the secured credit facilities have the sole rights to ACS' accounts receivable, which represented approximately 21% of total assets and 43% of tangible assets as of Dec. 31, 2006. Acceleration of principal on the senior notes as a result of ACS' failure to timely file its 10-K for the year ended June 30, 2006 remains uncertain due to the company's pending lawsuit against its Trustee, in which ACS seeks a declaratory judgment affirming its position that no default has occurred under the indenture. However, Fitch believes there is a possibility the senior notes will be refinanced in the proposed transaction to avoid the uncertainty associated with a sizeable contingent payment relative to current liquidity and minimal pro forma free cash flow in a highly leveraged capital structure.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.