TEXT-S&P may cut SAIC Inc 'A-' rating

Fri Aug 31, 2012 2:40pm EDT

Overview
     -- U.S. government contractor SAIC announced a planned separation and 
subsequent spin-off of its Government Technical Services and Enterprise IT 
business (Services) from its Solutions and Products Business (Solutions).
     -- We are placing our ratings, including our 'A-' corporate credit rating 
on the company, on CreditWatch with negative implications.
     -- The CreditWatch listing reflects the less diversified business 
operations and potentially weaker credit protection metrics at Solutions 
following the spin-off.

Rating Action
On Aug. 31, 2012, Standard & Poor's Ratings Services placed its ratings on 
McLean, Va.-based SAIC Inc., including the 'A-' corporate credit rating
and senior unsecured rating, on CreditWatch with negative implications. 

Rationale
The CreditWatch listing follows SAIC's announcement that it plans to separate 
and subsequently spin-off its Services business from its Solutions business. 
The spin-off is expected to improve business performance by allowing better 
alignment of the separate businesses to their individual markets. The 
separation would also eliminate organization conflicts of interest (OCI) that 
currently limits SAIC's market opportunities, specifically those involved in 
developing intelligence, surveillance, and reconnaissance (ISR) solutions and 
products for the Department of Defense and Intelligence agencies.

We expect each of Services and Solutions (currently about 35% and 
65%,respectively, of total SAIC's revenues) to be able to successfully compete 
in the markets served following the separation. However, each independent 
company would have a less diversified business operation and a lower EBITDA 
base than SAIC currently. 

The spin-off is expected to occur in the latter half of the fiscal year ending 
Jan. 31, 2014, subject to final approval of the Board of Directors.  

CreditWatch
We will monitor the company's progress on the planned separation and 
subsequent spin-off of its Services business. The capital structure, 
management, governance, and financial policies of each company post-separation 
are being developed and are not yet available. We will review the information 
as it becomes available, and will assess the ratings implications for SAIC 
before resolving the CreditWatch. 

Related Criteria And Research
     -- Industry Economic Outlook: Despite Economic Headwinds, Global 
Technology Shows Balanced Ratings Trend, July 9, 2012
     -- Issuer Ranking: Global Technology Ratings, Strongest To Weakest, June 
29, 2012
     -- Performance For U.S. Semiconductor Equipment Makers Has Been Volatile, 
But Ratings Remain Stable, June 11, 2012
     -- Top 10 Investor Questions: How Will The Global Technology Industry 
Fare Amid An Economy In Flux?, April 26, 2012
     -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
     -- Key Credit Factors: Methodology And Assumptions On Risks In The Global 
High Technology Industry, Oct. 15, 2009
     -- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, 
May 27, 2009
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008

Ratings List

Ratings Placed On CreditWatch
                                        To                 From
SAIC Inc.
Science Applications International Corp.
 Corporate Credit Rating                A-/Watch Neg/--    A-/Stable/--

SAIC Inc.
 Senior Unsecured                       A-/Watch Neg       A-

Science Applications International Corp.
 Senior Unsecured                       A-/Watch Neg       A-