Fitch Rating Downgrades HP To " Outlook Negative "

Hewlett-Packard Company
–Long-term Issuer Default Rating (IDR) to ‘A’ from ‘A+’;
–Senior credit facilities to ‘A’ from ‘A+’;
–Senior unsecured debt to ‘A’ from ‘A+’;

EDS
–Long-term IDR to ‘A’ from ‘A+’;
–Senior unsecured debt to ‘A’ from ‘A+’.

In addition, Fitch has affirmed the short-term IDR and commercial paper (CP) ratings for HP and Hewlett-Packard International Bank PLC at ‘F1’.Fitch has removed HP’s ratings from Ratings Watch Negative. The Rating Outlook is Negative.

The Palo Alto, Calif.-based technology giant did not divulge plans for the space after demolition. The 365-acre site next to Ute Valley Park will still house a 300,000-square-foot office building housing a research group, sales, marketing and other operations as well as a 250,000-square-foot corporate data center.

"HP continually evaluates its facilities in order to better use space and provide employees with a more collaborative work environment. As part of that effort, we consolidated space at our Colorado Springs campus and moved employees into an adjacent building. We expect to begin demolition of two buildings by early 2012," the company said in a statement released in response to questions about the two buildings.

The two buildings total 778,000 square feet of space and were built for Digital Equipment Corp. in 1979 to manufacture high-capacity disk drives used in mainframe computers. Compaq Computer Corp. acquired Digital in 1998 and merged with HP four years later.

The demolition reflects the decline of manufacturing in the Colorado Springs area. Manufacturing employment has declined by more than 14,000 jobs, or nearly 55 percent, since peaking in 2001. The local manufacturing sector now employs 12,100, the fewest since 1978 – before the HP plant was built.

The vacancy rate for industrial space in the Colorado Springs area as of Sept. 30 was 10.1 percent, down from 11.6 percent at the end of 2010 but well above its pre-recession level of 7.9 percent.

Even though HP hasn’t said what it might do with the space after the buildings are razed, the property could become attractive to potential users, some commercial real estate experts say.

While there are plenty of office sites on Colorado Springs’ north and northwest sides, large parcels that are zoned for manufacturing are few and far between, said Dave Bacon, a broker with Sierra Commercial Real Estate who specializes in industrial properties. The HP buildings to be demolished are believed to sit on about 20 acres.

Though there are many manufacturing sites on the southeast side and near the Colorado Springs Airport, not every employer wants or needs to be in that part of town, Bacon said. Conversely, a high-tech manufacturer looking to locate in a nicer area, where its employees could live just a few minutes from the plant, probably would be attracted to the northwest side and the HP site, Bacon said. The nearby Rockrimmon subdivision is an older, scenic housing area with home prices well above the county median.

“If the company is to be attracted to Colorado Springs, from California just as an example, they would like the choice of being in what they might perceive to be a little more of an upscale area of town, which is north, versus being forced to go east,” Bacon said. “A high tech company, let’s say, they would probably have more of a labor pool for those engineers, and more highly skilled, educated people, up north than they would if they were at the airport.”

Bal Seal Engineering Inc., a California-based medical device manufacturer, recently confirmed its plans to build a manufacturing plant on the city’s far north side, southeast of Interstate 25 and InterQuest Parkway.