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I AGREE
06 Apr 2011
Approximately $593 million of rated debt affected
New York, April 06, 2011 -- Moody's Investors Service has affirmed the corporate family (CFR")
and probability of default ratings of Alion Science and Technology Corporation
("Alion") at Caa1. The existing senior secured revolving
credit facility and senior unsecured note ratings remain unchanged at
B1 and Caa2, respectively. The rating on the senior secured
notes has been lowered one notch to B2 from B1 due to the recent increase
in the size of the revolving credit facility from $25 million to
$35 million. The revolver is ranked ahead of the secured
notes in Moody's priority of claims waterfall due to its first-out
position in the capital structure. The rating outlook remains stable.
Ratings affirmed with updated Loss Given Default assessments:
Corporate Family Rating at Caa1
$35 million senior secured revolving credit facility due 2014,
at B1 LGD-1, to 1% from 0%
$248 million unsecured notes due 2015, at Caa2 LGD-5,
to 79% from 78%
Speculative grade liquidity affirmed at SGL-3
Ratings lowered:
$310 million senior secured notes due 2014, to B2 LGD-2,
26% from B1 LGD-2, 24%
RATINGS RATIONALE
The affirmation of the Caa1 corporate family rating reflects the company's
continued high leverage and weak interest coverage balanced against Alion's
healthy backlog and adequate liquidity profile. Moody's also
notes that although the Department of Defense announced spending cuts,
due to Alion's focus on highly sophisticated scientific and engineering
research services, the effect of these cuts on Alion are likely
to not be as significant as other companies in the aerospace & defense
sector. Nevertheless, the company is not expected to be immune
to changes in the defense budget such as contract funding delays.
Over the intermediate term, credit metrics are expected to remain
within the Caa1 rating category. Also similar to other aerospace
& defense industry peers, in the longer-term growth opportunities
in the area of cyber security and healthcare IT should bode well for the
company however the positive impact of these opportunities is not expected
to be meaningful in the intermediate term.
The stable rating outlook encompasses credit metrics expected to remain
in line with a Caa1 rating over the intermediate term combined with an
adequate liquidity position expected over the next twelve months.
The SGL-3 speculative grade liquidity ("SGL") encompasses
an expectation of positive free cash flow generation over the next twelve
months, access to the company's undrawn $35 million
revolving credit facility since inception last year and adequate covenant
compliance. The increased revolver size as well as the increase
in the capacity to issue letters of credit from $10 million to
$35 million support the future growth of the business and is a
positive liquidity event. Moody's also notes that the company's
credit agreement contains a covenant tied to adjusted EBITDA levels.
The minimum EBITDA test steps-up, incrementally, from
$52.5 million though March 31, 2011 to $65
million after September 30, 2013. In order to remain in compliance
over the next twelve months, the company's EBITDA does not
have room for any meaningful deterioration and EBITDA levels must improve
into 2012-2013.
Positive rating momentum would develop with an expectation that Alion
may achieve a debt to EBITDA level approaching 6.0 times with EBITDA
to interest approaching the high 1.0 times range. An expectation
of a sustained liquidity profile adequacy would also accompany upward
rating momentum. Ongoing high, internal revenue growth would
be needed before the possibility of positive rating momentum would develop.
Negative rating momentum would develop if the likelihood of financial
covenant compliance were to come into question, if the company were
to begin relying on its revolver other than for light, temporary
working capital needs, or there were any sustained deterioration
in leverage and interest coverage metrics.
The principal methodologies used in this rating were Global Aerospace
and Defense published in June 2010, and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009.
The last rating action was on March 5, 2010 when Moody's assigned
a B1 rating to Alion's proposed senior secured facilities.
Please refer to an updated credit opinion to be posted on moodys.com.
Alion Science and Technology Corporation is an employee-owned company
that provides scientific research, development, and engineering
services related to national defense, homeland security, and
energy and environmental analysis. Particular areas of expertise
include naval architecture and engineering, defense operations,
modeling and simulation, technology integration, information
technology and wireless communications, energy and environmental
services. Revenue in the last twelve month period ended December
31, 2010 was approximately $829 million.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Analytics information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
New York
Jadijhe (Gigi) Adamo
Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Lenny J. Ajzenman
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's affirms Alion's Caa1 corporate family rating; outlook, stable
No Related Data.
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