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Global Credit Research - 08 Sep 2010
Approximately $1.5 billion of funded debt
New York, September 08, 2010 -- Moody's Investors Service affirmed Alliant Techsystems Inc.'s
("ATK") corporate family and probability of default ratings
of Ba3 and assigned a B1 rating to the company's new $300
million issue of senior subordinated obligations due in 2020. Existing
ratings on the company's senior subordinated and convertible subordinated
obligations (B1) and ratings on ATK's senior secured bank debt (Ba1)
were also affirmed. The ratings outlook was revised to positive
Proceeds from the new issue of subordinated debt will be used to redeem
the $280 million of 2.75% convertible subordinated
notes with the balance, after fees and expenses, retained
for general corporate purposes. Although the 2.75%
issue has a stated maturity in 2024, its terms included put dates
in February 2014 and February 2019 as well as contingent right to put
the securities to ATK with settlement of the principal amount in cash
in the event ATK's share price exceeded a defined level and stayed
above that figure for a prescribed period. Although ATK's
share price is currently below the "trigger" level,
it has exceeded it in the past. Moody's views the refinancing
as beneficial as it lengthens ATK's debt maturity profile and effectively
lowers the amount of liquidity needed to address the contingent put feature.
The Ba3 corporate family and probability of default ratings recognize
ATK's material scale, profitability and consistent cash flow
contributions from its four defense and aerospace related segments.
Revenues and earnings have benefited from high levels of U.S.
defense and NASA budgets over the last few years and are expected to experience
favorable trends over the intermediate term albeit at lower organic growth
rates. The ratings also reflect modest financial leverage that
has declined through growth in EBITDA and modest reductions in funded
debt. While funded debt has slightly ebbed, adjustments for
under-funded pension liabilities have kept adjusted debt totals
relatively constant at $2.5 billion despite significant
contributions to its defined benefit pension plans. The proposed
refinancing will reduce the level of contingently convertible subordinated
debt. Still, other approaching debt maturities leave some
concern over ATK's capital structure which continues with significant
levels of subordinated debt. These layers of junior debt can be
a platform on which additional senior obligations could be layered.
ATK's operating performance has produced improvement in debt protection
measures with several already suggestive of higher ratings which exert
upward pressure on the ratings. A continuing substantial backlog
of funded orders, and a generally supportive environment in the
company's operations and management's financial strategy are expected
to ultimately de-lever the firm over time. Nonetheless,
growth in several of the segments may end-up only off-setting
lower revenues and earnings in Aerospace Systems that could develop as
Space Shuttle activity winds-down and political uncertainties associated
with business awards for NASA's Constellation program (the Space
Shuttle's replacement) are resolved. The company continues with
both an acquisition strategy and a share repurchase authorization,
but currently does not pay dividends.
The positive ratings outlook considers the strong positioning of several
debt protection measures within the rating category as well as favorable
prospects for continued improvement in performance from a substantial
backlog of orders and ongoing free cash flow. Importantly,
the outlook also considers the initial benefits to the company's liquidity
profile as a result of the reduction in contingently convertible debt.
Yet, ATK's liquidity profile post the refinancing continues with
$558 million of debt scheduled to mature over the next 18 months:
$300 million in a convertible subordinated note due in September
2011; and an amortizing bank term loan with a balance of $258
million at the beginning of July and a final maturity in March 2012.
In addition, there is a remaining convertible subordinated issue
for $200 million that has a final maturity in 2024 but put dates
in 2014 and 2019 as well as a share-price contingent trigger.
The company's $500 million revolving credit facility is also
set to expire in March 2012. ATK has indicated it intends to refinance
its existing bank credit which could involve a $600 million revolving
credit facility and a $400 million term loan.
Further progress in addressing approaching debt maturities and the expiration
of its revolving credit facility are felt necessary to consider stronger
ratings. Successfully refinancing and extending its bank credit
facilities coupled with quantitative measures such as debt/EBITDA in the
low 3 times range, EBITA/interest around 4 times and sustained FCF/debt
of greater than 10% could lead to higher ratings. Conversely,
increases in funded debt levels that facilitated share repurchases or
large acquisitions resulting in debt/EBITDA at 4.5 times or above
or if FCF/debt fell below 5% of total debt, could establish
downward pressure on the outlook or ratings.
$300 million senior subordinated issue due 2020, B1 (LGD-4,
Senior subordinated shelf filing, (P)B1 (LGD-4,65%)
Ratings affirmed with updated Loss Given Default assessments
Corporate Family, Ba3
Probability of Default, Ba3
Secured bank term loan, Ba1 (LGD-2, 16%)
Secured bank revolving credit (LGD-2, 16%)
Convertible subordinated notes, B1, (LGD-4, 65%)
Senior subordinated note due 2016, B1 (LGD-4, 65%)
The principal methodologies used in rating Alliant Techsystems Inc.
were Global Aerospace/Defense Industry published in February 2007,
and Loss Given Default for Speculative-Grade Non-Financial
Companies in the U.S., Canada and EMEA published in
June 2006. Other methodologies and factors that may have been considered
in the process of rating this issuer can also be found on Moody's website.
Alliant Techsystems Inc, headquartered in Edina, MN,
is a leading supplier of propulsion, composite structures,
munitions, precision capabilities and civil and sporting ammunition.
The company operates four segments: Aerospace Systems, Armament
Systems, Missile Products, and Security & Sporting.
Revenues in fiscal 2010 were approximately $4.8 billion.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service's information,
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
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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.
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns B1 rating to ATK's new $300 million subordinated issue; outlook positive
250 Greenwich Street
New York, NY 10007
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