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Global Credit Research - 10 Jan 2011
Approximately $1.05 billion of rated debt affected
New York, January 10, 2011 -- Moody's Investors Service has assigned a Ba2 rating to Booz Allen Hamilton
Inc.'s (Booz Allen) proposed $300 million senior secured
term loan A due 2016 and $750 million senior secured term loan
B due 2017. Concurrently, the outlook was changed to positive
from stable based on the proactive efforts demonstrated by Booz Allen's
management towards debt reduction. Continuing efforts to reduce
debt levels demonstrate a progression towards a less aggressive financial
policy. Other reasons supportive of the positive outlook include
an improving profitability trajectory, healthy backlog, and
expectation of continued consistent annual free cash flow generation.
All ratings, including the Ba3 corporate family rating, have
been affirmed. Moody's assigned Booz Allen a speculative
grade liquidity ("SGL") rating of SGL-1 reflecting
a very good liquidity profile in the near-term supported by healthy
cash balances, an expectation of positive cash from operations over
the next twelve months, and no near-term debt maturities.
Booz Allen Hamilton Inc.
Proposed $300 million term loan A due 2016, Ba2 (LGD-3,
Proposed $750 million term loan B due 2017, Ba2 (LGD-3,
SGL-1 Speculative Grade Liquidity
Booz Allen Hamilton Inc.
Corporate family rating at Ba3
Probability of default rating at Ba3
Outlook changed to positive
Existing revolving credit facility due July 2014, Ba2 (LGD-3,
Existing $125 million term loan A due July 2014, Ba2 (LGD-3,
Existing $585 million term loan B due July 2015, Ba2 (LGD-3,
Existing $350 million term loan C due July 2015, Ba2 (LGD-3,
Existing $550 million 13% senior unsecured mezzanine loan,
Upon conclusion of the proposed transaction, ratings for Booz Allen's
existing term loans and senior unsecured mezzanine loan will be withdrawn.
Additionally, LGD point estimates on existing debt are subject to
These ratings have been assigned subject to Moody's review of final documentation
following completion of the proposed transaction. For additional
information, please refer to the Credit Opinion to be posted on
The change in rating outlook is based on improvement in profitability
margins, a healthy backlog that provides revenue visibility,
meaningful reductions in debt and expectation of continued positive free
cash flow generation. EBITDA margins, on a Moody's
adjusted basis have increased from 8.0% at the end of fiscal
2010 to 8.5% for the last twelve months ended September
30, 2010. At the same time, balance sheet debt decreased
from $1.6 billion at the end of fiscal 2010 to $1.05
billion proforma the proposed transaction. The total backlog at
September 30, 2010 of $11.0 billion is up over 30%
in comparison to the backlog at September 30, 2009 and supports
near-term revenue visibility.
Proceeds from the proposed term loans combined with cash on the balance
sheet are expected to be used to pay down $1.2 billion of
existing debt. The term loans are expected to be senior secured
obligations and will be guaranteed by Booz Allen Hamilton Investor Corporation,
a holding company that directly holds 100% of the equity interests
in Booz Allen Hamilton Inc.
The Ba3 corporate family rating reflects strong cash flow generation capacity
and a solid government contracting services business position against
improving interest coverage metrics. The rating reflects meaningful
debt reductions over the last year and a less aggressive financial policy
that was more characteristic of the company in 2009. In addition,
Booz Allen has a very good liquidity profile supporting its overall "Ba"
credit profile. A constraint to the ratings has been the high degree
of leverage assumed as part of the July 2008 leveraged buyout as well
as the debt-financed special dividends to its shareholders including
its private equity sponsor in December 2009. Although Moody's
notes the meaningful debt reductions, leverage metrics are still
in line with a "Ba3" corporate family rating.
The ratings could be raised if Booz Allen's debt is sustainably reduced
such that adjusted debt to EBITDA approaches 3.0 times and EBITA
/ interest coverage increases to the 3.5 times range. Continued
robust free cash flow generation would also be expected.
The outlook could be stabilized if there is evidence of lower than expected
funding levels, the loss of significant recompetes, material
contract delays, negative shifts in government spending or if free
cash flow to debt weakens. Additionally, the ratings could
be pressured if Booz Allen's liquidity profile deteriorates, or
adjusted debt to EBITDA increases to a level above 4.5 times.
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.
Booz Allen Hamilton is a provider of management and technology consulting
services to the U.S. government in the defense, intelligence
and civil markets. Booz Allen is headquartered in McLean,
Virginia, and had revenue of approximately $5.1 billion
in the fiscal year ended March 31, 2010.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service 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.
Corporate Finance Group
Moody's Investors Service
Kendra M. Smith
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns Ba2 rating to Booz Allen's proposed $1.05 billion bank term loans; outlook to positive from stable
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