Post by Moses on Mar 4, 2005 9:56:50 GMT -5
March 04, 2005 09:42 AM US Eastern Timezone
Fitch Affirms United Defense Industries 'BB+'; Outlook to Positive
NEW YORK--(BUSINESS WIRE)--March 4, 2005--Fitch Ratings has affirmed United Defense Industries (UDI) 'BB+' credit rating for the company's senior secured bank facility. The Rating Outlook is revised to Positive from Stable. Approximately $525 million in debt is affected.
The Outlook revision is based on UDI's sustained solid operating performance and cash flow generation, which have translated into favorable credit metrics for the rating. UDI continues to benefit from strong defense spending in general and the high tempo of operations in Iraq and Afghanistan in particular, along with its position as a significant player in the U.S. Army's transformation and the placement of its medium-caliber guns on a number of U.S. Navy and Coast Guard vessels.
UDI should benefit from the recent supplemental budget request, which includes $2.4 billion for weapons and tracked combat vehicles including UDI's Bradley Fighting Vehicle (BFV) and M88 armored recovery vehicle. If approved, this request should enhance both UDI's top and bottom line through 2007. Additionally, the requested funds should result in extending production work for the BFV, reducing concerns about the potential for a gap between BFV production work and Future Combat Systems vehicle production.
Concerns focus on cash deployment as the company has identified its free cash utilization goals in the following order: acquisitions, share repurchases, dividends, and finally debt repayment. This year UDI extended its share repurchase program by 12 months and increased it by $100 million. The company also announced its first dividend, which will utilize approximately $25 million per year at current rates. Fitch's rating and Outlook incorporate in excess of $600 million in acquisitions, share repurchases, or dividends over the next two years. Although UDI has not engaged in a major acquisition since United States Marine Repair in 2002, the size of potential acquisitions going forward and the success UDI will have in integrating them remains a concern. In addition, the company still relies on a relatively limited number of programs for much of its revenues, making UDI more vulnerable to changes in Dept. of Defense (DoD) priorities as compared to more diversified defense contractors. Partially offsetting this concern is the company's placement in both existing programs and next-generation programs, allowing UDI's existing programs to benefit if and when a next-generation program is delayed or cancelled.
At year-end 2004, UDI had a liquidity position of $379 million, consisting of $307 million of cash and $124 million of availability under its $200 million credit line, offset by $52 million of current debt maturities. UDI saw its key ratios improve in the 12 months ending Sept. 30, 2004 as the result of improving sales and margins aided by a $39 million reduction in debt to $538 million. For the 12 months ending Sep. 30, 2004, UDI's leverage, as defined by debt to EBITDAP and adjusted debt to EBITDAPR, decreased to 1.6 times (x) and 2x from 1.9x and 2.3x for the 12 months ending Dec. 31 2003. Interest coverage, as defined by EBITDAP/interest and EBITDAPR/(interest plus rents) increased to 13.3x and 7.4x from 10.7x and 6.5x over the same periods, respectively.
Contacts
Fitch Ratings
Jeff Straebler, 212-908-0707
Craig Fraser, 212-908-0310
Brian Bertsch, 212-908-0549 (Media Relations)
Fitch Affirms United Defense Industries 'BB+'; Outlook to Positive
NEW YORK--(BUSINESS WIRE)--March 4, 2005--Fitch Ratings has affirmed United Defense Industries (UDI) 'BB+' credit rating for the company's senior secured bank facility. The Rating Outlook is revised to Positive from Stable. Approximately $525 million in debt is affected.
The Outlook revision is based on UDI's sustained solid operating performance and cash flow generation, which have translated into favorable credit metrics for the rating. UDI continues to benefit from strong defense spending in general and the high tempo of operations in Iraq and Afghanistan in particular, along with its position as a significant player in the U.S. Army's transformation and the placement of its medium-caliber guns on a number of U.S. Navy and Coast Guard vessels.
UDI should benefit from the recent supplemental budget request, which includes $2.4 billion for weapons and tracked combat vehicles including UDI's Bradley Fighting Vehicle (BFV) and M88 armored recovery vehicle. If approved, this request should enhance both UDI's top and bottom line through 2007. Additionally, the requested funds should result in extending production work for the BFV, reducing concerns about the potential for a gap between BFV production work and Future Combat Systems vehicle production.
Concerns focus on cash deployment as the company has identified its free cash utilization goals in the following order: acquisitions, share repurchases, dividends, and finally debt repayment. This year UDI extended its share repurchase program by 12 months and increased it by $100 million. The company also announced its first dividend, which will utilize approximately $25 million per year at current rates. Fitch's rating and Outlook incorporate in excess of $600 million in acquisitions, share repurchases, or dividends over the next two years. Although UDI has not engaged in a major acquisition since United States Marine Repair in 2002, the size of potential acquisitions going forward and the success UDI will have in integrating them remains a concern. In addition, the company still relies on a relatively limited number of programs for much of its revenues, making UDI more vulnerable to changes in Dept. of Defense (DoD) priorities as compared to more diversified defense contractors. Partially offsetting this concern is the company's placement in both existing programs and next-generation programs, allowing UDI's existing programs to benefit if and when a next-generation program is delayed or cancelled.
At year-end 2004, UDI had a liquidity position of $379 million, consisting of $307 million of cash and $124 million of availability under its $200 million credit line, offset by $52 million of current debt maturities. UDI saw its key ratios improve in the 12 months ending Sept. 30, 2004 as the result of improving sales and margins aided by a $39 million reduction in debt to $538 million. For the 12 months ending Sep. 30, 2004, UDI's leverage, as defined by debt to EBITDAP and adjusted debt to EBITDAPR, decreased to 1.6 times (x) and 2x from 1.9x and 2.3x for the 12 months ending Dec. 31 2003. Interest coverage, as defined by EBITDAP/interest and EBITDAPR/(interest plus rents) increased to 13.3x and 7.4x from 10.7x and 6.5x over the same periods, respectively.
Contacts
Fitch Ratings
Jeff Straebler, 212-908-0707
Craig Fraser, 212-908-0310
Brian Bertsch, 212-908-0549 (Media Relations)