S&P revises Huntington Ingalls view to negative

S&P said it changed Huntington Ingalls Industries Inc.’s outlook to negative from stable but affirmed its BBB- issuer rating.

The outlook follows the company reporting it plans to buy Alion Science and Technology Corp. from Veritas Capital, which it will fund with the proceeds from new debt, the agency said.

“The debt-financed acquisition of Alion will weaken the company's credit ratios. Huntington plans to use the proceeds from a combination of bank debt and bonds to fund the $1.65 billion purchase price, which represents about a 12x multiple of Alion's pro forma EBITDA. We expect the additional debt and interest costs to reduce the company's funds from operations (FFO) to debt to the 24%-28% range in 2022, the first full year after the transaction, which is below our previous expectations of 35%-40%,” S&P said in a press release.

The agency said it forecasts this ratio will likely improve to 30%-35% in 2023 as the company increases the earnings of both Alion and its legacy Huntington operations while repaying debt using its excess cash flow.

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