Kratos to sell up to $325 million secured notes to help fund merger with Herley Industries

By Paul A. Harris

Portland, Ore., Feb. 7 - Kratos Defense & Security Solutions, Inc. plans to use up to $325 million of 10% senior secured notes due in 2017 to help fund its merger with Herley Industries, Inc. for $19.00 per share, according to an 8-K document filed with the Securities and Exchange Commission on Monday.

Jefferies & Co. as bookrunner with KeyBanc Capital Markets Inc. and Oppenheimer & Co. Inc. as co-managers have issued a commitment letter for the financing, according to the filing.

The sale will be carried out under Rule 144A and Regulation S with registration rights.

Kratos will sell the new debt as an add on to its existing 10% senior secured notes due 2017, which are currently trading at around 110 to yield 7.8%, Eric DeMarco, president and chief executive officer of Kratos said in the script for a conference call announcing the acquisition.

The company expects to issue the extra notes "in the next several weeks."

Kratos sold the original $225 million in May of last year to fund its acquisition of Gichner and to refinance debt. Since then leverage has come down to 4.1 times at the end of 2010 from 5.2 at the time of the original issuance.

Kratos's tender for Herley shares is expected to commence no later than Feb. 25, and is subject to extension through June 30.

Kratos is a San Diego-based provider of engineering, IT services and warfighter services.

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