Moody's rates Kratos add-on B3

Moody's Investors Service said it changed the outlook of Kratos Defense & Security Solutions, Inc. to positive from stable and affirmed the company's B3 corporate family and probability of default ratings, SGL-3 speculative-grade liquidity rating and B3 (LGD4, to 53% from 54%) $225 million of 10% senior secured notes due 2017.

Moody's assigned a B3 (LGD4, 53%) rating to the planned $285 million of senior secured add-on notes due 2017.

The outlook is positive.

Proceeds from the planned note issuance are intended to fund Kratos' tender offer for the shares of Herley Industries Inc., with excess proceeds to boost cash on hand by about $70 million.

The ratings consider high leverage and the significant risks of the pace of Kratos' acquisition spending, including risks that integration and challenges of managing the enterprise could become difficult, limiting potential for steady profits and improved credit metrics, Moody's said.

The positive outlook reflects Kratos' enlarged scale and increased product range that would follow the Herley acquisition and potential that the company's credit metrics could support a higher rating level over the ratings horizon, the agency said.

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