L-3 Communications to issue $2 billion in new debt, use revolver borrowings for Titan purchase

By Sara Rosenberg

New York, June 3 - L-3 Communications Holdings Inc. plans to issue $2 billion in new debt securities, with the company targeting approaching the capital markets in the third quarter, as the primary funding for its acquisition of Titan Corp., company officials said in a conference call Friday.

Furthermore, L-3 plans on getting $450 million in acquisition financing through a combination of borrowings under its existing revolving credit facility and cash on hand.

L-3 estimates that, assuming a Sept. 30 close of the acquisition, it will have $200 million in revolver borrowings outstanding, but that number is expected to drop to $50 million by year-end, officials explained in the call.

The company has also factored in Titan's $200 million 8% high-yield notes to the purchase financing equation. Officials said that they expect to make some slight modifications to these notes, either through a consent solicitation or an exchange.

As a back up for the $2 billion in new debt, L-3 has received commitments for $2 billion in interim debt financing so as to assure its ability to complete the acquisition.

Pro forma for the acquisition, debt to EBITDA will be around 3.8x, debt to total capitalization will be around 52% and interest coverage will be around 4.1x.

In terms of 2005 guidance, L-3 now expects free cash flow of $610 million plus for the combined company compared to $600 million plus on a stand-alone basis, and sales of $8.8 billion for the combined company versus $8.2 billion on a stand-alone basis.

L-3 Communications has agreed to purchase Titan for $23.10 in cash per share of Titan common stock. The total transaction value is expected to be about $2.65 billion, including assumed debt.

The transaction is subject to a majority of Titan's shareholders voting in favor of the transaction, the execution and court filing of definitive settlements of Titan lawsuits and customary regulatory approvals. Simultaneously with the execution of the acquisition agreement, Titan has entered into memoranda of understanding to settle the securities law class actions and derivative lawsuits pending in both federal and state courts in California and the Delaware Court of Chancery.

"This acquisition is very strategic for L-3 because Titan is a major provider of intelligence services to the DoD [Department of Defense] and key U.S. intelligence agencies," said Frank C. Lanza, chairman and chief executive officer of L-3 Communications, in a company news release. "Additionally, Titan is a major provider of information technology, engineering services and products to the U.S. Army, Naval Air Systems Command (NAVAIR), Naval Sea Systems Command (NAVSEA), Space and Naval Warfare Systems Command (SPAWAR), U.S. Air Force Electronic Systems Command (ESC), Special Operations Command (SOCOM) and U.S. Northern Command."

L-3 Communications is a New York-based provider of intelligence, surveillance and reconnaissance systems, secure communications systems, aircraft modernization, training and government services and is a merchant supplier of an array of high technology products to the Department of Defense, Department of Homeland Security, selected U.S. government intelligence agencies and aerospace prime contractors.

Titan is a San Diego-based provider of comprehensive national security solutions including information and communications systems solutions and services to the Department of Defense, intelligence agencies, the Department of Homeland Security and other U.S. federal government customers.

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