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Fitch affirms Textron on Beechcraft acquisition
Fitch Ratings said it affirmed the issuer default rating and long-term debt ratings for Textron Inc. and Textron Financial Corp. at BBB-.
The ratings affirmed include Textron's short-term ratings at F3, senior unsecured bank facilities at BBB-, senior unsecured debt at BBB- and commercial-paper rating at F3.
Textron Financial's senior unsecured debt also was affirmed at BBB- and its junior subordinated notes at BB.
The outlook is stable.
The affirmations follow news that Textron recently signed an agreement to acquire Beechcraft for about $1.4 billion, which it plans to fund using cash and up to $1.1 billion of debt.
Textron is not assuming any debt, but will assume an estimated $80 million of net pension obligations, Fitch said.
The acquisition could close in the first half of 2014, pending regulatory approval, the agency said.
Fitch said it estimates new debt associated with the acquisition will increase Textron's pro forma debt-to-EBITDA to nearly 2.5x compared to 1.8x prior to the acquisition, including estimated EBITDA at Beechcraft.
The agency said it anticipates Textron will generate sufficient free cash flow to reduce debt to about 2.0x within one year, based on modest debt reduction, margin improvement at Textron on a standalone basis and operating improvements at Beechcraft as Textron integrates the business.
Margin improvements will be partly offset by restructuring costs in 2014 and inventory purchase price adjustments, the agency said.
The acquisition of Beechcraft provides Textron with an opportunity to broaden its presence in piston-engine and turboprop aircraft and realize operating efficiencies across the combined business, Fitch said.
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