Science Applications to use $1.05 billion loan for Engility purchase

By Devika Patel

Knoxville, Tenn., Sept. 10 – Science Applications International Corp. has obtained a financing commitment letter from Citigroup Global Markets Inc. for a new seven-year senior secured $1.05 billion term loan facility under its existing credit agreement to finance its planned acquisition of Engility Holdings, Inc.

Under the terms of the agreement, Engility stockholders will receive a fixed exchange ratio of 0.45 SAIC common shares for each Engility share. Based on a Science Applications per share closing price of $89.86 on Sept 7, the all-stock transaction is valued at $40.44 per share of Engility common stock or $2.5 billion, including the repayment of $900 million of Engility's debt.

“This is an all-stock transaction in which we plan on repaying all of Agility’s existing debt through incremental borrowings under our existing credit facility,” executive vice president and chief financial officer Charles A. Mathis said on the company’s conference call announcing the transaction and its second quarter ended Aug.3 earnings on Monday.

“We have committed financing in place to refinance the debt and expect to maintain our current credit ratings,” he said.

The company’s leverage ratio will be 3x at closing.

“At closing, we expect to have total proforma debt of about $1.9 billion, equating to a net leverage of 3x,” Mathis said.

“The proforma leverage ratio [is] expected to be in line with our current net leverage ratio today,” he said.

The company’s capital deployment strategy won’t change.

“With projected strong proforma annual free cash flow and a reasonable leverage profile, we expect to continue with our balance capital deployment strategy, which includes continued payment of a quarterly dividend, mandatory debt repayment and returned capital in excess of operating needs to shareholders,” Mathis said.

“With a strong balance sheet and reasonable leverage at closing, we will continue to have flexibility for future shareholder value creation,” he said.

Cash and cash equivalents were $106 million as of Aug. 3, compared to $144 million as of Feb. 2.

Second quarter free cash flow was $24 million.

The acquisition is expected to close by the end of the fiscal fourth quarter on Feb. 1, 2019.

Science Applications is a McLean, Va.-based technology integrator providing full life-cycle services and solutions in the technical, engineering and enterprise information technology markets.

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