S&P revises SAIC view to negative

S&P said it revised the outlook on Science Applications International Corp. to negative from stable on its proposed acquisition of Unisys Federal from Unisys Corp. for $1.2 billion.

“The outlook revision reflects that SAIC’s pro forma credit metrics will deteriorate at the close of the acquisition before gradually improving over the following 12-24 months.

The company plans to use debt to fund most of the $1.2 billion transaction, which it expects will close by March. Pro forma for the transaction, we expect SAIC’s debt to EBITDA to be about 4.5x. We anticipate that the company’s revenue and earnings will increase due to the strong federal defense budget, its successful integration of Engility, and growth at Unisys,” said S&P in a press release.

Given SAIC’s modest working capital and capital expenditure needs, S&P said it expects it to continue to generate strong cash flow, which it could use for additional debt repayment. The combination of earnings growth and debt repayment in excess of required amortization should reduce its debt to EBITDA to the 3.8x-4.2x range by the end of fiscal year 2021 (ending January 2021) and to pre-acquisition levels of 2.8x-3.2x in fiscal year 2022.

S&P affirmed the BB+ ratings on the company and its first-lien credit facility. This affirmation is based on S&P’s understanding of its capital structure pro forma for the acquisition. The 3 recovery rating remains unchanged.

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