Textron Inc. (NYSE: TXT), known for manufacturing Cessna aircraft, is looking to finance its $1.4 billion acquisition of Beech Holdings, which had been seeking a buyer of its jet business since emerging from bankruptcy protection last February.
The Providence, R.I.-based aerospace company will be seeking up to $1.1 billion in new debt.
Adding Beechcraft models, including the twin-engine King Air, will complement Textron's Cessna lineup, which ranges from two-seaters to the Caravan turboprop used to fly people and cargo to small airports.
Moody’s Investors Service reaffirmed the Baa3 ratings of $4.3 billion in senior unsecured long-term debt of Textron, as well as P-3 short-term commercial paper, the agency announced on Friday.
The purchase price for Beech, the parent firm of Beechcraft Corp., represents a purchase price multiple approaching 10 times Ebitda on a trailing basis, “albeit a more modest 6.4 times on a forward looking basis proforma for a full year of ownership and with the benefit of planned synergies,” according to Moody’s.
Textron has a corporate rating of BBB- from Standard & Poor’s.
JPMorgan Chase & Co. (NYSE: JPM) advised Textron on the acquisition and provided the commitment financing.
According to Moody’s, Textron has “materially improved” its recent financial profile by reducing non-captive asset exposure and restoring balance sheet strength and key credit metrics, according to Russell Solomon, Moody's senior vice president and lead analyst for Textron.
"While we expect that business operations will remain difficult, particularly in the areas of business jets and defense,” Solomon wrote, “the strategic merits of integrating the Beechcraft assets—especially the high value service centers—and a concurrent commitment from management to curtail shareholder return initiatives in favor of quicker debt repayment render the prospective transaction achievable within current rating levels."
The remainder of the acquisition cost will be made from excess cash balances. Moody’s expects that outstanding Beechcraft debt will be repaid when the deal closes.
The majority of Textron’s revenues comes through its Bell helicopter and Cessna business jet units, which leave it exposed to cyclical aerospace business trends, according to Moody’s. Bell’s position in the defense and automotive industry should continue to yield solid profits, but lagging business jet demand through Cessna “has troughed at levels well below historic averages,” according to Moody’s. Cessna should be “vastly enhanced” from synergies by incorporating Beechcraft.