TEXT-S&P may change GenCorp 'B' corporate credit rating
Overview -- GenCorp plans to acquire Pratt & Whitney Rocketdyne from United Technologies Corp. for $550 million, which it will fund mostly with debt. -- We are placing our 'B' corporate credit rating on GenCorp on CreditWatch with developing implications. -- We will assess the long-term impact on GenCorp's business prospects and financial profile to resolve the CreditWatch and could raise, lower, or affirm the ratings. Rating Action On July 24, 2012, Standard & Poor's Ratings Services placed its ratings, including the 'B' corporate credit rating, on U.S.-based GenCorp Inc. on CreditWatch with developing implications. Rationale The CreditWatch action follows GenCorp's announcement that it plans to acquire Pratt & Whitney Rocketdyne (PWR) from United Technologies Corp. for $550 million. It will fund the purchase with a combination of cash on hand and new debt, which we believe will result in a modest deterioration in key credit metrics. The acquisition likely will improve GenCorp's market position and product diversity and almost double its revenue base. PWR is the largest U.S. producer of liquid propulsion systems for launch vehicles, including the primary heavy-launch systems used by NASA and the U.S. Department of Defense (DoD). GenCorp does not currently have a large presence in manufacturing products for these systems. However, we believe likely pressure on NASA and DoD budgets creates some uncertainty regarding future demand for PWR's products. The acquisition is contingent upon regulatory approval, which could take up to a year to achieve. CreditWatch We will assess the long-term impact on GenCorp's business prospects and financial profile to resolve the CreditWatch. We could raise the rating if we believe the improvement in the business risk profile is sufficient enough to offset the increased debt load. Conversely, we could lower the rating if we believe the higher leverage, integration risks, and long-term demand uncertainty outweigh the likely improvement in GenCorp's competitive position. We could also affirm the ratings if we believe the risks and benefits of the transaction are neutral to overall credit quality. Related Criteria And Research -- Key Credit Factors: Methodology and Assumptions On Risks In The Aerospace And Defense Industries, June 24, 2009 -- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, May 27, 2009 -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 Ratings List CreditWatch Action To From GenCorp Inc. Corporate credit rating B/Watch Dev/-- B/Positive/-- Subordinated CCC+/Watch Dev CCC+ Recovery rating 6 6
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