TEXT-S&P may change GenCorp 'B' corporate credit rating

Tue Jul 24, 2012 1:51pm EDT

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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