* Moody's lowers ratings outlook to 'negative' from 'stable'
* Cites reluctance to sell shares to fund Goodrich deal
* Affirms 'A2' senior unsecured credit rating
* Ratings key to access commercial paper market
By Scott Malone
Feb 28 Moody's Investors Service cut the
outlook for credit ratings on United Technologies Corp
to "negative" from "stable," citing a reluctance by the company
to sell shares to fund its pending takeover of Goodrich Corp
Even as it changed its outlook, the ratings agency on
Tuesday affirmed its "A2" senior unsecured credit rating on the
diversified U.S. manufacturer.
United Tech aims to close its $16.5 billion takeover of
Goodrich -- the largest deal in its history -- later this year.
When the deal was announced last fall, management said it could
issue up to $4.6 billion in shares to fund the acquisition. But
Chief Executive Louis Chenevert has since said he would look to
sell small pieces of the company to avoid selling stock.
Selling additional shares would dilute the value of the
outstanding stock of the world's largest maker of elevators and
air conditioners and effectively lower its per-share earnings, a
figure closely tracked by investors.
"The quick reversal and shift in equity consideration is ...
noteworthy, particularly in consideration of the fiscal
conservatism that has historically been demonstrated on a
relatively consistent basis by the company," Moody's said in a
Moody's noted that United Tech's debt would approach three
times its earnings before taxes, interest, depreciation and
amortization when the deal closes. It said it may lower its
ratings on United Tech unless it expects debt to fall to two
times EBITDA, with the company meeting some other financial
targets, by early 2014.
It said the Goodrich deal itself looked strategically sound.
United Tech spokesman John Moran declined to comment.
The company's shares were down 27 cents at $83.36 in
afternoon trading on the New York Stock Exchange.
CEO: "I HATE EQUITY ISSUANCE"
Chenevert -- who courted his Goodrich counterpart Marshall
Larsen for more than a year before inking the deal in September
-- has repeatedly told investors that he would "hate" to issue
any more stock than necessary to pay for the maker of aircraft
"I hate equity issuance," Chenevert told an investor meeting
last week. "There's a clear path at this point in time to have
equity be probably $2 billion or less."
Chenevert's key strategy to lower the number of shares sold
is selling off small portions of the company. United Tech
executives have said they are reviewing their fire and security
business for potential sales, and sources said earlier this
month the company was considering selling the flow and
compressor components of its Hamilton Sundstrand arm, which
could be worth $3.5 billion.
United Tech intends to unveil its sale plans at a meeting
with investors in New York next month.
Chief Financial Officer Greg Hayes told Reuters in January
that the Hartford, Connecticut-based company was keen to avoid
any cuts to its credit rating as a result of the Goodrich deal.
"In these kind of crazy times in the credit market, the last
thing I want to do is lose my credit rating," Hayes said. "It's
not because a downgrade costs me a lot in terms of additional
interest expense, it's really because it costs me access to the
commercial paper market, which we're in every day."
The commercial paper market -- where companies borrow cash
for very short periods of time to cover operating expenses --
briefly froze up in the fall of 2008, an event that threatened
the finances of big U.S. companies, including United Tech's
larger peer General Electric Co.
Moody's affirmed its top-notch "P-1" short-term credit
rating on United Tech.