* 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 (Reuters) - 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 press release.
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.
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 components.
“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.