Lockheed Martin Corp. is planning to sell $7 billion in bonds as soon as Monday to help pay for its $9 billion takeover of helicopter maker Sikorsky.
The largest global defense company may issue the debt in as many as six parts and use the funds to repay borrowings under a $6 billion 364-day credit line Lockheed obtained to finance the purchase, according to a person with knowledge of the matter. Proceeds may also be used to repay borrowings in the commercial- paper market that finance the acquisition, said the person, who asked not to be identified because the information isn’t public.
The purchase of Sikorsky from United Technologies Corp., the first strategic shift under Chief Executive Officer Marillyn Hewson since she became CEO in 2013, will let Lockheed branch into the $30 billion rotorcraft market. It’s the largest aerospace acquisition since 2012, when United Technologies bought Goodrich Corp. for more than $16 billion.
The longest-maturity portion of the deal, $2 billion of 30-year bonds, may yield as much as 1.72 percentage points more than comparable Treasuries, 0.23 percentage points less than initially marketed, according to the person familiar with the deal. That’s a 0.16 percentage point premium to the yield based on the secondary prices of the company’s existing bonds Friday, according to data compiled by Bloomberg.
“The initial price talk is an attractive point to come into Lockheed Martin,” said Jeff Wichmann, a bond analyst with CreditSights Inc. “They are still the largest defense contractor in the world, but there is uncertainty with their leverage profile, and their strategic plans that investors have to contend with.”
Standard & Poor’s downgraded Lockheed’s debt rating on Nov. 2 to BBB+, or three levels above junk, citing its “expectation of a significant deterioration in Lockheed’s forecasted credit metrics” as the company continues returning excess cash to shareholders despite the debt-financed acquisition of Sikorsky. Fitch followed suit on Nov. 6, downgrading the company’s debt to BBB+ from A-.
The company is planning to finish a strategic review this year of its planned divestiture of low-margin information- technology businesses that generate about $6 billion in annual sales. Options include a sale, a spinoff or a tax-free transaction known as a Reverse Morris Trust, Hewson said.
The acquisition of Sikorsky, announced in July, makes Lockheed the largest manufacturer of both rotary and fixed-wing military aircraft.