Banks Prep $1B TLB For BE Aerospace
June 11, 2008
In the third quarter, JPMorgan, Credit Suisse and UBS will launch, no pun intended, a $1.35 billion credit facility for BE Aerospace, a manufacturer of components for commercial passenger aircraft and business jets. The debt package consists of a $1 billion term loan B and a $350 million revolver. The proceeds will help finance BE Aerospace’s acquisition of the aerospace distribution unit of Honeywell, another aircraft parts manufacturer.
BE Aerospace is rated BBB-, one notch above junk, by Standard & Poor’s, but is rated Ba2, two notches below investment grade, by Moody’s Investors Service. The company’s outstanding $500 million in bank loan debt is rated BBB- and its $750 million in subordinated debt is rated BB.
This disparity between investment-grade and junk ratings is reminiscent of a $1.725 billion credit facility for Lender Processing Services, a newly formed company spun off from Fidelity National Informational Services’ division for handling banks and home lenders, which JPMorgan and Bank of America launched the first week of June (BLR, June 9, 2008). Lender Processing is rated above junk while its debt is rated below.
The ratings on Wellington, Fla.-based BE Aerospace reflect the company's position as the largest manufacturer of aircraft cabin interior products and its credit protection measures, which are suitable for the Honeywell transaction. This is offset by the risks associated with the cyclical global airline industry, S&P analysts said. BE Aerospace’s capital structure and credit protection measures have improved to strong levels, stemming from increased earnings and debt reduction after the company issued $380 million of common stock in early 2007, they added. Through the first quarter of 2008, debt to Ebitda was below 1x. Furthermore, despite an overall rise in fuel costs, commercial aerospace manufacturers and suppliers worldwide continue to thrive on generally healthy industry conditions, supported primarily by record backlogs and increasing global air traffic, S&P analysts said in a recent report.
Under the terms of the agreement with Honeywell, $800 million of the total purchase price will be paid in cash while $250 million will be paid in either stock or cash. BE is also refinancing $150 million of debt. The transaction is expected to slightly dilute 2008 earnings but should add $1.2 billion in revenues by 2009, according to a BE Aerospace investor presentation.
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