United Technologies Corporation’s UTX note issuance of $850 million of senior unsecured debt has been assigned an A2 rating by Moody's Investors Service, along with a stable outlook. Moody’s also assigned an A3 rating to the company’s remarketed junior subordinated notes due 2018.
Existing ratings for the company remain same, including the A2 senior unsecured debt and P-1 short-term commercial paper ratings.
The Note Issue
United Technologies successfully priced an offering of senior notes maturing on May 15, 2045, worth $850 million in aggregate principal amount. The notes bear an interest rate of 4.15%. The offering will close on May 4, 2015, subject to the satisfaction of customary closing conditions.
Net proceeds generated from the 30-year note issuance will be employed toward retirement of the conglomerate’s 4.875% notes which will mature this year, and for general corporate purposes.
United Technologies also successfully remarketed its junior subordinated notes which were due 2022. The remarketing would result in modifications in the terms of the issue, including the interest rate and maturity date.
Post completion of the remarketing, the notes will bear an interest rate of 1.778% and will mature on May 4, 2018. The remarketing is expected to conclude on May 4, 2015, subject to meeting customary closing conditions, and will not generate any funds for the company.
Ratings Rationale
The A2 rating assigned to the company's senior unsecured notes due 2045 and A3 rating for the junior subordinated notes due 2018 indicate low credit risk, reflecting the conglomerate’s impressive size and geographic scale and dominant positions in diversified business lines.
The company enjoys robust operating margins and generates relatively stable free cash flow. Favorable long-term economics related to higher margin and consistent revenue streams generated from its aerospace and industrial business lines also had a positive impact on the company’s ratings.
Outlook
In fact, United Technologies’ cash generating capacity is expected to progressively improve as the current high levels of investments in production ramp-up across multiple civil and military programs will likely temper somewhat going ahead.
However, the company’s relatively more aggressive financial risk policies, including its $3 billion accelerated share repurchase of Mar 2015 and rising pension funding deficit have restricted its financial flexibility to some extent.
Moreover, persisting headwinds associated with lower defense spending, a strong U.S. dollar and reduced oil prices are expected to pose added business risk for some segments of the company, including Sikorsky, Pratt & Whitney and Otis. Also, soft macroeconomic conditions in Europe, apart from growth deceleration in China and other emerging markets, might strain earnings, in the coming times.
Other players in the diversified operations industry include Compass Diversified Holdings. CODI, 3M Company MMM and Icahn Enterprises, L.P. IEP.
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