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ATK to Offer $0.3B Senior Notes

Zacks Equity Research

Alliant Techsystems Inc. (ATK) announced that it intends to offer senior notes worth $0.3 billion in aggregate principal amount. The notes are expected to mature in 2021.

The company aims to utilize the net proceeds to finance its previously announced acquisition of Bushnell Group Holdings, Inc. (“Bushnell”) and use the rest for other general corporate purposes. In Sep 2013, the company announced that it will purchase Bushnell from MidOcean Partners for approximately $0.99 billion. Alliant is expected to complete the acquisition in the third or fourth quarter of fiscal 2014, subject to regulatory approvals and customary closing conditions.

Alliant issues senior notes from time to time to accumulate funds for repaying its existing debts and for several corporate purposes. In Sep 2010, the company issued senior subordinated notes, worth $0.35 billion, due 2020. The company utilized the net proceeds to redeem all of its outstanding 2.75% convertible senior subordinated notes due 2024 and for general corporate purposes.

A few weeks ago, the company announced that it intends to resort to a new external financing program to meet the new debt requirement of $1.86 billion. Per the financing program, the new debt of $1.86 billion will comprise a $1.01 billion term loan A, a $0.25 billion term loan B and $0.6 billion under the revolving credit facility.

As of Jun 30, 2013, the company had a cash balance of $99.3 million compared with $417.3 million as of Dec 31, 2012. Long-term debt, as of Jun 30, 2013, was $1.01 billion versus $1.02 billion as of Mar 31, 2013. The company’s long-term debt-to-capitalization ratio is 41.1%, much higher than the peer group average of 26.5%. The ratio is expected to climb further following the current offering. Alliant’s weak debt position is reflected in its credit ratings. Moody's Investors Services, a credit rating agency, has assigned a Ba3 rating on the notes, symbolizing an instrument with significant credit risk.

However, we appreciate Alliant’s constant focus on technological innovation, which will enable it to secure more domestic and foreign orders. Moreover, the proposed Bushnell acquisition will enable the company to expand its product coverage, global reach and enhance its customer base.

Alliant currently has a Zacks Rank #3 (Hold). However, other stocks from the industry that are presently performing well include B/E Aerospace Inc. (BEAV), HEICO Corporation (HEI) and Hexcel Corp. (HXL), each with a Zacks Rank #2 (Buy).

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