Erickson Air-Crane Inc. (EAC) after a successful negotiation with financial institutions was able to enhance its five-year revolving credit facility to $125 million. On May 2, the company entered into a $100 million, five-year revolving credit facility with a group of financial institutions.
This credit facility will carry an interest rate of 325-450 basis points over the London Interbank Offered Rate (“LIBOR”). Erickson Air-Crane intends to use this credit facility for general corporate purposes.
We believe this new credit facility will allow Erickson Air-Crane to fund a portion of its back-to-back acquisitions announced in May 2013. These acquisitions are a part of the company’s strategy to expand inorganically. Erickson Air-Crane expects these newly acquired assets to be immediately accretive to its earnings.
Moreover, the enhanced credit facility could also be used to pursue organic growth objectives. Erickson Air-Crane will have adequate funds to diversify into other end markets and expand its reach in geographical areas.
The long-term debt-to-capital ratio of the company is 31.5%, higher than the peer group average of 24.7%. However, Erickson Air-Crane currently trades at 8.67x 12-month forward earnings, a 39.1% discount to the peer group average of 14.24x. In addition, its ROE in the trailing twelve months is higher than the industry average of 15.5%. This signifies that the financial position is strong enough to meet its debt obligations.
Erickson Air-Crane could also utilize a portion of the funds raised from the issue of senior notes to replenish its credit facility.
Erickson Air-Crane currently retains a Zacks Rank #1 (Strong Buy). In addition to Erickson Air-Crane other defense operators worth accumulating now are Wesco Aircraft Holdings, Inc. (WAIR), Elbit Systems Ltd. (ESLT) and Alliant Techsystems Inc. (ATK). All these companies presently carry a Zacks Rank #2 (Buy).
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