Government spending on defense and homeland security is boosting financial performance at Anteon International Corp., which is eyeing debt-financed acquisitions. The Fairfax, Va.-based provider of information technology solutions to U.S. government clients posted revenues of $1.27 billion last year and record results in the first quarter. In turn, the company's credit profile has improved with total debt-to-EBITDA down to 1.4 times from 1.8 times at year end-2003.
"The government technology market has been a great market for us to be working in," said Dennis Kelly, v.p. of investor relations. Formed in 1996 when private-equity firm Caxton-Iseman Capital bought Ogden Professional Services and changed the name to Anteon, the company has since completed nine acquisitions. In 2002 the company went public and Caxton now owns just 7% of the shares.
"We remain an acquisitive company," said Kelly, who noted that Anteon wants to be stronger in the federal government space. Anteon currently derives 98% of its revenues from the U.S. government and the largest customer group is the U.S. Navy.
Anteon has $365 million of bank debt. This is split into a $200 million revolver due 2008 and a $165 million "B" loan due 2010. Bank of America and Credit Suisse First Boston lead the loans, which were put in place at the beginning of 2004 and enabled Anton to buy back $73 million of 12% senior subordinated notes (LMW, 1/16/04). The institutional debt is priced at LIBOR plus 1 3/4%.
Moody's Investors Service has upgraded the ratings on the senior secured credit facility one notch to Ba2 reflecting the strong performance. But Moody's has noted that the company has a history of acquisitions and there is an expectation that future acquisitions will likely increase leverage. However, leverage is not expected to go above 2.5 times.
Furthermore, there is the potential for declines in U.S. defense spending. "We think it is likely defense spending will be cut," acknowledged Kelly, noting the commitment to cut the deficit. But he believes that in defense the cuts will be in procurement. This area is used by large platforms rather than the services Anteon provides, which are funded out of the operations budget. "Even in times of deficit reduction, we are well positioned," he said.
Borrowing costs for investment-grade companies have hit their lowest point in eight years in the U.S. and Europe, according to Dealogic data. In the second quarter of this year, U.S. investment-grade companies were paying an average of 64 basis points over LIBOR.
Average US IG Syndicated Loan Pricing
(Libor margin) & US Corporate IG Bond Issuance ($m)
