GenCorp's new $125 million "B" term loan, which backs the acquisition of General Dynamics' space propulsion business for $90 million, is significantly overcollateralized, according to Standard & Poor's. The ratings agency has assigned a BB+ rating to the tranche. The remaining funds from the "B" piece will be used to pay down the outstanding amount on the company's existing $137 million revolver. The company also has an existing $76 million "A" term loan.
The facility is secured by substantially all of the assets of GenCorp, all of the assets and stock of its material domestic subsidiaries, and 67% of the stock of material foreign subsidiaries. The security package will also include the assets of the acquired company, said Christopher DeNicolo, S&P analyst. The rating agency notes that recovery under a default scenario would likely be 100%.
S&P expects that the company will remain in comfortable compliance with its minimum interest coverage, minimum consolidated net worth, minimum fixed charge coverage, and maximum leverage ratios. Currently, the company is looking at a debt to capital ratio of 48%, which will increase to 55% following the acquisition, noted DeNicolo.
S&P notes that the company has significantly turned around its automotive and fine-chemicals business and the acquisition of the space propulsion business will boost GenCorp's position in the liquid and space propulsion sector. These factors have offset the additional leverage, commented DeNicolo.
The rating agency anticipates that GenCorp's management will keep the company's financial profile consistent with its current credit rating. Deutsche Bank and ABN Amro lead the "B" loan (see story, page 3).