United Defense Industries (UDI) is seeking an amendment from its bank group to cut pricing on its bank deal and add $300 million of debt to its credit to fund the acquisition of United States Marine Repair. "We expect the pricing to decline with the amendment," said Mark Manion, treasurer of UDI. "The credit markets have improved and the banks think they can do it," he added. There is currently $423 million of bank debt, with an additional $300 million expected, he said. The amendment needs 100% approval. He declined to comment on the current and anticipated spread and referred questions on how the lead banks, Deutsche Bank and Lehman Brothers, will shop the amendment to the group. Calls to officials at the banks were not returned.
"It's a pretty gutsy move as 25% of their business may be going away," said a buysider, regarding the likely cancellation of the Crusader program. The Bush Administration has announced that it may cancel the Crusader mobile artillery program, which accounts for more than 20% of UDI's revenues. But the credit seems to be Crusader program-proof as the name continued to trade at par even upon the news of a likely cancellation of the program. A buysider also pointed out that commercial banks hold a majority of the company's bank debt and the market expects The Carlyle Group's relationship pull with commercial banks to get the deal done. In support of the name, a banker added, "The company has withstood leverage before, is adding cash flow and has a large lending group. Also, defense is en vogue, considering our country is at war right now, it might be aggressive, but defense is defensive."
UDI is buying the marine repair business for $316 million from affiliates of Carlyle, which also owns 49% of the shares of UDI. The transaction is expected to be completed by the end of June leaving pro forma debt at 3.5 times EBITDA with an intention to deleverage to 2.1 times within 18 months. The current credit ratings are BB-/Ba3, Manion said. Moody's Investors Service has placed UDI on review for downgrade with a focus on the plans to delever. Additionally Moody's will consider the effects of the Crusader program cancellation.