Moody's: UTC split would allow 'enhanced strategic focus' but may require changes to business

By Marjorie Censer / November 28, 2018 at 11:13 AM

United Technologies' plan to spin off Otis and Carrier into separate entities following its acquisition of Rockwell Collins means the company will need an adapted capital structure as well as new capital allocation policies, according to a new Moody's Investors Service report.

Moody's writes that separating the businesses could offer "greater operating discipline, a smaller organization and capital allocation decisions that are unaffected by capital needs in other business segments."

The remade United Technologies "would be a formidable supplier of products and systems to the aerospace and defense sector, with annual revenues of more than $40 billion," the report adds.

But Moody's says the new company should set up a capital structure and allocation aligned with the market it serves.

"The post-separation capital structure and distribution policy may have to take into account that United Technologies would no longer benefit from the more diversified cash flows of Otis and Carrier," the report continues. "Furthermore, the aerospace and defense business model is more capital-intensive and has a significantly longer investment horizon given the long-lived nature of commercial and military aircrafts."

"At this time, United Technologies has not disclosed any post-separation capital structure information but reiterated its commitment to deleveraging and its objective to obtain a higher rating," Moody's adds.