The Insider

S&P lowers Northrop's corporate credit rating following Orbital ATK deal

June 07, 2018 |
Marjorie Censer

S&P Global Ratings said today it has lowered its long-term corporate credit rating on Northrop Grumman, arguing the contractor's acquisition of Orbital ATK has significantly deteriorated its credit metrics.

The credit ratings agency lowered Northrop to BBB from BBB+.

"We believe the combination will modestly improve Northrop Grumman's business by increasing its scale, the scope of its product offerings, and its customer and program diversity," S&P said in its announcement. "However, we do not expect this improvement will be sufficient enough to offset the company's increased debt burden. Despite management's plans to focus reducing debt following the transaction, we believe dividends and share repurchases will continue to consume a meaningful portion of the company's sizable cash flows, causing credit metrics to improve only moderately over the next few years.

"Furthermore, Northrop Grumman plans to operate Orbital ATK as a stand-alone division (called Northrop Grumman Innovation Systems) and there is little product overlap between the two companies," S&P added. "However, integration risk remains a concern because of the size of the transaction, Northrop's largest since acquiring TRW in 2002."

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