Following Engility deal announcement, Moody's lowers SAIC's rating outlook

Moody's Investors Service said last week it has lowered Science Applications International Corp.'s rating outlook to negative from stable following the contractor's announcement it will buy Engility.

"Initially, the transaction will add financial leverage and dampen the revenue growth expectations, and could entail significant integration risk," Moody's said.

The rating company's report also said the negative outlook reflects the stop-work order SAIC has received on its Amphibious Assault Vehicle upgrade program.

"The stop-work order suggests the program may get cancelled," Moody's wrote. "If so, there is the potential for stranded costs on the long-lead materials."

However, Bruce Herskovics of Moody's told Inside Defense the plan to acquire Engility would make the importance of this vehicle modernization work "less substantial."

Moody's noted it affirmed the company's ratings, noting the planned acquisition would "increase [the] diversity" of SAIC's services revenue and provide "access to a larger direct labor pool."

"Engility will also expand SAIC's base of employees with high clearance[s] and, importantly, increase its presence within the intelligence community and space-related agencies," the report said. Herskovics said intelligence agency funding "tends to be steadier."