March 8 , 2007
By Molly McMillin

Hawker Beechcraft rounds up funds for Raytheon buy

MoHawker Beechcraft -- the new company formed by Onex Partners and GS Capital Partners to acquire Raytheon Aircraft Co. in Wichita -- is working to fund the $3.3 billion purchase. Onex and GS Capital Partners will contribute about $1 billion in cash, while the rest will come from loan and debt offerings, according to Standard & Poor's Rating Services. The sale is expected to close in the first half of this year.

In December, Raytheon announced that private equity firms Onex and Goldman Sachs planned to buy the Wichita aircraft division. The new company will be named Hawker Beechcraft Corp. Hawker Beechcraft plans a $1.2 billion private placement offering of senior notes, the company said this week.

Private placement offerings are typical in a buyout of this nature because they're a quick way to pay for the transaction, said William Alderman, president and founder of private investment bank Alderman & Co.  "They're not going to want to pay 100 percent of the price with their own equity," Alderman said. A private offering is faster to complete than a public offering or the sale of bonds, he said. "It's a way to raise the debt portion of the purchase," Alderman said.

S&P this week gave Hawker Beechcraft a corporate credit rating of B+ and said it had a stable outlook. A credit rating is S&P's opinion on the general creditworthiness of a company. Ratings are important because banks and investors use them to help determine whether to loan a company money, and if so, at what interest rate. In general, a B rating means the company is adverse to business, financial and economic conditions but has the capacity to meet its financial commitments, the ratings service said. A stable rating means the rating is unlikely to  change. Specifically, the rating reflects Hawker Beechcraft's high debt leverage, weak credit protection measures, risks associated with the cyclical demand for general aviation aircraft and modest but improving profit margins, S&P said.

Those factors "outweigh the firm's position as a well-established major aircraft manufacturer, current favorable market conditions and adequate liquidity," it said. S&P also assigned a BB- bank loan rating, which indicates a high expectation of full recovery of principal in the event of a payment default, to a proposed $1.85 billion in secured credit. That includes a $1.2 billion loan, $400 million in revolving credit and $250 million prefunded letter of credit, according to S&P. The borrowers are Hawker Beechcraft Acquisition Co., and Hawker Beechcraft Ltd., both subsidiaries of Hawker Beechcraft Inc., it said. It also assigned a B- rating for a proposed $800 million in senior unsecured notes and $400 million in subordinated notes, S&P said.