;CHICAGO---Duff & Phelps Credit Rating Co. (DCR) has rated Lockheed Martin Corporation's planned offering of $2 billion of notes and debentures at 'BBB-' (Triple-B-Minus). This is the same rating as the company's senior unsecured debt. DCR also rates Lockheed Martin's commercial paper and extendible commercial notes at 'D-3' (D-Three). The rating outlook is Negative.
The rating had been reduced in early November following the announcement of further reductions in the earnings outlook for 2000. Against the background of the diminished earnings outlook, quantitative credit measures are expected to remain at lower levels for the foreseeable future.
DCR recognizes that Lockheed Martin has undertaken management and organizational changes designed to refocus the company on its core aerospace, defense and technology operations with the potential for improved mission success and stronger financial controls and operating margins. However, concerns remain about the ability of the company to fully execute its business plan in light of the diminished outlook and increased competition in key markets.
Management indicates a continued commitment to generate excess cash for debt reduction. Eight non-core businesses have been identified as divestiture candidates, with a potential value of more than $1 billion. Nevertheless, the timing and proceeds of planned divestitures remain uncertain and no near-term improvements in credit measures are anticipated.
Future rating action will monitor management's ability to generate excess cash for debt reduction through enhanced profitability of core operations and divestitures. Management's plan is to apply excess cash flow to debt reduction until the company returns to its longer-term objective of a 40-50 percent debt to invested capital ratio.
Proceeds of the offering will be used to reduce short-term debt and general corporate purposes. As of September 30, 1999, Lockheed Martin had funded debt of approximately $12 billion or 66 percent of invested capital. At the same date, there was approximately $3.2 billion of commercial paper outstanding. In November, commercial paper was reduced by approximately $2.4 billion by additional borrowings under the company's revolving credit agreements.
With 1998 sales of $26 billion, Lockheed Martin remains the leading DOD, DOE and NASA contractor, the latter largely through a joint venture. Despite the operating shortfalls of 1999-2000 and currently high financial leverage, the company has a sizable backlog, and the outlook for defense spending is improving. Other positives for the company include excellent technical skills and a broad program base.
DCR is a leading global rating agency with 33 local market offices providing ratings and research on debt issues and insurance claims paying ability in more than 50 countries.
