NEW YORK---Fitch has changed its Rating Outlook on Lockheed Martin (LMT) to Stable from Negative. The 'BBB-' rating on Lockheed Martin's senior notes is affirmed. The 'F3' rating on Lockheed Martin's commercial paper programs, both 3(a)D and 4(2), is also affirmed.
The outlook revision is based on recent improvements in the company's credit profile. These improvements include debt reduction, enhanced free cash flow visibility, after-tax proceeds from pending divestitures and a swelling backlog of $57 billion. The improvement in free cash flow includes significant working capital improvements and customer advances for new contracts offset by a cash payment for the Globalstar credit agreement guarantee by LMT.
During the last two quarters, LMT's free cash flow growth facilitated debt reduction efforts and Fitch expects this trend to continue. Fitch recognizes management's commitment to restore financial flexibility to the balance sheet and is encouraged by the recent progress. The current ratings and stable outlook rely upon continued success with reducing leverage and improving free cash flow over the near term to restore credit metrics to more comfortable levels within this credit rating category.
As of June 30, LMT's liquidity position included approximately $1.2 billion of cash and complete availability under $4.5 billion of bank credit facilities which are used to support both 3(a)3 and 4(2) commercial paper programs. The company's debt-to-capital ratio stood at 64.0%, down from 65.3% at FYE1999 as a result of LMT being ahead of schedule in free cash flow generation.
Fitch expects continued debt reduction as LMT realizes roughly $2.1 billion in after-tax proceeds through 2001 from pending divestitures. Fitch projects total debt to EBITDA, currently 4.0 times (x) at 6/30/00, to decline to 3.5x by fiscal year end 2001 as LMT continues to delever the balance sheet through stable operating cash flow and divestiture proceeds. Annual capital expenditures approximate $600 million while current maturities total, in aggregate, $900 million during the 2000-2001 time period.
Recently, LMT increased free cash flow guidance for FY2000 by over $600 million to $1.5 billion. The revision reflects the positive results in working capital management across all business areas including the elimination of the 'Paid Cost Rule' and ongoing sales of surplus real estate. LMT recently completed the sale of Control Systems to BAE SYSTEMS North America for $510 million and has announced a definitive agreement to sell Aerospace Electronic Systems (AES) for $1.7 billion, also to BAE. The latter transaction is awaiting final regulatory approval and closure is expected by the first quarter of 2001. LMT will apply projected net proceeds of $1.6 billion from these transaction to debt reduction.
Fitch is an international rating agency that provides global capital market investors with the highest quality ratings and research. Dual headquartered in New York and London with a major office in Chicago, Fitch rates entities in 75 countries and has some 1,100 employees in more than 40 local offices worldwide. The agency, which is a combination of Fitch IBCA and Duff & Phelps Credit Rating Co., provides ratings for financial institutions, insurance, corporates, structured finance, sovereigns and public finance markets worldwide.
-ends-
Fitch Changes Lockheed Martin's Rating Outlook to Stable
