Oct 3 - Standard & Poor's Ratings Services said today that its ratings on TransDigm Inc. (B+/Stable/--) are not affected by the company's recently announced plan to pay a debt-financed special dividend of up to $850 million. Credit metrics will deteriorate as a result of this transaction but remain within our expectations for the rating. Debt to EBITDA will increase to about 6x from 5x for the past 12 months ended June 30, 2012, but these figures include only roughly four months of earnings contributions from AmSafe Global Holdings Inc. (not rated), which TransDigm acquired in February 2012. After adjusting for a full years' worth of earnings contributions from AmSafe, debt to EBITDA will be about 5.2x.
TransDigm generates EBITDA margins of about 45%, which enables the company to de-lever quickly after acquisitions or dividends through earnings and free cash flow. We expect earnings growth to enable debt to EBITDA to improve to 4.5x-5x over the next 12-18 months as a result of strong commercial aerospace demand. We also believe the company will continue to take shareholder-friendly actions and make acquisitions in the future. This is already factored into our "highly leveraged" financial risk profile assessment. This combination of excellent profitability (supporting our "fair" business risk assessment) and a very aggressive financial policy results in a wider-than-average-range of credit metrics that we consider appropriate for the rating.
The stable outlook reflects our expectation that the company will manage shareholder activities, or acquisitions, such that debt to EBITDA remains below 6x over the next year. We do not expect to raise the rating over the next year unless management commits to a more conservative financial policy and debt to EBITDA falls below 4x on a sustained basis.
We will assign ratings to the new debt when more details emerge.
(New York Ratings Team)