Huntington Ingalls Industries Inc.'s Proposed $1 Billion Senior Unsecured Notes Rated 'BBB'

WASHINGTON D.C. (S&P Global Ratings) March 26, 2020--S&P Global Ratings today assigned its 'BBB' issue-level rating to Huntington Ingalls Industries Inc.'s proposed $1 billion senior unsecured notes. The company plans to issue the notes in two tranches and will use the proceeds for general corporate purposes, including to repay debt and bolster its liquidity in case there are disruptions to its operations or delayed payments from the U.S. government because of the coronavirus pandemic. We do not believe this transaction will materially alter our forecast credit ratios for the company, including our expected funds from operations-to-debt ratio in the 55%-60% range in 2020.
Our issuer credit rating on Huntington Ingalls reflects its position as one of two producers of large warships for the U.S. Navy, its long-term revenue visibility, and the favorable outlook for shipbuilding budgets. However, it also incorporates the company's high program and customer concentration. The negative outlook reflects that Huntington's credit measures may not improve as we expect in 2020 if the company prioritizes shareholder returns over debt repayment.
ISSUE RATINGS--SUBORDINATION RISK ANALYSIS
Capital structure
  • Pro forma for the proposed transaction, the company's capital structure will comprise $2.2 billion of unsecured debt issued by Huntington Ingalls Industries Inc. and approximately $105 million of debt issued by its subsidiaries.
Analytical considerations

  • We rate Huntington Ingalls Industries Inc.'s unsecured debt 'BBB', the same level as our long-term issuer credit rating, because no significant elements of subordination risk are present in the company's capital structure.
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