S&P Places Lockheed Martin (LMT) on CreditWatch Negative Amid Sikorsky Aircraft Deal

Highlights:

• Prime defense contractor Lockheed Martin Corp. announced that it will purchase Sikorsky Aircraft Corp. from United Technologies Corp. for $9 billion--financed mostly with debt--which will initially cause Lockheed's credit protection measures to deteriorate materially.
• The company has also announced a strategic review of its services business, which could lead to a potential spin-off or sale.
• We are placing our ratings on Lockheed Martin Corp., including our 'A-' long-term corporate credit rating on the company, on CreditWatch with negative implications.
• We will resolve the CreditWatch placement following our meetings with management to discuss the strategic rationale for the acquisition and the company's financial policies going forward.

Standard & Poor's Ratings Services said that it has placed its ratings, including our long-term 'A-' corporate credit rating, on Lockheed Martin Corp. (NYSE: LMT) on CreditWatch with negative implications. We did not place our short-term 'A-2' rating on the company on CreditWatch.

"The CreditWatch placement follows the company's announcement that it plans to buy Sikorsky Aircraft from United Technologies Corp. for $9 billion--financed mostly with debt--which will likely cause its credit protection measures to deteriorate materially," said Standard & Poor's credit analyst Chris Mooney. "At the same time, Lockheed announced that it will undertake a strategic review of its government information technology (IT) and technical services business (representing roughly $6 billion of total revenues), which will likely result in the spin-off or sale of these businesses."

We plan to resolve the CreditWatch negative placement following our meetings with management to discuss the strategic rationale for the acquisition and any potential divestitures, as well as Lockheed's financial policies going forward. We will likely lower our ratings on the company if management does not present a credible plan to restore Lockheed's FFO-to-debt ratio to more than 40% in the 12-24 months following the closing of the acquisition. We do not expect to downgrade the company by more than one notch when we resolve the CreditWatch placement.

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