S&P Raises CCR on Huntington Ingalls (HII) to 'BB+'; Profitability, Cash Flow Improving Faster than Expected

Standard & Poor's Ratings Services today raised its corporate credit rating on Newport News, Va.-based Huntington Ingalls Industries Inc. (NYSE: HII) to 'BB+' from 'BB'. The outlook is stable.

At the same time we assigned our 'BB+' issue rating and '4' recovery rating to the company's proposed $600 million senior unsecured notes due 2021. The '4' recovery rating indicates our expectations of average (30%-50%) recovery in the event of payment default. Our recovery expectations are in the lower half of the 30%-50% range. The company plans to use the proceeds from the new notes to refinance its $600 million 6.875% senior unsecured notes due 2018.

We also revised the recovery rating on the company's existing unsecured debt to '4' from '5' and raised the issue rating to 'BB+' from 'BB-'.

The recovery rating on the company's secured credit facility remains '1', indicating expectations of very high recovery (90%-100%), although we raised the issue rating to 'BBB' from 'BBB-' because of the upgrade of the corporate credit rating.

"The upgrade reflects profitability and cash flow that has improved faster than we had expected, resulting in stronger credit ratios than in our previous forecast," said Standard & Poor's credit analyst Chris DeNicolo. "The profitability improvement has been largely a result of operating improvements and the completion of problematic ships at the company's Gulf shipyards, as well as declining pension expense. In addition, higher cash flows have enabled the company to complete $272 million of acquisitions and increase dividends and share repurchases without impacting credit quality."

The outlook is stable. Standard & Poor's believes Huntington Ingalls' large backlog should provide relative stability for near-term revenues. In addition, we expect the company's improving profitability and modest debt reduction to result in steady credit protection measures over the next two years.

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