S&P Upgrades Textron (TXT) to 'BBB/A-2'; Outlook Stable

Standard & Poor's Ratings Services today raised its ratings on Textron Inc. (NYSE: TXT) one notch, including raising the corporate credit rating to 'BBB/A-2' from 'BBB-/A-3'. The outlook is stable.

"The upgrade reflects the so-far successful integration of Beechcraft, improving credit measures after the mostly debt-financed acquisition, in part thanks to some debt reduction and stable to positive conditions in most end markets," said Standard & Poor's credit analyst Chris DeNicolo. "In addition, we now believe the likelihood of management pursuing debt-financed acquisitions or share repurchases significantly exceeding what we have included in our base-case forecast is greatly reduced."

The company's debt-financed $1.4 billion acquisition of Beechcraft in March 2014 and the likely increase in its pension liability probably resulted in a deterioration in credit ratios in 2014, with the ratio of funds from operations (FFO) to debt declining to below 40% from 64% in 2013. However, Standard & Poor's expects credit ratios to improve in 2015 due to the inclusion of a full year of Beechcraft earnings, higher margins at Textron aviation, modest increase in business jet demand, and some debt reduction. These positive factors are likely to offset lower revenues and earnings at Bell because of a decline in V-22 deliveries. Overall, we expect FFO to debt to improve to 40%-50% in 2015, with further increases likely in 2016.

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