S&P Removes B/E Aerospace (BEAV) from CreditWatch Developing; Affirms Ratings

Standard & Poor's Ratings Services said it affirmed it 'BB+' corporate credit rating on B/E Aerospace (Nasdaq: BEAV). We also removed the ratings from CreditWatch, where we had placed them with developing implications on June 10, 2014. The outlook is stable.

At the same time, we assigned a 'BB+' issue-level rating to the company's proposed $2.8 billion secured credit facility (which includes a $600 million revolver and $2.2 billion term loan) with a '3' recovery rating, indicating expectations for meaningful (50%-70%) recovery in a simulated default scenario.

We plan to withdraw our ratings on the company's existing debt, which will all be repaid, once the transaction closes.

"The affirmation reflects our belief that a more moderate financial policy going forward--with less risk to our base-case forecast--is enough to offset lost business diversity and higher leverage initially following the spin-off, which we expect to be completed on Dec. 15, 2014," said Standard & Poor's credit analyst Tatiana Kleiman.

B/E Aerospace will use the proceeds from a $750 million dividend from KLX and the new $2.2 billion term loan to refinance existing debt, including $1.95 billion of existing notes and $868 million of revolver borrowings; to pay roughly $200 million in breakage costs tied to retiring the notes early; and to pay related fees and expenses.

The stable outlook reflects our belief that earnings growth from strong commercial aerospace market conditions combined with debt reduction and contributions from possible bolt-on acquisitions should result in gradually improving credit metrics, with debt to EBITDA between in 3.2x-3.7x in 2015 from about 4x on a pro forma basis immediately following the spin-off.

We could lower the rating if debt to EBITDA were to remain above 4x and FFO to debt below 20% for a sustained period, which would mostly likely be caused by a lack debt reduction due to greater-than-expected shareholder rewards combined with unanticipated operational difficulties.

Although unlikely over the next year, we could raise the rating FFO to debt rises above 35% and debt to EBITDA falls below 2.5x, and management commits to maintaining these ratios for a sustained period.

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