The two publicly traded companies that have been spun out of high-tech engineering firm ITT Corp have completed their debut bond offerings raising an aggregate US$1.85bn.
Exelis, ITT Corp’s defense and information solutions business, raised US$650m…
The two publicly traded companies that have been spun out of high-tech engineering firm ITT Corp have completed their debut bond offerings raising an aggregate US$1.85bn.
Exelis, ITT Corp’s defense and information solutions business, raised US$650m via a dual tranche note issue split between US$250m of 4.25% senior unsecured notes due 2016 and US$400m of 5.55% senior unsecured notes due 2021. The 5-year notes priced at 99.824% and the 10-year notes priced at 99.762%.
The company’s water technology business, Xylem, raised US$1.2bn through US$600m of 3.55% senior unsecured notes due 2016, which priced at 99.809%, and US$600m of 4.875% senior unsecured notes due 2021, which priced at 99.935%.
The notes are initially guaranteed by ITT Corp but this guarantee will terminate once the spin off transactions are completed.
Barclays Capital, Citigroup and JP Morgan were lead bookrunners on the Exelis transaction, while JP Morgan, RBS and Wells Fargo arranged the Xylem issue.
Both Exelis and Xylem will use proceeds from the private placements to pay a portion of a special cash distribution to the parent company with the remainder used for general corporate purposes.
For its part, ITT Corp stated that it intends to use the cash distributions to repay a portion of its outstanding indebtedness. More specifically, the company is seeking to purchase US$100m of its outstanding 7.4% senior notes, due 2025. Analysts have suggested that this move is designed to reassure the company’s creditors following the sharp increase in debt following the bond offerings.
Under the tax-free spin-off transaction that was announced at the beginning of the year, each corporation will have its own independent board of directors and each will be listed on the NYSE. ITT added that all three companies are expected to have a capital structure, balance sheet and financial policies consistent with maintaining investment grade ratings. ITT added that all three companies are expected to have a capital structure, balance sheet and financial policies consistent with maintaining investment grade ratings. Rating agency Moody’s recently downgraded ITT’s credit ratings arguing that the separation plan would see a subsequently increase in the overall debt burden.
The Exelis business includes the company’s space-based satellite imaging, GPS-based positioning and navigation and imaging systems operations. This unit also includes ITT Geospatial Systems, which is contracted to build the imaging payload for both the GeoEye-1 and WorldView-3 satellites.
