Levering up for shareholders

October 2, 2009

TransDigm Group Inc. may not exactly be a household name, but it’s making its mark in the U.S. credit markets as a trail blazer.

The maker of commercial and military aircraft parts raised $425 million in the credit markets this week. But unlike the many companies that have poured into high-yield market to refinance maturing debt, TransDigm had another reason for raising the cash: to pay its shareholders a special dividend.

Such a use of proceeds isn’t unusual during bull markets, but it is striking that a junk-rated company would resort to such behavior so soon after the market meltdown. According to Fitch Ratings, the company’s debt stood at 3x EDITDA before the bond deal , down from 4.2 times at the end of fiscal year 2008 and 5.3 times in the previous year. With the new debt, it shoots back up to 5.0 times, on a pro forma basis.

One deal doesn’t make a trend, but if more companies decide to follow TransDigm’s lead, Fed officials looking for signs of when to pull back on its extraordinary easy monetary policy may want to take notice.

No comments so far

Comments are closed.