Commentaries

Now raising intellectual capital

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.

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