Fitch Assigns Alliant Techsystems IDR of 'BB'; Outlook Stable

Business Wire, April 27, 2007

NEW YORK -- Fitch has initiated the following ratings for Alliant Techsystems, Inc. (NYSE: ATK):

--Issuer Default Rating (IDR) 'BB';

--Senior secured revolving credit facility 'BBB-';

--Senior secured term loan 'BBB-';

--Senior subordinated notes 'BB-';

--Convertible senior subordinated notes 'BB-';

Approximately $1.5 billion of outstanding debt is affected by these actions. The Rating Outlook is Stable.

The ratings are supported by ATK's growing and strong free cash flow; high levels of spending for munitions and missile defense, both of which are expected to continue; ATK's position in the NASA budget; ATK's role as a sole source provider for over two-thirds of its sales to the U.S. Government; and fully funded pension plans. Concerns focus on ATK's high leverage; cash deployment that is shareholder focused; potential DoD budgetary pressures going forward in the medium term; less revenue diversity than other large and medium sized defense contractors; the amount of revenue generated by operations in Iraq and Afghanistan; and the potential for accidents at ATK plants given the hazardous nature of some of ATK's products.

The Stable Outlook reflects the current strong defense spending environment, U.S. Army training requirements that should result in continued high usage of munitions, and the outlook for space exploration.

The two notch increase from the IDR to 'BBB-' for ATK's senior secured facility reflects substantial overcollateralization in a distressed scenario, even if ATK utilizes the uncommitted accordion feature which would allow ATK to incur a total of $1.0 billion in secured debt. The one notch decrease from the IDR to 'BB-' for ATK's senior subordinated debt reflects its subordinated nature to existing as well potential additional senior debt.

Since fiscal 2004, ATK's Free Cash Flow (FCF) has increased each year when adjusted for discretionary pension contributions, and Fitch expects this will also be the case for fiscal 2007, which ended March 31, 2007. These funds were used for acquisitions, share repurchases and contributions to ATK's pension plans. FCF in fiscal 2007 is expected to be approximately negative $40 million, but includes $375 million in discretionary pension contributions, which should have resulted in fully funded pension plans at fiscal year-end. The company expects to generate in excess of $260 million of FCF in fiscal 2008, which Fitch considers attainable given ATK's strong backlog and success in converting earnings into cash.

As of Dec. 31, 2006, ATK had $1.5 billion in debt with leverage, defined as debt to operating EBITDA, of 3.6x and interest coverage, defined as operating EBITDA to interest expense, of 4.1x. Debt increased by $341 million in the first three quarters of fiscal 2007, as ATK repurchased $208 million in shares and made $300 million in discretionary contributions to its pension plan. These were funded via a $300 million debt issuance, free cash and revolver utilization. In March, ATK increased the size of its senior secured credit facility, enhancing liquidity by upsizing the revolver to $500 million from $300 million, and increased the term loan to $275 million from $223 million outstanding as of Dec. 31, 2006.

ATK's cash deployment strategy is meant to maximize shareholder value via share repurchases and strategic acquisitions with debt repayments made to maintain flexibility. ATK has a history of increasing leverage and then delevering since at least fiscal 1995. With leverage at the top of ATK's stated comfort level range of 2.0 to 3.5x, Fitch does not anticipate that the company will take any actions in the near term that would have a significant negative impact on leverage. In fiscal 2007, the company also chose to fully fund its pension plans to reduce unpredictability in earnings and cash requirements while taking advantage of the positive credit environment. ATK has not made any acquisitions since September 2004 and has not made a sizable acquisition (> $250 million) since 2001. ATK is currently interested in bolt-on acquisitions in the area of small space launch systems (The recently announced planned acquisition of Swales Aerospace for approximately $100 million fits into this category) and to expand systems level work for advanced systems as well as any opportunities in the area of composites.

Liquidity as of Dec. 31, 2006 (pro forma for the $200 million increase in the revolving credit facility on March 29, 2007 and no amortization during calendar year 2008 for the amended and restated Term Loan) totaled approximately $316 million, consisting of $19 million in cash, $297 million in revolving credit facility availability and no current maturities. Interest coverage was 4.1x in the latest 12 months (LTM) ending December 31, 2006 unchanged vs. fiscal 2006. Leverage was 3.6x in the LTM vs. 2.9x in fiscal 2006 due to the increase in debt previously mentioned.

DoD spending is an important factor supporting ATK's ratings. Operations in Iraq and Afghanistan continue at a high tempo and a surge in troops is occurring in Iraq, which should lead to continued high demand for many of ATK's products. More importantly for ATK, the fiscal 2008 budget request includes an increase in overall authorized U.S. Army and Marine troop levels by ninety two thousand to almost three quarters of a million by 2009. This should lead to additional requirements for ATK products for training, where most (90+%) munitions are expended. In addition, ATK is well positioned in precision weapons, a continued growth area for the DoD.