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Fitch Ratings Affirms Textron's IDR at 'A-' on Acquisition of UIC

Business Wire, Oct 8, 2007

NEW YORK -- Fitch Ratings has affirmed the following ratings for Textron Inc. (TXT):

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

--Senior unsecured debt 'A-';

--Bank facilities 'A-';

--Preferred securities 'BBB+';

--Short-term IDR and Commercial paper programs 'F2'.

Fitch has also affirmed the following ratings for Textron Financial Corporation (TFC):

--Long-Term Issuer Default Rating (IDR) 'A-';

--Short-Term IDR 'F2';

--Commercial paper 'F2';

--Senior unsecured debt 'A-';

--Junior subordinated notes 'BBB+'

The Rating Outlook is Positive for all of TXT's and TFC's debt and preferred securities, which totaled approximately $8.7 billion at the end of the second quarter.

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TXT announced this morning an agreement to purchase defense contractor United Industrial Corporation (UIC) for $1.1 billion, with an expected completion by the end of 2007. TXT expects to fund the transaction with $650-750 million of cash, approximately $350 million of term debt, and up to $100 million of commercial paper. The proposed transaction will increase TXT's defense revenues and will improve TXT's presence in some high growth parts of the DOD budget. Concerns related to the proposed acquisition include the relatively high valuation, the expectation of revenue synergies in determining the valuation, the possible impact of eventual declines in supplemental defense budgets, reduced liquidity, and modestly higher debt levels that will delay the improvement in TXT's credit metrics.

The Rating Outlook remains Positive, although the proposed UIC acquisition will likely push out an evaluation for potentially higher ratings. The Rating Outlook incorporates expectations that TXT will reduce share repurchase activity for the remainder of 2007 and in 2008 to levels well below 2005 and 2006 repurchases. The Rating Outlook also incorporates expectations that temporarily higher debt levels resulting from the UIC acquisition will return to current levels by the end of 2008. The Positive Rating Outlook is supported by the strong performance and outlook at Cessna, the long-term growth potential at Bell due to positions on several large defense programs, strong operating performance at TFC, and the likelihood of higher operating margins across all segments in 2007 and 2008. However, additional operating problems at Bell could lead Fitch to revise the Rating Outlook to Stable.

TXT's ratings reflect the company's diverse portfolio; competitive positions at Cessna and Bell; high defense spending levels; and pension situation. Concerns center on the performance of the H-1 and Armed Reconnaissance Helicopter (ARH) programs in the Bell segment; production ramp-up difficulties in Bell's commercial business; lower margins at Bell; high share repurchase spending; the Industrial segment's margin levels and growth rates; higher leverage targets at TFC; and the cyclical nature of some of TXT's business units.

Due to the existence of the support agreement and other factors, TFC's ratings are linked to TXT's ratings.

UIC operates mainly through its AAI subsidiary. Its products include unmanned aircraft systems, training and simulation systems, automated aerospace testing and maintenance equipment, armament systems, aviation ground support equipment, logistical and engineering services, and MRO activities. Revenues in 2006 were $564 million, and revenues in 2007 are expected to approach $700 million.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Business Services Industry

Fitch Ratings Affirms Textron's IDR at 'A-' on Acquisition of UIC

Business Wire, Oct 8, 2007

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