Fitch Places DRS Technologies' Ratings on Rating Watch Positive

Business Wire,  May 13, 2008  

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NEW YORK -- As disclosed in a press release earlier today, Fitch Ratings has placed the ratings for DRS Technologies, Inc. (NYSE:DRS) on Rating Watch Positive following the announcement that Finmeccanica SpA (Finmeccanica) has agreed to purchase DRS for approximately US$5.2 billion.

For more details on Finmeccanica, please see the press release 'Fitch Affirms Finmeccanica at 'BBB', places DRS Technologies on Rating Watch Positive, On Announcement of Acquisition,' dated 13 May, 2008. The Ratings Watch Positive applies to the following ratings:

--Issuer Default Rating (IDR) 'B+';

--Senior secured revolving credit facility 'BB+/RR1';

--Senior secured term loan 'BB+/RR1';

--Senior unsecured notes 'BB+/RR1';

--Senior unsecured convertible notes 'BB+/RR1';

--Senior subordinated notes 'B/RR5'.

On May 12, Finmeccanica, a leading European aerospace and defense firm based in Rome, Italy, announced its intention to acquire DRS for EUR3.4 billion (approximately US$5.2 billion) to be funded through a bridge loan facility. The facility is expected to be replaced by a combination of new equity issuance, cash proceeds from asset sales, and new debt issued by Finmeccanica.

The Rating Watch Positive is based on the likelihood of lower debt levels at DRS as a result of the transaction. Finmeccanica is not expected to guarantee any surviving debt at DRS, but debt levels at DRS will likely fall as a result of the paydown of the term loan and the change of control put option incorporated into DRS's bond indentures.

Fitch expects Finmeccanica will repay and terminate DRS's current senior secured credit facility at closing. DRS's existing senior subordinated notes obligations (US$250 million of 7.625% notes due 2018, and US$550 million of 6.875% notes due 2013) both contain change of control put provisions within their indentures, which require the redemption of the notes at 101% of par, at the option of the holders, if the transaction is consummated. The US$350 million of 6.625% senior unsecured notes due 2016 also contain the same provision. The US$346 million of 2% senior convertible notes would likely become convertible into cash up to the amount of the consideration given for the company's common equity. However, should any of these notes remain outstanding after the transaction closes, they would likely benefit from some debt repayment triggered by the change of control, as well as the stronger parent credit profile.

Fitch anticipates a relatively strong parent subsidiary linkage between DRS and Finmeccanica based on legal and strategic integration of the two entities, although Fitch expects DRS could remain primarily independent from an operating perspective and it is unlikely that the ratings of Finmeccanica and DRS would be put at the same level. At this time, Fitch does not expect Finmeccanica to guarantee any surviving DRS debt.

The Rating Watch is expected to be resolved at or before the closing of the transaction, which is anticipated to be in the fourth quarter of 2008. The transaction has been approved by the boards of directors at both firms, but remains subject to certain regulatory approvals. Should the acquisition not close, Fitch expects that the current ratings and Positive Outlook will remain in place. If for any reason the credit facility or notes were to remain in place after a successful closing, Fitch expects that the ratings within the capital structure could migrate toward that of the new parent, whose IDR and senior unsecured debt are currently rated 'BBB' with a Positive Outlook by Fitch, depending on the final corporate structure and relationship between the entities. However, as stated above, Fitch would not likely rate DRS debt at the same ratings level as Finmeccanica.

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. The issuer did not participate in the rating process other than through the medium of its public disclosure.

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