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Fitch removes General Dynamics from watch negative

Fitch Ratings on May 10 removed General Dynamics Corp.'s ratings from Rating Watch Negative and affirmed the aerospace and defense company's long- and short-term ratings.

The ratings were placed on watch in February after General Dynamics announced its plan to acquire IT services provider CSRA Inc. The acquisition was completed in April.

The removal from Rating Watch Negative reflects Fitch's view that General Dynamics is capable of generating cash to reduce its high leverage after the acquisition of CSRA to pre-acquisition levels by 2021. However, unforeseen developments could reduce the pace of leverage reduction.

It said the company's long- and short-term debt rose to about $14 billion after the acquisition from $4 billion at the end of 2017 and adjusted leverage increased to 2.8x from 1.3x.

The rating agency expects General Dynamics to use most of its cash for leverage reduction over the next three to four years and cap its share repurchases to about $1 billion. In addition, Fitch anticipates the company will steadily increase its dividend payments, which are estimated at $1.1 billion to $1.2 billion over the next two years.

Fitch affirmed the company's long-term ratings at A and short-term ratings at F1 with a stable outlook.

The company recently issued $7.5 billion of senior unsecured notes with maturities between 2020 and 2028. The proceeds will be used to repay approximately $7.5 billion in aggregate principal amount of loans outstanding.

General Dynamics' ratings are supported by solid credit metrics, strong cash from operations less capital expenditures and dividends, financial flexibility and a diverse product and service portfolio, among other factors.