S&P Global Ratings placed the respective ratings of United Technologies Corp. and Raytheon Co. on CreditWatch following the companies' recent announcement of their planned all-stock merger.
The defense and aerospace firms agreed June 9 to combine into Raytheon Technologies Corp., which will be owned 57% by United Technologies shareholders and 43% by Raytheon shareholders.
The proposed merger will improve the credit metrics of United Technologies but will materially weaken those of Raytheon, according to S&P Global Ratings.
"The addition of commercial aero to Raytheon is a negative as that market is more competitive and cyclical than defense, despite the current strength. The inverse is true for UTC, as it adds the more stable defense business," the rating agency said.
United Technologies' issuer credit rating of BBB+/A-2 was placed on CreditWatch with positive implications, while Raytheon's issuer credit rating of A+/A-1 was put on CreditWatch with negative implications.
S&P Global Ratings said it will resolve the CreditWatch placements once the merger closes, expected to take place in the first half of 2020. The rating agency said United Technologies and Raytheon could receive an up to two-notch upgrade and downgrade, respectively.
This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.