Moody's downgraded United Technologies Corp.'s ratings, citing heightened financial risks, and concluded the review for downgrade it initiated in 2017 after the aerospace and defense firm announced plans to acquire Rockwell Collins Inc.
The rating agency lowered the company's long-term ratings, including the senior unsecured rating, to Baa1 from A3 with a stable outlook, and affirmed the Prime-2 short-term rating.
Moody's said the partially debt-funded acquisition of Rockwell Collins has increased United Technologies' leverage, which it expects to remain elevated through at least 2020. Moody's estimates the company's debt to EBITDA ratio to be 4.1x in 2018 and in excess of 3x at the end of 2020.
The acquisition will, however, strengthen the company as a leading provider of systems and services to the aerospace and defense sector and boost its profit margins and cash flows, according to the debt watcher.
"Moody's expects that United Technologies' liquidity will remain very good, taking into account free cash flow of at least $3.5 billion in 2019, a robust cash balance and access to committed credit facilities of in aggregate $4.35 billion," the agency said.
The stable outlook reflects Moody's expectation of mid-single digit annual revenue growth and a gradual improvement in the company's EBITDA margin.