San Diego Business Journal

Kratos Decides Against Refinancing $625M Bond

By Brad Graves Sunday, December 1, 2013

Market conditions are no longer right for Kratos Defense & Security Solutions Inc. to refinance a $625 million bond, company CEO Eric DeMarco said recently.

Kratos (Nasdaq: KTOS) said that the fees and interest rate associated with refinancing its senior notes would not cut costs for the company. The notes are due in June 2017 and have a no-call provision through May.

In September, Bloomberg News quoted DeMarco as saying he was thinking about buying back the 10 percent notes and cutting the rate to as little as 7 percent. Bloomberg reported the move would have triggered a $45 million prepayment penalty.

In a Nov. 25 statement, DeMarco said the plan was off.

The CEO also said that Standard and Poor’s Ratings Services reaffirmed a credit rating of B for Kratos, and Moody’s Investor Service reaffirmed a credit rating of B3. The CEO said the ratings agencies recognize that Kratos is “fairly well positioned in relatively high-priority areas of the defense budget and that Kratos’ product portfolio is positioned in areas where funding levels are less vulnerable.” Those areas include unmanned aerial and missile systems, satellite communications, electronic warfare, radar and signals processing.

DeMarco also said that if there is no defense budget by Dec. 13, leaders in Washington are talking about a continuing resolution to avert another federal government shutdown. That would give the company more visibility and predictability, he said.