Lockheed Martin Swaps Debt – Analyst Blog

In a process to restructure its debts, Lockheed Martin Corporation (LMT) announced that it will issue $728.2 million 5.72% notes due on 2040 and swap it with a series of higher interest bearing debts. The company said the holders of $611 million of debts have agreed to exchange their notes with low-interest bearing notes and cash.

 

Lockheed Martin Corporation will swap 7.65% debentures due in 2016, 7.75% debentures due in 2026, 8.50% debentures due in 2029 and 7.20% debentures due in 2036 with the new series of debentures. The company will also pay cash worth $40.6 million to the 7.2% debenture holders.

 

The company through swapping of its debts not only delayed its principal payment burden to 2040, but also reduced its interest expenses in the process.

 

During the first quarter earnings call, Lockheed Martin maintained its net sales expectation of $46.25 to $46.75 billion and earnings per share expectation of $7.00−$7.20.

 

Lockheed Martin Corporation’s major competitors are Boeing Company (BA), Northrop Grumman Corporation (NOC) and Raytheon Company (RTN). On a competitive landscape, the net margin of the company is better than Boeing’s and Northrop’s, though it is a touch lower than Raytheon’s net margin. The company intends to improve its net margin through reduction of interest expenses.

 

 

We appreciate Lockheed Martin Corporation’s decision to swap debts. However, we maintain a Neutral outlook on the company as the benefits from swapping will be offset by defense cutbacks on high-cost platform programs, execution risk of major programs and higher pension liability.

 

Based in Bethesda, Maryland, Lockheed Martin Corporation is a diversified defense company. The company serves customers in domestic and international defense and civil markets, with its principal customers being agencies of the United States government. It operates in four business segments − Aeronautics, Electronic Systems, Space Systems, and Information Systems & Global Services.