Triumph Offers Senior Notes – Analyst Blog

Triumph Group Inc. (TGI) has declared the offer of Senior Notes due 2018 aggregating $350 million. The offer is being made to fund the acquisition of Vought Aircraft Industries Inc.

Although, the Senior Notes will increase the net debt of Triumph, the acquisition is expected to improve EPS by 1 cent in fiscal year 2010.

On March 23, Triumph decided to acquire Vought Aircraft Industries Inc. from a private equity firm, The Carlyle Group for $1.44 billion including the retirement of Vought debt. Triumph will pay $525 million in cash and offer 7.5 million shares to Carlyle, which is expected to have a 31% stake in Triumph. The deal is expected to close by July 2010.

Triumph remains focused on growing its core businesses as well as growing through strategic acquisitions. The company recently acquired Fabritech Inc., a leading component manufacturer and repair station for critical military rotary-wing platforms.

The acquired business will operate as Triumph Fabrications-St. Louis and be a part of Triumph Aftermarket Services Group. Management expects the new business to be immediately accretive to earnings and add approximately $25 million of revenue to fiscal year 2011.

Organic growth remained strong in fiscal 2009 through the addition of products and services, the expansion of operating capacity and marketing of a complete portfolio of capabilities, while also benefiting from the continued strength in the aerospace markets.

However, Triumph’s huge dependence on government spends and Boeing Company (BA), its largest customer, is discouraging. Moreover, we do not see any significant recovery in the delivery of new commercial aircraft in the medium term. Thus, we reiterate our Neutral recommendation.