DRS Technologies sets Nov. 8 launch for $300 million term loan B

By Sara Rosenberg

New York, Nov. 1 - DRS Technologies Inc. has scheduled a bank meeting for Nov. 8 to launch its $300 million term loan B, according to a market source.

Wachovia and Bear Stearns are the lead banks on the deal.

The term loan is talked at Libor plus 175 basis points, the source said.

Expected ratings are Ba3/B+.

Proceeds from the term loan, high-yield bonds, convertible notes, cash on hand and the issuance of stock will be used to fund the company's acquisition of Engineered Support Systems Inc. (ESSI).

The company previously said it will also be getting a new revolver as part of this transaction, but no details on that tranche were available prior to press time.

Under the acquisition agreement, DRS has agreed to purchase ESSI for $43.00 per share through a combination of $30.10 in cash and a portion of a share of DRS stock valued at $12.90, provided the average closing price of DRS' stock prior to closing is between $46.80 and $57.20.

Of the total proceeds from the various sources, $1.889 billion will be used to purchase ESSI shares, $88.3 million will be used to repay ESSI debt and $79.5 million will be used for fees and closing costs.

At closing, debt to pro forma EBITDA will be around 5.3 times, but that number is expected to drop to 4.3 times by the end of fiscal 2007 as strong cash flow will allow for deleveraging.

Debt to capitalization will be around 60.9% at close but is expected to drop to 57.3% by the end of fiscal 2007.

The transaction is expected to close by the end of DRS' fiscal year - March 2006. Completion of the purchase is subject to customary regulatory approvals and other closing conditions, including approval by both companies' stockholders.

DRS is a Parsippany, N.J.-based provider of technology products and services to defense, government intelligence and commercial customers. ESSI is a St. Louis-based diversified supplier of integrated military electronics, support equipment and technical services.

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