L-3 spinoff Engility to price $250 million seven-year notes next week

By Paul Deckelman

New York, June 13 - Engility Corp. plans to sell $250 million of seven-year senior notes, high-yield syndicate sources said on Wednesday.

The company is currently in the process of being spun off by major defense contractor L-3 Communications Holdings, Inc.

Marketing of the bond deal starts with an investor call around midday Thursday and then a roadshow in New York and Boston this week. Pricing is expected to take place around the middle of next week.

The deal will be brought to market by joint bookrunning managers Bank of America Merrill Lynch, Barclays Capital Inc., Credit Agricole Securities (USA) Inc. and SunTrust Robinson Humphrey, Inc.

Stifel, Nicolaus & Co. Inc. is a co-manager on the deal, which is being sold to qualified investors under Rule 144A with registration rights.

The bonds have three years of call protection; the first call will be at par plus three-quarters of the coupon.

There is a change-of-control provision allowing investors to put the bonds back to the company at a price of 101, plus accrued interest, should such a change occur.

The bonds are expected to receive a B2 rating from Moody's Investors Service and a BB- rating from Standard & Poor's.

Proceeds from the bond offering, along with the proceeds from a planned new $300 million senior secured credit facility, will be used to pay a special cash dividend to L-3, a New York-based provider of communications, information technology and other services to the U.S. Department of Defense, the U.S. Department of Homeland Security and other federal agencies.

L-3 announced last year that it planned to spin off some of its businesses into a new, independent, publicly traded government services company to be based in Chantilly, Va., and named Engility Holdings, Inc. The spinoff, which is intended to be tax-free to L-3 and its shareholders, is expected to occur around the middle of this year.

Upon completion of the spinoff, L-3 shareholders will own 100% of the shares of both L-3 and Engility. The spinoff is not subject to a shareholder vote.

Under the plan, Engility will include the systems engineering and technical assistance, training and operational support services businesses that are currently part of L-3's government services segment, while the parent will retain the cyber security, intelligence, enterprise IT and security solutions businesses that are also part of that same segment.

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