L-3 spinoff Engility pulls $250 million bonds, upsizes loan instead

By Paul Deckelman

New York, June 21 - Engility Corp. was heard by high-yield market sources Thursday to have spiked plans to sell $250 million of seven-year senior notes.

The company is currently in the process of being spun off by major high-tech defense contractor L-3 Communications Holdings, Inc. and had planned to use the bonds as part of the funding for that process.

Instead, the sources said, the Chantilly, Va.-based company chose to upsize the bank-debt financing that it has been simultaneously pursuing.

The bond issue launched last week with an investor call and presentations to investors in New York and Boston. It was going to be brought to market by joint book-running managers Bank of America Merrill Lynch, Barclays Capital Inc., Credit Agricole Securities (USA) Inc. and Sun Trust Robinson Humphrey, Inc., with Stifel, Nicolaus & Co. Inc. as a co-manager.

It was to have been sold to qualified investors under Rule 144A with registration rights - but by Thursday morning, several junk market sources said that the effort had run aground. One said that the yield that would-be investors were demanding "had backed up to a level that wasn't attractive [to the company] anymore."

Instead of doing the bond deal along with a planned $300 million credit facility to fund a special cash dividend to parent L-3 as part of the spinoff process, one of the market sources said that the bank loan portion of the financing had been upsized to $385 million. The bank debt was originally to have consisted of a $200 million term loan tranche and a $100 million revolving credit line, but the market source said the revolver had been lowered to $50 million and the term loan portion increased to account for all of the rest.

L-3, a New York-based provider of communications, information technology and other services to the U.S. Department of Defense, the Department of Homeland Security and other federal agencies, 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 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, and the parent will retain the cyber security, intelligence, enterprise IT and security solutions businesses that are part of that same segment.

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