Moody's downgrades Leidos to junk

Moody's Investors Service said it downgraded Leidos Holdings, Inc.’s senior notes to Ba1 (LGD4) from Baa3 and assigned the company a Ba1 corporate family rating, a Ba1-PD probability of default rating and an SGL-2 speculative grade liquidity rating. The outlook continues to be negative.

The agency said the downgrade reflects backlog declines with weaker credit metrics expected and a more challenging execution path ahead.

Leidos' differentiation as a services contractor with the capacity to prime large, complex, single-award services vehicles within the U.S. intelligence/defense communities supports the rating, Moody’s said.

The agency said the negative outlook recognizes the low and unsteady operating performance of Leidos' health and engineering segment (30% of revenues), which had been expected to help offset the declining national security business after the company's September 2013 spinoff transaction. Instead, special charges have continued, the health and engineering segment has generated losses, and the company's ability to meet its financial forecasts has suffered, Moody’s said.

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