Fitch rates Harris notes BBB

Fitch Ratings said it assigned a BBB rating to Harris Corp.'s $3.35 billion of senior unsecured notes.

The notes are being issued as part of an exchange offer connected with the company's previously announced merger with L3 Technologies, Inc., Fitch said.

Shortly after the October merger announcement, the agency said it affirmed Harris’s long-term issuer default rating and long-term ratings at BBB and short-term issuer default rating and commercial-paper ratings at F2.

The outlook is stable.

Fitch also said it placed L3's BBB- long-term issuer default rating and issue ratings on Rating Watch positive with an expectation that the ratings may be upgraded upon completion of the transaction.

The new notes will be pari passu with the existing senior unsecured debt of Harris, the agency said, and will have the same coupon, amount and maturity as the L3 bonds they aim to exchange.

The ratings are supported by an expectation that even though leverage metrics of the post-merger entity will be slightly weaker than Harris’s metrics at the time of the merger, they will remain in the range for a BBB rating, Fitch said.

The slight deterioration in the expected leverage metrics of the combined entity are mitigated by an expectation that the post-merger entity's leverage profile will improve through fiscal 2021, driven by anticipated single-digit revenue growth, improvements in operating margins and net run-rate cost synergies of about $300 million, the agency said.

The ratings also are supported by an expectation that the combined entity will have a good competitive position in the defense industry, broader technology capabilities, sizable international and commercial sales, good product diversification and adequate liquidity, Fitch said.

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