January 28, 2013
Back in July, news that aerospace welterweight GenCorp (NYSE: GY ) had signed a deal to buy rocket-engine maker Rocketdyne from heavyweight rival United Technologies (NYSE: UTX ) sent GenCorp shares flying -- up 12% in a day. Today, though, a reminder that GenCorp will also have to pay for Rocketdyne had the opposite effect.
On Monday, GenCorp confirmed that it has closed a sale of $460 million worth of "second-priority senior secured notes" paying 7.125% and maturing in 2021, and it will use those funds to help pay for its $550 million purchase of UTC's rocket engine-building subsidiary. This confirmation that GenCorp has just tripled its debt load apparently gave investors second thoughts about owning the stock and helped to send the shares down 4.6% to close the day at $10.74.
For better or for worse, though, at least GenCorp now has the cash it needs to proceed with the purchase, which is expected to take place no later than Aug. 21. In the event the sale doesn't go through, for whatever reason, GenCorp will be required to repurchase the notes at their full issue price, plus any accrued but unpaid interest.