Raytheon Co.'s $9.5 billion acquisition of General Motors Corp.'s Hughes Aircraft division is expected to generate a $7 billion to $10 billion interim bank facility this quarter, market sources said.
Raytheon also said last week that it expects to issue $3.5 billion of bonds to help finance the transaction.
Combined with Raytheon's acquisition of Texas Instruments a week before the Hughes deal, the company's debt would balloon to $11 billion, from $3.6 billion.
Neither Raytheon nor its two merger advisers, Bear, Stearns & Co. and Credit Suisse First Boston Inc., would disclose who is expected to syndicate the bank loan or issue the debt.
But market sources said the leading contenders include Chase Manhattan Corp., BankAmerica Corp., and J.P. Morgan & Co.
Chase is the lead bank for Raytheon's outstanding $3 billion five-year revolver. BankAmerica is a co-agent on the credit. And J.P. Morgan's strong defense industry track record won it a merger advisory position for Boeing in last year's megamerger with McDonnell Douglas.
Raytheon may also forgo a new credit and simply enlarge its current line with Chase, said sources familiar with the deal. The facility would serve as a bridge until Raytheon closes the deal in the second quarter and then issues public debt.
"Over a seven-year period, we'll be able to pay down much of the $3 billion (from the Texas Instruments acquisition) and the $4 billion from this one," Raytheon chief financial officer Peter D'Angelo said in a conference call with reporters. But market sources said Raytheon may be able to trim the debt even faster, thanks to its strong market position and recent landing of a $1 billion Federal Aviation Administration contract.
Both Moody's Investors Service and Standard & Poor's cut Raytheon's corporate debt ratings after announcement of the Hughes deal.
Moody's dropped the rating from A1 to A3. S&P reduced its rating from A- plus to BBB-plus and placed Raytheon on credit watch after the Texas Instruments deal, then dropped it a notch lower, to BBB, and credit watch- negative after the Hughes acquisition.
The downgradings leave Raytheon an investment-grade issuer, but any further downgrading would push it into the near-investment-grade tier and drive up the price of borrowing.
"I don't believe it will go below investment grade," said S&P analyst Martin Knoblowitz. "We don't rule that out, but it's not the most probable scenario."
Moody's has left Raytheon's long-term debt ratings under review for further possible downgrading, said analyst Tassos Philippakos.
Mr. D'Angelo was unperturbed by the downgradings. "We are still solid investment grade, and that's what's important," he said. "They still put you on watch until all the specifics are known."
The bond issue should be well received by a yield-hungry market, said Thaddeus Strobach, an analyst at First Chicago Capital Markets.
"Market appetite is strong for this kind of paper," said Mr. Strobach, pointing to the good reception Lockheed-Martin, a top-tier defense company, had found for its recent debt issue.