Textron Taps Out $3 Billion In Credit

As Originally Posted in The Wall Street Journal

Textron Inc., struggling with the impact of the credit crunch on its commercial-finance business, said it drew down its entire $3 billion in bank credit lines.

The announcement rattled investors, who tend to view credit lines as cash sources to be tapped in emergencies. Shares of the Providence, R.I., defense contractor and aircraft maker fell 21% in 4 p.m. composite trading Wednesday on the New York Stock Exchange.

Shares of Textron, which is battling a slump in orders for business jets and a canceled defense contract, are down about 90% since last May.

Textron said that, after drawing down its bank lines and repaying all outstanding commercial paper, or short-term corporate IOUs, the company will have additional cash reserves of $1.2 billion.

The company said it would have to repay the $3 billion drawn from the credit lines in April 2012.

Chief Executive Lewis Campbell said the new borrowing puts the company "in a strong position for 2009 and beyond," adding that "it is prudent to ensure cash liquidity in the current environment, and the bank credit lines provide such liquidity at very attractive terms."

The move comes after Textron in recent months said it was eliminating 6,200 jobs, or 14% of its work force and shutting down most of its commercial-finance business amid unstable credit markets.

Once-profitable finance units at a number of well-established companies, including bellwether General Electric Co., are causing headaches. The operations rely heavily on access to markets for short-term borrowing, which have either been frozen or expensive since last fall.

Textron said it would preserve only the part of its finance unit that lends customers money to buy Textron products.

Textron also has experienced a sales drop at its Cessna airplane unit. In a conference call last week, Mr. Campbell described the economy's impact on demand for corporate jets as "egregious."

Last October, the Defense Department, citing climbing costs and delays, said it was canceling a $6.2 billion Army contract for building hundreds of small reconnaissance and attack helicopters made by Textron's Bell Helicopter unit. Textron has a number of other businesses, including golf carts and automotive components, all of which are taking their hits in the downturn.

Textron reported net income of $486 million, or $1.95 a share, for the year ended Jan. 3, down 47% from a year earlier.

Revenue rose 13% to $14.25 billion from $12.62 billion.

Rob Stallard, a Macquarie Securities analyst in New York, said Textron's decision to draw down its credit lines makes sense because the company will save millions in annual interest payments after retiring its commercial paper, for which the company must pay investors higher rates.

But, Mr. Stallard said, "Investors are concerned that this is a sign of how desperate Textron is. They've had to use up their last safety net."