KTOS - Kratos Defense Security (KTOS) - Redeeming Secured Notes; Another UAV Contract
Redemption. Late last week, Kratos announced an offer to redeem all of its outstanding $300 million 6.5% Senior Secured Notes due November 2025 on March 14, 2022. Simultaneous with the redemption offer, Kratos is refinancing its credit facility to pay for the redemption. The Company will provide additional details related to the refinancing transaction once it has been completed.Details. The Notes will be redeemed for 103.25% of the principal amount plus accrued and unpaid interest. The redemption is expected to save the Company $10-$13 million in cash interest payments annually, based on current interest rates. Kratos will retain its significant cash position, $370 million as of the end of the third quarter, to support future growth, including potential future large production opportunities in the Unmanned Systems business.New $20 Million UAV Contract. Following a recent theme, Kratos announced a $20 million contract award from a new international customer for high performance, unmanned aerial target drone system aircraft and related services, including spares, consumables, ground control station, ground support equipment, launching systems and payloads. The award increases Kratos' footprint not only with a new customer but also a new region.Meaning. In addition to the immediate interest savings, the refinancing will give Kratos additional financial flexibility, in our view. The new UAV target drone contract expands its client base. Even with the ongoing CR, Kratos continues to win new business, which bodes well for when a federal budget is actually adopted, in our opinion.Compelling Risk/Reward. We believe the current price level presents investors with a compelling risk/reward opportunity. We continue to believe it is a question of when, not if. We are maintaining our Outperform rating and $30.00 12-month price target. We continue to believe in the long-term prospects of Kratos and believe the Company to be well positioned to capitalize on new and emerging trends in defense. Read More >>