28.11.2012 18:26
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Raytheon Company -- Moody's assigns A3 ratings to Raytheon's proposed new unsecured notes

Over US$1 billion of rated debt securities affected

New York, November 28, 2012 -- Moody's Investors Service assigned A3 ratings to the new senior unsecured notes issued by Raytheon Company. Net proceeds from the offering are expected to be utilized to repay about $1 billion of existing notes due 2014-2015, either ahead of or upon their maturity, and for general corporate purposes. "Like others, the company is being both opportunistic and fiscally conservative in pre-funding and extending its debt maturity profile on an economically attractive basis while interest rates remain near historic lows," according to Russell Solomon, Moody's Senior Vice President and lead analyst for the company. The rating outlook remains stable.

Moody's Investors Service maintains the following ratings for Raytheon Company:

Senior Unsecured (domestic currency) ratings of A3

Commercial Paper (domestic currency) ratings of P-2

RATINGS RATIONALE

The A3 senior unsecured rating broadly reflects the company's large size and leading market position in the defense sector. We expect solid annual cash flow generation coupled with maintenance of strong liquidity provisions and key credit metrics in line with other comparably rated defense company peers (i.e., Debt-to-EBITDA of less than 3x, operating margins above 12%, both on a Moody's adjusted basis). Even with anticipated budgetary pressures (and ensuing cuts in outlays) and ongoing pension-related headwinds, Raytheon's outperformance relative to peers should be sustained. Raytheon's importance to the US Department of Defense (DoD) given its critical missile systems and electronic surveillance technologies, along with the perceived competitive barriers to entry, lend further support to the rating. With a technological commonality that tends to be more platform-neutral (i.e.; common interface, less program-specific) than most, the company is expected to be able to better withstand an environment of tighter DoD budgets. Share repurchase activity, while somewhat moderated from previous years, is expected to continue, although within the limits of anticipated free cash flow. Although acquisitions in related businesses are probable and there is some modest capacity within the rating to pursue them, we do not anticipate any sizeable transactions in the near-to intermediate-term.

The stable rating outlook is based largely on Moody's view that Raytheon's current financial profile is sustainable, notwithstanding acknowledged headwinds with respect to defense budgets and pension obligations over the forward period. Moody's anticipates measures of Free Cash Flow-to-Debt and Debt-to-EBITDA will approximate levels evidenced in similarly-rated defense companies.

A higher rating would likely require material incremental improvement in the company's cash flow and leverage metrics, such as Retained Cash Flow-to-Debt of 30% or better and Debt-to-EBITDA of 2x or lower, with maintenance of strong operating margins and solid liquidity. Reduction of the underfunded pension obligation, which has recently accounted for nearly 50% of total adjusted debt, remains a primary opportunity for further debt reduction, albeit likely at the requisite expense of shareholder initiatives given the expected free cash flow profile.

The rating and/or outlook could come under downward pressure if Retained Cash Flow-to-Debt is sustained below 20%, Debt-to-EBITDA is sustained near 3x and/or operating margins drop to single-digit levels. Any outsized shareholder-friendly initiatives (especially if funded with debt) or unexpected adverse developments with respect to liquidity, performance on key contracts, pension obligations and/or litigation could also warrant consideration for potential negative rating action (s).

The principal methodology used in rating Raytheon was Moody's Global Aerospace and Defense Industry Methodology published in June 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Headquartered in Waltham, Massachusetts, Raytheon Company is a prime defense contractor focused on defense and government electronics, space, information technology and technical services, with Missile Systems, Space and Airborne Systems and Integrated Defense Systems representing its largest of six business segments. The company generated approximately $25 billion of revenue over the twelve-month period ended 30 September 2012.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following : parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Russell Solomon Senior Vice President Corporate Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Michael J. Mulvaney MD - Corporate Finance Corporate Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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MIS, a wholly-owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MIS have, prior to assignment of any rating, agreed to pay to MIS for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MIS's ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading "Shareholder Relations -- Corporate Governance -- Director and Shareholder Affiliation Policy."

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