Rating Action: Moody’s affirms the Baa3 unsecured rating of Huntington Ingalls, outlook stableGlobal Credit Research – 24 Feb 2022New York, February 24, 2022 — Moody’s Investors Service (“Moody’s) affirmed the Baa3 senior unsecured and P-3 short-term ratings assigned to Huntington Ingalls Industries, Inc. (“HII”). The rating outlook is stable.The ratings affirmations reflect the company’s strong business profile as the leading ship builder for the U.S. Navy, expected improvement in credit metrics and the company’s strong liquidity. Moody’s expects that HII will retire about $800 million of debt through the end of 2023, to restore its debt credit metrics following the August 2021 debt-funded acquisition of Alion Science and Technology Corporation for about $1.65 billion. Debt retirement will be funded from free cash flow and some of the $627 million of cash on hand at the end of 2021. Moody’s estimates that HII will generate about $500 million of cumulative free cash flow during the next 22 months.Affirmations:..Issuer: Huntington Ingalls Industries, Inc…..Senior Unsecured Commercial Paper, Affirmed P-3….Senior Unsecured Regular Bond/Debenture, Affirmed Baa3..Issuer: Mississippi Business Finance Corporation….Senior Unsecured Revenue Bonds, Affirmed Baa3Outlook Actions:..Issuer: Huntington Ingalls Industries, Inc…..Outlook, Remains StableRATINGS RATIONALEThe Baa3 rating reflects HII’s strong position as a prime ship builder for the US Navy. HII is the US Navy’s only builder of amphibious assault ships and nuclear-powered aircraft carriers. The company is one of two major builders of vessels spanning surface combatants and submarine programs. The company’s high backlog and portfolio of multi-year contracts provides long-term revenue visibility. Most of the contracts cover mature or maturing programs where production costs are reasonably well known. Backlog of $48.5 billion at the end of 2021, supported by the Columbia-Class submarine and Ford-class aircraft carrier programs will provide stability in the shipbuilding operations for years to come.The Baa3 rating also reflects the uncertainty of the US Department of Defense’s aggregate budget beyond fiscal 2022 and the low-single digit margin of the Technical Solutions segment. HII has invested about $2.25 billion in acquisitions since 2018 in order to broaden the scope of offerings and enhance the scale of this segment. However, a significant number of government contracts in the segment have yet to materialize and profits and cash flow remain limited. Continued underperformance in the segment will weigh on the credit profile and could lead to increasing event risk.The stable ratings outlook reflects Moody’s expectation of a mostly resilient US defense budgetary environment with sustainment of important programs in HII’s portfolio including aircraft carriers and submarines that will support the backlog and steady financial performance.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSMoody’s could upgrade the ratings if it expects that HII’s debt-to-EBITDA will be sustained below 2.5x, cash balances will be maintained above $500 million and/or annual free cash flow will be sustained above $300 million. The ratings could be downgraded if Moody’s expects debt-to-EBITDA to be sustained above 3.5x or the company experiences difficulties with any major contract, leading to a shrinking backlog. A second, material debt-funded acquisition before a substantial deleveraging from the Alion acquisition or cash being sustained below $250 million could also negatively pressure ratings. Dividends and share repurchases that require debt funding could also lead to a ratings downgrade.The principal methodology used in these ratings was Aerospace and Defense published in October 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287887. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Huntington Ingalls Industries, Inc. (HII), through its Newport News, VA and Pascagoula, MS shipyards, provides full-service design, engineering, construction, and lifecycle support of major surface ship and submarine programs for the US Navy. The company’s Technical Services Division provides defense and federal services, unmanned maritime systems, and nuclear services. Revenue was $9.5 billion in 2021.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. 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For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, 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 issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.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.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Jonathan Root, CFA Senior Vice President Corporate Finance Group Moody’s Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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Thu Mar 3 , 2022