OREANDA-NEWS. Orbital ATK Inc.'s (OA) announcement yesterday of an expected restatement of operating results for fiscal year 2015 (ending in March) and a delay of its 10Q filing by approximately 45 days due to an accounting error is credit neutral for the company's current ratings and Outlook, according to Fitch Ratings. Fitch does not expect the announced restatement and the internal review of the accounting practices to have a material impact on the company's projected credit metrics. However, the internal investigation is ongoing with potential for future charges.

The company preliminarily estimates that its revenues were overstated by $100 million to $150 million, primarily in fiscal 2015 and expects the accounting error-related forward loss provision will reduce its fiscal 2015 after-tax net income by approximately $250 million to $280 million. OA does not expect the restatement will have a material impact on future operating results, cash balances, and backlog. The underperformance on the Lake City contract has an annual negative impact on FCF in the range of $25 million to $30 million, but it was already incorporated in the company's performance expectations and guidance. Fitch expects OA's future performance will be mostly in line with previous projections.

Fitch's rating concerns include a possibility that the company may find the accounting error to be spread wider than initially believed. Fitch's concern is mitigated by the results of the ongoing accounting investigation which has revealed that the error was limited only to one contract out of the company's largest 30 contracts. OA is in the process of reviewing approximately 150 smaller contracts. In addition, Fitch is concerned by a possible litigation by shareholders who may seek compensation for the losses incurred in connection to share price declines immediately following the announcement of the restatement.

Fitch also remains concerned with rising competition in some space sectors, weakness in the commercial satellites business, and significant exposure to the U. S. Government, which accounted for approximately 70% of total revenues in 2015.

Key factors that support the ratings include OA's solid margins and strong cash flows, good product/program diversification, OA's role as a sole source provider for many of its products, adequate financial metrics for the ratings, and adequate financial flexibility.

On April 14, 2016, Fitch affirmed OA's Issuer Default Rating at 'BB+', senior secured facilities at 'BBB-/RR1' and senior unsecured notes at 'BB+/RR4'. The ratings currently cover approximately $1.5 billion of long-term debt. The Rating Outlook is Stable.