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Heico (HEI) Expands Credit Facility & Extends Debt Term

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Heico Corporation (HEI - Free Report) has increased its existing credit facility to $1.5 billion unsecured revolver from the current allowance of $1.3 billion, which can be further expanded to $1.85 billion under certain circumstances. Also, the maturity date for the same is extended by a year to November 2023 and can be further stretched by an additional 12-month period.

The updated borrowings under the amended facility bear interest at LIBOR plus the applicable margin ranges from 100 basis points to 200 basis points, based on certain leverage measurements.These funds will be utilized to serve the company’s general corporate purposes, primarily acquisitions.

Strategic Acquisitions

Heico Corp.’s disciplined acquisition strategy has been also driving its overall performance for a while now, further supplementing organic growth. Notably, in August 2020, Heico Corp. acquired 75% of the equity interest in Intelligent Devices and Transformational Security, and 90% of the equity stake in Connect Tech. Prior to this, in June, it bought 70% of the membership interest in Rocky Mountain Hydrostatics.

Since 1996, Heico Corp. has completed 81 acquisitions, which aim at expanding its product portfolio and customer base. This, in turn, should keep strengthen its cash flow. The company’s long-term growth strategy includes 50% advancement from organic initiatives and the rest 50% from inorganic ventures.

Debt Position

The company has a strong balance sheet with deepened focus on cash generation. Heico Corp.’s current debt worth $1 million as of Jul 31, 2020 is almost insignificant to its cash and cash equivalents of $395 million at the end of third-quarter fiscal 2020. Moreover, its current ratio as of Jul 31, 2020 of 4.97 increased sequentially from 4.39. This reflects the company’s strong solvency position, at least in the short run, which is a positive despite the prevalent COVID-led economic uncertainties.

Its debt-to-capital ratio of 0.28 is much lower than the industry average of 0.33. While its long-term debt of $739 million as of Jul 31, 2020 remained flat sequentially.


Heico Corp.’s favorable financial ratio levels mentioned above along with a history of planned inorganic growth strategies make us optimistic about the company’s performance and its ability to meet debt obligationsin the near future. Further, the increase in its credit capacity and no significant debt maturities until fiscal 2023 will lend support to pursue its many more cash-generating acquisitions, thereby accelerating growth. Also, these upsides will help the company maintain a highly flexible capital structure at a low cost of capital.

Consolidations in Defense Space

Apart from Heico Corp. other defense operators are expanding their operations through strategic mergers and acquisitions. In April 2020, Raytheon merged with United Technologies to create Raytheon Technologies (RTX - Free Report) , which is worth nearly $121 billion. At July-end, BAE Systems (BAESY - Free Report) completed the acquisition of the Collins Aerospace Military Global Positioning System business from Raytheon Technologies. TransDigm Group Incorporated (TDG - Free Report) signed an agreement to purchase Cobham Aero Connectivity in November for approximately $965 million in cash including tax benefits.

Price Movement & Zacks Rank

In the past six months, shares of Heico Corp. have rallied 20.4%, outperforming the industry’s 14.4% growth.

Heico Corp. currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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