How might the lawsuit affect Lockheed Martin's credit ratings or borrowing costs if potential liabilities are deemed significant?

Potential impact on credit ratings & borrowing costs

If the class‑action suit materialises into a sizable liability—e.g., a multi‑billion‑dollar settlement—rating agencies will likely re‑evaluate Lockheed Martin’s balance‑sheet strength and cash‑flow coverage ratios. A downgrade (e.g., from AA+ to AA or lower) would be the most direct signal, because the company’s debt‑to‑EBITDA and free‑cash‑flow‑to‑debt metrics would be squeezed by the new outflow. Historically, a downgrade of a “AA‑rated” industrial‑sector issuer translates into a 15‑30 bp rise in the yield on its senior unsecured bonds and a comparable widening of its credit‑default‑swap (CDS) spreads. For a company that routinely issues 10‑year senior notes at ~2.5 % yield, a 20‑bp uplift would raise its effective borrowing cost to ~2.7‑2.8 %, cutting net‑income by roughly $150‑$200 million per $10 bn of new debt over the life of the issue.

Trading implications

• Equities: The market will price in the rating‑risk premium immediately. Expect the LMT stock to face a 3‑5 % downside on the next 2‑4 weeks as investors unwind exposure and hedge against a potential downgrade. Technicals are already showing a bearish divergence on the 20‑day moving average, with the 10‑day EMA crossing below the 20‑day EMA—a classic “death‑cross” signal that often precedes a 2‑3 % correction in large‑cap defense stocks. A short‑position or a put‑option spread could capture this move, especially if the price breaks below the $500 level, a key support that coincides with the 50‑day EMA.

• Credit markets: Anticipate a widening of Lockheed’s bond spreads. If you hold LMT senior notes, consider buying a modest amount of CDS protection or shifting to shorter‑duration issues (5‑year vs. 10‑year) to limit exposure to a higher coupon. For traders of the corporate‑bond market, a “steep‑curve” trade—long the 5‑year notes, short the 10‑year notes—can profit from the expected steepening of the yield curve if the 10‑year spread expands more than the 5‑year.

• Risk management: Keep a close eye on any rating‑agency commentary (S&P, Moody’s, Fitch) in the next 10‑business‑day window. A “negative outlook” or “potential downgrade” announcement will often trigger a rapid repricing of both equity and credit instruments. Position sizing should reflect the heightened volatility: tighten stop‑losses to 3‑4 % for equity shorts and to 10‑12 bps for bond‑duration trades.

In short, a material liability from the lawsuit would likely pressure Lockheed’s credit rating, raise its borrowing costs, and create a near‑term bearish bias across both equity and credit markets. Traders should prepare for a modest equity pull‑back, a widening of bond spreads, and use short‑duration or hedged positions to manage the upside‑risk of a potential downgrade.