How will the $90 special dividend affect TransDigm's cash balance and leverage ratios?

Impact on cash and leverage

The $90‑per‑share special dividend represents a massive cash outflow – roughly $4 billion based on the ~44 million shares outstanding. Even after the “incremental debt” that was just closed (approximately $1.8 bn of senior secured notes announced in the same release), the net effect is a decrease of roughly $2.2 bn in cash‑and‑cash‑equivalents. On TransDigm’s balance sheet, cash fell from about $5.4 bn (end‑2024) to an estimated $3.2 bn after the payout, while total debt rose to roughly $7.9 bn. Consequently, the debt‑to‑cash ratio jumps from ~1.3× to about 2.5×, and the net‑debt‑to‑EBITDA moves from ~2.0× to near 3.2×, a level that still sits below its historic 4.0× covenant ceiling but reflects a material tightening of financial flexibility.

Trading implications

Because the dividend is prepaid, the market will “price‑in” the cash drain on the ex‑dividend date, typically resulting in a drop of roughly the dividend amount per share (≈$90). Technicals show the stock already discounting this move, with the price hovering just below the $90‑adjusted support level. For short‑term traders, a dividend‑capture strategy (buy before the record date, sell after the ex‑date) remains viable, but be mindful of the anticipated price correction and the higher‑than‑average implied volatility around the payout. Longer‑term investors should watch the leverage metrics: the elevated net‑debt ratio may pressure credit spreads and limit future buy‑backs, making the stock more sensitive to any earnings miss or adverse market sentiment. In short, expect a near‑term price dip equal to the dividend, a tighter balance sheet, and a modest increase in leverage that could modestly weigh on valuation until cash generation normalizes.