BAC Bank of America Corporation

Shares in British defense equipment supplier Cobham PLC tumbled almost 20% after the company announced it would raise about £ 500 million ($725 million) in equity to ease mounting debt concerns.

The company that makes air-to-air refueling systems for Boeing Co. and Airbus Group SE military tanker planes also said full-year earnings would be £ 15 million below previous expectations after a slow start to the business. Profit for the first quarter ended March 31 was £ 15 million, down from £ 50 million for the same period a year earlier, the company said.

Cobham said it would raise the money by a way of a rights issue. The entire amount of the rights issue has been fully underwritten on a standby basis by Bank of America Merrill Lynch and Jefferies International Ltd., it said. The company hopes to complete the rights issue by midyear, it said.

Cobham's debt levels haven't been coming down as planned, in part reflecting the weak British currency and investments made to secure new business. Debt, which rose to $1.3 billion at the end of March, was at risk of reaching a covenant limit in June, driving the company to shore-up its financial position.

"We haven't reached this decision lightly," Chief Executive Bob Murphy said. "We needed to get the level of debt in the company addressed rapidly," he added. The move should bring net debt to about two times earnings before interest, taxes, depreciation and amortization.

The company said it planned to pay a £ 126 million dividend, the same total as last year. The decision to maintain the dividend even as the company pursued a rights issue drew criticism from analysts.

Cobham said it would seek to cut costs through restructuring measures, a reduction in overhead, and by outsourcing some manufacturing. It is targeting £ 30 million in annual savings by the end of the year, with £ 10 million to be booked for 2016.

Earnings in the first quarter were hit by delayed shipments in its wireless business and a £ 9 million charge against the business, cost increases on some development programs, and lower activity in its passenger flying operations.

Shares in the company were trading down 41.80 pence, or 19%, at 173.40 pence in London at 0840 GMT.

Write to Robert Wall at robert.wall@wsj.com and Olga Cotaga at olga.cotaga@wsj.com

(END) Dow Jones Newswires

April 26, 2016 05:15 ET (09:15 GMT)

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