S&P Downgraded Rolls-Royce PLC To 'BB-' And Placed On CreditWatch Negative
International Rating Agency S&P Global Ratings (S&P) downgraded the Issuer rating of British jet engine manufacturer Rolls-Royce to "BB-" from "BB" and placed it on the list for review with a negative outlook, the agency said in a release.
In May, the agency downgraded Rolls-Royce's rating to "junk" (rating below "BBB -") due to the risks associated with the coronavirus. "(Our expectations regarding) rolls-Royce's free cash flow generation and, as a result, the prospects for deleveraging over the next 12 months are significantly lower than our previous baseline scenario," the rating agency explains.
S&P believes that the coronavirus pandemic continues to create serious obstacles to work in the airline industry, which adversely affects Rolls-Royce's earnings. In the first half of the year, the company made a loss of 5.4 billion pounds before taxes.
The agency will remove Rolls-Royce's rating from the list for review when S&P receives enough information about the pace of flight recovery, optimization of the company's business, and restoration of profitability.
In the six months to June 2020, Rolls-Royce posted a loss before tax of about £5.4 billion and negative free cash flows of about £2.8 billion. We forecast that Rolls-Royce's S&P Global Ratings-adjusted debt will rise to about £6.6 billion by Dec. 31, 2020, as the group continues to issue new debt to bolster its cash position, and will rise again through 2021 as the group continues to post negative free cash flow.