27th Jul 2020 09:10
(Alliance News) - Moody's Investors Service on Monday downgraded the long-term senior unsecured rating of Rolls-Royce Holdings PLC to Ba2 from Baa3, while keeping the outlook on the rating negative.
Moody's also assigned a corporate family rating of Ba2 and Ba2-PD probability of default rating to the aircraft engine manufacturer.
The ratings agency explained that the action reflects its expectations of "substantial" cash outflows in 2020 and 2021, resulting in "materially" increased leverage.
Rolls-Royce has incurred a free cash outflow of GBP3 billion in the first half of 2020 and expects an outflow of GBP4 billion for the full year.
Moody's highlighted that FTSE 100-listed Rolls-Royce has been hurt by the coronavirus pandemic as a result of reduced flying hours by airlines. This will result in lower aftermarket revenue for Rolls-Royce, and lower demand for new commercial aircraft.
The negative outlook reflects Moody's expectations that commercial passenger demand will not recover to 2019 levels until 2023 at the earliest, and it is likely to remain "severely constrained" in 2021.
Going forward, Moody's said the ratings are unlikely to be upgraded in the short term. The ratings could be downgraded if the effects of the coronavirus outbreakincrease, leading to liquidity concerns for which government support is not readily available.
Rolls-Royce shares were trading 5.0% lower in London on Monday at 254.80 pence each. They are down 63% so far in 2020.
By Evelina Grecenko; [email protected]
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