06 July 2020 by jbchevrel
We have had quiet sessions today and Friday in € CDS, except on Rolls-Royce on which news hit us in Friday afternoon. Rolls-Royce Plc (ROLLS) is a UK-based engineering company focused on power and propulsion systems. ROLLS segments include Civil Aerospace, Defence Aerospace and Power Systems. Reportedly, ROLLS is exploring options to raise funds to fortify its balance sheet, apparently in the early stages of examining possibilities including issuing 1/ common equity 2/ divesting assets. The option 1/ being on the table, stocks dipped double-digit while CDS squeezed -36bp tighter, offered below the 400bp handle on Friday. We closed 385 on Friday and 389 today. The post-COVID range for ROLLS 5y CDS has been [93,660]. Option 1/ would translate into an equity offering of about 1.5 billion pounds to 2 billion pounds. As far as the option 2/ is concerned, it seems that ROLLS ITP Aero unit is the one potential disposal being studied. That business had generated an underlying operating profit of GBP 111 million in 2019 and GBP 67 million in 2018, ie displaying decent underlying operating margin of 11.9% and revenue growth +20%, both for the year 2019, which was a strong year for this unit, driven by increases in both aftermarket and OE sales for civil aerospace, both on Trent and non-Rolls-Royce engine programmes, and scale effect. However, ITP Aero’s 2019 performance also benefited from a change made to simplify its trading relationship and contractual terms with Civil Aerospace. This change was net 0 at ROLLS Group level.