14 September 2020 by jbchevrel
Rolls-Royce Plc (ROLLS or RR) is a UK-based engineering company focused on power and propulsion systems. ROLLS segments include Civil Aerospace, Defence Aerospace and Power Systems. ROLLS has been struggling this year due to the collapse in the number of hours flown by its wide-body engines. This is the source of more than 50% of their Civil Aerospace segment revenue. This metric fell -75% in Q2 and -50% in H1. ROLLS burnt roughly -£3b in H1 and will have burnt roughly -£4B in full year 2020. RR was downgraded on long- and short-term issuer credit ratings to 'BB-/B' from 'BB/B' by S&P. The agency also placed RR on CreditWatch with negative implications. To explain that move, S&P explained that RR free cash flow generation and therefore deleveraging prospects for the next 12 months have fallen materially below their previous assumptions. S&P plans to resolve the CreditWatch placement around the time of the trading update that RR will offer the market later in the year. ROLLS CDS widened by roughly +30bp today, following that news. That makes the move over the past week +50bp. RR under-performed other Main s33 index constituents (-5/+4). RR is going to leave iTraxx Main in the next series s34 issued next Monday. Other agencies Moody’s and Fitch have the name Ba2 and BB+ respectively.