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RR Downgraded Again, Targeted for Investment

25 September 2020 by jbchevrel

Rolls-Royce Plc (RR) is a UK-based engineering company focused on power and propulsion systems. RR segments include Civil Aerospace, Defence Aerospace and Power Systems. RR 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. RR burnt roughly -£3b in H1 and will have burnt roughly -£4b in full year 2020. Today, RR tightened (-40bp from +18 to -22 close) on optimism about potential investments from 2 sovereign wealth funds. Singapore’s GIC is considering an investment in RR and Kuwait Investment Office would also contribute about £250M, Sky News reported today. RR said in an update earlier this month that it aims to raise £2.5B in total. RR said it continues to review all funding options. RR has a market value of roughly £3B. RR had been downgraded to 'BB-/B' from 'BB/B' by S&P earlier this month. The agency also placed RR on CreditWatch with negative implications. To explain that move, S&P had explained that RR free cash flow generation and therefore deleveraging prospects for the next 12 months have fallen materially below their previous assumptions. In a similar move today, Moody’s downgraded RR to Ba3 from Ba2, and the outlook remains negative.