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S&P relegates Rolls-Royce to junk status

written by Sandy Milne | May 29, 2020
Airbus A350-941 (reg. F-WWCF, MSN 002) landing gear and Rolls-Royce Trent XWB in Airbus promotional CFRP livery at ILA Berlin Air Show 2016. (Wikimedia Commons)

Standard and Poor’s has slashed the credit rating of British engineering manufacturer Rolls-Royce to junk on Thursday evening.

The company cited the effects of the coronavirus pandemic on the manufacturing industry, with spillover effect for the already-struggling aviation sector.

“Actions to contain the pandemic, including government-imposed social distancing measures, travel restrictions, and stay-at-home orders, have suddenly and sharply reduced global demand for air travel,” stated S&P.

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“We expect the company to materially underperform against our previous base case,” said the ratings agency,  cutting the British company’s rating to BB from BBB-.

The company has clung to investment-grade rating with S&P for the past 20 years.

Other “Big Three” agencies have been more forgiving towards the firm. Moody’s ranks the manufacturer at Baa3 (one grade above non-investment quality), while Fitch has the company on BBB+ (two above non-investment).

Rolls-Royce hit back at the S&P announcement, pointing to moves it has made to shore up liquidity and cut operating costs.

“While it is disappointing to lose our investment grade rating with S&P, none of our borrowing facilities contain covenants or credit rating triggers that demand early repayment nor do any of our contracts with airlines,” said a spokesman for Rolls-Royce.

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Last week, Rolls-Royce announced plans to cut back on costs by axing some 9,000 jobs. The company warned that the cuts would impact its Derby operations hub, as well as its broader UK network.

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