Rolls-Royce’s Credit Rating Cut To ‘Junk’ Status

Rolls-Royce’s senior unsecured bonds are now rated as Ba2, down from their previous grading at Baa3. The company as a whole has also been rated at Ba2.

Ratings agency Moody’s downgraded the UK engine-maker’s bonds by two notches, meaning they are no longer considered investment-grade.

Moody’s made the general public aware of the change in a statement on Monday, citing the effect of the COVID-19 pandemic on the aviation sector and hinting that the present situation could escalate.

“As a result of higher than previously expected cash outflows, Moody’s expects material increases in leverage, and considers that the company faces significant challenges to recover its metrics over the next two to three years,” the statement read.

This announcement had an instant impact on Rolls-Royce’s share prices, which already sank by two thirds of their value since the start of the COVID-19 outbreak. After the release of the statement from Moody’s, prices fell even lower, reaching 5.7% to trade at 253 pence as of 08:27 GMT.

Rolls-Royce CEO Warren East said on Thursday that the company was exploring various strategic options to bolster its balance sheet but had not yet come to any concrete resolution.

During the weekend, however, news got out about Rolls-Royce’s plans sell its ITP Aero division in a bit to come up with additional funds. The said division makes parts for the Typhoon fighter jet. In response to these reports, a Rolls-Royce spokesperson simply made it clear that the company was reviewing a range of options, while also adding that “current financial position and liquidity remain strong”.

Earlier this month, Rolls-Royce claimed to have £8.1 billion on hand following the first-half outflow.