Research Update: U.K.-Based Engine Manufacturer Rolls-Royce PLC Downgraded To 'BBB-'; Outlook Negative

U.K.-based engine manufacturer Rolls-Royce PLC recently announced that expected in-service cash costs relating to the Trent 1000 engine will rise to £2.4 billion across 2017-2023, versus the £1.6 billion that the group previously forecast. Rolls-Royce will likely report an exceptional charge of about £1.4 billion to its profit and loss (P&L) in full-year 2019, comprising £800 million cash costs relating to the Trent 1000 remediation and £600 million for losses on long term maintenance contracts. The £1.4 billion exceptional charge and higher-than-expected cash costs will result in weaker recovery of profitability, free operating cash flows (FOCFs), and credit metrics, compared with our previous expectations. We are therefore lowering our long-term issuer credit and issue ratings on Rolls-Royce to 'BBB-' from

...- U.K.-based engine manufacturer Rolls-Royce PLC recently announced that expected in-service cash costs relating to the Trent 1000 engine will rise to ú2.4 billion across 2017-2023, versus the ú1.6 billion that the group previously forecast. - Rolls-Royce will likely report an exceptional charge of about ú1.4 billion to its profit and loss (P&L) in full-year 2019, comprising ú800 million cash costs relating to the Trent 1000 remediation and ú600 million for losses on long term maintenance contracts. - The ú1.4 billion exceptional charge and higher-than-expected cash costs will result in weaker recovery of profitability, free operating cash flows (FOCFs), and credit metrics, compared with our previous expectations. - We are therefore lowering our long-term issuer credit and issue ratings on Rolls-Royce to '###-' from '###'. We are also lowering the short-term rating on Rolls-Royce to 'A-3' from 'A-2'. - The negative outlook indicates that Rolls-Royce continues to face elevated event risk...

Research Update