Summary: Rolls-Royce PLC

Well-established market position as a leading engine manufacturer for wide-body aircraft. Sizable order book in civil aerospace equivalent to about 10 years of production. Long-term revenues from aftermarket servicing, maintenance, and spare parts activities. Transition to newer, less-profitable engine models and lower demand for business jets. Reduced defense spending and slower demand for industrial power systems. Less resilient profitability and less flexible cost base, with a drop in margins expected in 2016. Low levels of adjusted debt and credit metrics expected to remain strong for year-end 2015. Weaker cash flow generation and leverage metrics expected for 2016. High levels of research and development (R&D) spending and capital expenditure (capex). Broadly neutral free operating cash flow (FOCF) in 2015 and potentially

...Outlook: Negative Standard & Poor's Ratings Services' negative outlook on U.K.-based global aerospace and defense company Rolls-Royce PLC reflects the possibility that we may lower the ratings on the company by one notch within the next year, if we expect Rolls-Royce's profits, cash flow, and leverage metrics to remain weaker beyond 2016. This is because the company faces a number of near-term challenges that are pressuring group profitability, cash flow generation, and leverage metrics in 2016. The company has previously benefited from considerable headroom in its leverage metrics, but this will likely reduce significantly for year-end 2015 and in 2016. For 2015, we still forecast strong leverage metrics of over 100% funds from operations (FFO) to Standard & Poor's-adjusted debt and around 0.6x adjusted debt to EBITDA. For 2016, we see the prospect of around 60% FFO to adjusted debt and 1.3x adjusted debt to EBITDA, which we would regard as being quite weak for the long-term rating....

Summary