Rolls-Royce’s credit rating has been downgraded by Standard and Poor’s
Shares in Rolls-Royce remained buoyant this afternoon, even after one of the world's largest credit ratings agencies downgraded it.
In a statement this afternoon, Standard & Poor's (S&P) said it was lowering the embattled engineer's long-term corporate credit and related debt ratings to A-, from A, while it lowered its short-term corporate credit rating from A-2 to A-1.
"The downgrade reflects our view of an increased risk that Rolls-Royce's weaker margins and cash flow generation that we anticipate during the first half of 2016 will persist for longer than we expected, and slow the pace and timing of recovery," said S&P.
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In January S&P put Rolls-Royce on negative outlook, saying near-term business challenges from its civil aerospace and marine divisions created near-term challenges.
Shares in the company were 0.9 per cent higher, at 640p, in mid-afternoon trading. That could be related to a sunny outlook from chief executive Warren East, who earlier this month told the company's shareholders everything is going to be ok – despite a recent rough ride.
"Despite steady market conditions for most of our businesses, 2016 continues to be a challenging year overall as we sustain investment and start to transition major products in civil aerospace, and tackle weak markets in marine," he said.
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At the end of last year star fund manager Neil Woodford sold his stake in the company after yet another profit warning, saying Rolls-Royce had become a "more challenged business".
"In many ways we hope we are wrong, but we think it is in our investors’ best interests to exercise caution at this point in time. However, we plan to stay in close contact with the company in order that we can monitor progress under the new leadership team which we rate highly," Woodford added.
Today S&P added: "Our assessment on Rolls-Royce follows recent company guidance whereby it expects profit before interest and tax to be close to breakeven for the first half of 2016, and cash flow generation significantly weighted to the second half of the year.
"We recognise that management guidance for the year as a whole is unchanged, and that in the aerospace and defence industry, the second half of the year is typically far stronger than the first half.
"However, the reliance on the performance of the second half is now greater than we had expected."