In a bad day for UK PLC Rolls-Royce saw its ratings cut to junk by Standard & Poor's while British Airways was downgraded to one step above investment grade by Moody’s, with both agencies pointing to the impact of COVID 19 as the reason for their decision.
Standard & Poor’s cut its rating for the British company to BB from "BBB-, below investment-grade, saying that 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".
Last week Rolls-Royce announced 9000 redundancies and said it had taken swift action to boost its liquidity and cut costs to deal with the short-term impact of the pandemic.
"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," the company said in a statement.
Meanwhile British Airways saw its debt rating cut to Ba1 from Baa3, one rating above junk, by Moody’s with the agency saying the airline industry will remain "deeply constrained" this year and next given the "increasing duration and severity" of the coronavirus pandemic.
The outlook for British Airway’s rating is negative, which warns of further potential downgrades. Moody's said it doesn't expect passenger volumes for the airline industry to recover to 2019 levels until 2023, "at the earliest.