Fitch Ratings has downgraded Rolls-Royce Holdings plc's (Rolls-Royce) Long-Term Issuer Default Rating (IDR) and senior unsecured rating to 'A-' from 'A'. The Outlook on the Long-Term IDR is Stable.
The downgrade reflects Fitch's view that Rolls-Royce will achieve a weaker than expected recovery in its key credit metrics such as free cash-flow generation and gross leverage beyond 2016 than was previously anticipated. Consequently, the company is likely to continue to have a credit profile which is no longer commensurate with the 'A' rating.
Fitch commented that the recent fines agreed between Rolls-Royce and a number of regulatory bodies in January 2017, will not, in isolation, have a material impact on the company's key credit metrics. “We estimate that the effect on gross leverage will be minimal as these cash payments are likely to be made chiefly out of the group's ample cash reserves. The negative effect on net leverage from the payments is estimated by Fitch to be around 0.3x, which is not significant for the rating.”
Fitch believes that the potential impact of a hard Brexit is likely to be mitigated by Rolls-Royce’s already globally diversified manufacturing and servicing base as well as a comparatively low World Trade Organization aerospace tariff regime. Some minor supply chain relocation and administrative cost increases may occur as a result of the UK leaving the EU customs union, but this is unlikely to be ratings significant of itself.