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Coronavirus: Rolls-Royce’s credit rating graded as 'junk' for first time in 20 years

Lily Canter
·2-min read
Rolls-Royce makes half its income from making jet engines. Credit: Getty.
Rolls-Royce makes half its income from making jet engines. Photo: Getty

Rolls-Royce’s (RR.L) status has been graded "junk" for the first time in two decades as the aerospace company lost its investment-grade rating.

The aero-engine company had its credit rating downgraded to "junk" status by rating agency Standard & Poor who warned of "prolonged weak profitability".

The prestigious engineering group makes half of its income making jet engines for long haul aircraft as well as supplying engines for RAF fighter jets and intercity trains.

But the grounding of planes around the world during the COVID-19 outbreak has hit demand for new engines and the income made from servicing them.

On Friday Rolls-Royce shares were down 14.9%, or 47.4p, to 271.6p, wiping £915m ($1129.43m) off the company value.

This followed news that hedge fund manager Nicolai Tangen had sold his 5.2% stake in the company.

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More than £8bn has been wiped off Rolls' market value so far this year – a drop of around 60%.

Its credit rating makes it more difficult to borrow money from financial institutions without facing higher interest payments.

Standard & Poor’s said it expects Rolls-Royce to continue underperforming, telling The Times: “The pandemic will continue to cause disruption and uncertainty around future business prospects to airlines, aerospace companies, and their supply chains. Rolls-Royce could post higher one-off charges in the next 12 months than we currently expect which could further affect the group’s profitability and credit metrics.”

A Rolls-Royce spokesman said S&P's decision was "disappointing" but they told The Daily Mail it would not affect any of its borrowing, and the company had been quick to cut spending to manage the impact of coronavirus.

Last week the company announced the axing of 9,000 jobs including 6,000 roles in the UK.

It also wrote to suppliers threatening to withdraw “support” if they did not agree to price cuts of up to 15%.