Fitch Rates Rolls-Royce ‘BBB+’ with Positive Outlook
Fitch Ratings has assigned Rolls-Royce Holdings Plc, or Rolls-Royce, a Long-Term Issuer Default Rating (IDR) of ‘BBB+’ and affirmed Rolls-Royce plc’s Long-Term IDR and senior unsecured rating at ‘BBB+’.
The outlook on both IDRs is assessed as positive, Fitch added, saying the assignment of the IDR to Rolls-Royce reflects the group’s change to its legal entity structure.
Under the new structure, Rolls-Royce continues to be the ultimate reporting entity of the group with ongoing guarantees for existing debt issued by Rolls-Royce plc, while Rolls-Royce plc becomes one of several subsidiaries.
According to Fitch, the ratings reflect a strong business profile, with a leading position in commercial aerospace engines and solid positions in defence and power systems as well as a strong balance sheet.
Fitch said the positive outlook is based on continued profitability improvements with credit ratios that are strong for the rating, which may support an upgrade if the group maintains its conservative financial policy, including prudent shareholder distributions.
The group structure change involves Rolls-Royce plc – previously the holding company for global group subsidiaries – becoming one of a number of direct strategic subsidiaries organised by region and business division under the ultimate parent Rolls-Royce.
The change in structure happened as the management aims to simplify governance, improve transparency and ease the flow of cash within the group. Ratings analysts said there is no impact on covenants or other undertakings as part of this change.
Under Fitch’s Parent Subsidiary Linkage (PSL) criteria, Rolls-Royce plc’s rating is equalised with that of Rolls-Royce, reflecting their strong linkage. Ratings analysts view legal, strategic and operational incentives for Rolls-Royce to support Roll-Royce plc as ‘high’.
Fitch said this reflects Rolls-Royce’s guarantee on all of Rolls-Royce plc’s existing debt, Roll-Royce plc’s material financial contribution to the group and its critical role in the group’s supply chain, integrated management, and product and service delivery.
“We expect that Rolls-Royce will continue to improve its operating margins in the short-to-medium term, to levels broadly in line with its main peers and the ‘A’ category criteria for the aerospace and defence sector”.
Fitch analysts expect calculated EBITDA margin to rise above 18% in 2025 from 15.7% in 2024 and toward 19% in 2026, driven by strong demand for engines and related maintenance services in commercial aerospace, growth in the defence division, and continued improvement in the cost position of the power systems segment.
“We expect this margin improvement to be sustainable”. Rolls-Royce has a strong balance sheet for the ‘BBB+’ rating. It reported a GBP2 billion Fitch-calculated net cash position at end-1H25 by retaining strong free cash flow (FCF) generation.
It also repaid its USD1 billion bond at maturity in October 2025 with cash on its balance sheet. Ratings analysts expect shareholder returns to total GBP1.9 billion in 2025, including a recently completed GBP1 billion share buyback.
A further GBP200 million buyback is expected to be completed in January and February 2026. Ratings analysts expect shareholder returns to remain moderate and that the group will maintain a net cash position in the short-to-medium term.
Key credit ratios, and especially leverage, are already at levels in line with a higher rating, Fitch expects to review the ratings again following the release of 2025 results and guidance for 2026, including an update on the group’s shareholder return and cash deployment strategy.
“Our expectations for Rolls-Royce’s continued improvement is supported by a strong order backlog across all its three segments. In civil aerospace, a total of 349 large engines were ordered in 1H25 versus 273 in 1H2024 with a gross book-to-bill of 2.9x, up from 2.3x.
In defence, demand remains high, with an order intake of GBP4 billion and a book-to-bill ratio of 1.8x. The order backlog now stands at GBP18.8 billion, up from GBP17.4 billion at the end of 2024, and is equivalent to around four years of revenue.
Finally, in power systems, order intake was GBP2.9 billion, with a book-to-bill ratio of 1.4x, with the order backlog at a record level. Foreign Currency Inflow into Nigerian Market Sinks by 95%
