Rolls-Royce seeks £5bn for ‘worst case scenario’

Rolls-Royce said on Thursday it will seek to raise up to £5 billion, including £2 billion from shareholders.

The company said the the COVID-19 pandemic has had a “significant impact on the commercial aviation industry, resulting in a sharp deterioration” in the financial performance of its civil aerospace business and, to a lesser extent, its power systems business.

“Rolls-Royce Holdings plc today announces its intention to raise gross proceeds of approximately £2bn by way of a fully underwritten 10 for 3 rights issue,” said the Derby-based company.

“In conjunction with the rights issue, the company intends to commence, in the near future, a bond offering to raise gross proceeds of at least £1bn.

“The company has also agreed commitments for a new two year term loan facility of £1bn and received an indication of support in principle from UK Export Finance for an extension of its 80% guarantee to support a potential increase of the company’s existing £2bn five year term loan of up to £1bn.”

The rights issue will come at a 41.4% discount to Wednesday’s closing share price.

Shares of Rolls-Royce, whose engines power the Boeing 787 and Airbus 350, fell another 11%. The company’s shares have fallen about 85% in the past 12 months, reducing its stock market value to under £2.5 billion.

On a call with reporters, Rolls-Royce CEO Warren East said: “This is a comprehensive package which will take any liquidity questions off the table through this crisis …

“We wanted this package to provide sufficient headroom even through our worst case scenario.”

In a statement, East said: “The sudden and material effect of the COVID-19 pandemic has had a significant impact on the commercial aviation industry, resulting in a sharp deterioration in the financial performance of our civil aerospace business and, to a lesser extent, our power systems business.

“We are undertaking decisive and transformative action to fundamentally restructure our operations, materially reduce our cost base and improve our financial position.

“The capital raise announced today improves our resilience to navigate the current uncertain operating environment.

“By raising additional capital now, we will improve our liquidity headroom and reduce our level of balance sheet leverage, while supporting disciplined execution and investment to ensure we maximise value from our existing capabilities. 

“The strength of our people, brand and global footprint, together with our innovation and technology will support us as we emerge from the COVID-19 pandemic and implement our longer-term strategy, playing a crucial role in the world’s transition towards a net-zero carbon economy.”

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