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Rolls-Royce Hit by S&P Rating Downgrade on $836 Million Fine

The downgrade is the latest fallout after an agreement with U.S., U.K. and Brazilian regulators.

Standard & Poor’s downgraded Rolls-Royce Holdings Plc’s (IW 1000/192) credit rating to three levels above junk after factoring in 670 million pounds (US$836 million) in fines for bribery and corruption charges.

The aircraft engine-maker’s long-term investment rating has been downgraded to BBB+ from A-, S&P said in a statement Monday, cautioning that a new mandatory accounting system could weigh on reported revenue and profit. The ratings agency also said further investigations may follow the Jan. 16 fines.

The downgrade is the latest fallout after an agreement with U.S., U.K. and Brazilian regulators. Rolls was accused of paying bribes and using middlemen to secure contracts in countries including India, Indonesia and Nigeria. The company reported the incidents to the U.K.’s Serious Fraud Office in 2012.

Rolls-Royce shares fell as much as 3.4% Tuesday and were trading down 2% at 678 pence as of 9:13 a.m. in London.

Rolls-Royce said last week it expected earnings to be ahead of expectations for 2016. The company is due to report annual results Feb. 14.

The engine-maker in November detailed the initial impact on its books from a switch to a new accounting system that prevents Rolls from booking revenue for contracts far in advance. The impact on the company’s earnings is under review and has not been factored into the latest forecast, S&P said.

By Benjamin Katz

TAGS: Finance
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