S&P downgrades BAE to BBB

S&P said it lowered its long-term corporate credit and related debt ratings on BAE Systems plc to BBB from BBB+ and affirmed its A-2 short-term corporate credit rating.

The outlook is stable.

S&P said the downgrade reflects its view that BAE continues to demonstrate relatively weak S&P-adjusted leverage metrics due to a substantial pension deficit.

For the 12 months to June 30, the ratios of adjusted debt to EBITDA and funds from operations (FFO) to adjusted debt were 3.7 times and 21%, respectively. These metrics remain outside the agency’s expectations for the ratings.

However, S&P said it forecasts that they will improve to about 3 times and 25%, respectively, by 2018, supported by steady operating results and improving cash flow generation.

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