Amid strong competition, Rolls-Royce's entry attracted the judge's attention and was named overall winner of the ACT Deals of the Year 2020.
With the aviation sector decimated by COVID-19 and an entire staff base working from home, Rolls-Royce, which generates around 50% of its annual revenue from civil aerospace, undertook swift action to conserve cash and bolster liquidity through a series of complex transactions in the second half of 2020. The deals stemmed from overarching aims to:
1. provide financial resilience and strong liquidity headroom to see the business through any severe but plausible downside scenarios on the recovery in air transport;
2. support the company through the immediate storm and largest transformation effort in its recent history; and
3. position the company for a return to post-crisis normality.
While the firm had entered 2020 in a highly liquid state, the pandemic’s immediate impact on aviation was severe – and its ultimate duration uncertain. Adding to those macro strains, the company had experienced ratings agency downgrades over the previous 12 to 18 months, stemming from operational issues around the Trent 1000 engines fitted to the Boeing 787 Dreamliner fleet.
Those factors spurred Rolls-Royce to strengthen its liquidity position – which it achieved through a blend of public- and private-sector support. In August, the company agreed a five-year term loan at a value of £2bn with UK Export Finance (UKEF) under its Export Development Guarantee scheme. Two months later, with the UKEF loan assisting the credit story by underscoring the UK government's commitment to the company, it closed a £5bn recapitalisation package, comprising a £2bn rights issue, a £2bn-equivalent, multi-tranche bond issue and a £1bn committed bank facility.
The scope and ambition of the deal are all the more remarkable for the organisational complexity in which it was devised. On top of the above-mentioned issues, Rolls-Royce was grappling with an outsized hedge book, a significant unwind of its invoice discounting setup, a large corporate restructuring – and a treasury team that had only just surfaced from that process with a fairly new group treasurer at the helm.
For Rolls-Royce’s banking partners to underwrite the equity, they wanted to see a full recapitalisation plan to secure the firm’s liquidity position, conditional on the success of the bonds. An additional commitment from Chancellor Rishi Sunak and bank lenders to provide a further £1bn of support under the EDG scheme if required smoothed the deal’s path towards completion.
This equipped the brand with a strong liquidity position to see out the remainder of the pandemic and materially de-risked the business going forward.
“This was a business exposed in the face of a gale – what happened was almost existential for them. A multifaceted and complicated deal, this was an amazing amount of work all carried out at once. The treasury team performed superbly in very difficult circumstances.”