S&P conferma il rating di Leonardo a BB+/B e rivede l'outlook a positivo

Aerospace And Defense Company Leonardo Outlook Revised To Positive On Improving Credit Metrics; Affirmed At 'BB+/B'

We expect Italy-based Leonardo SpA's balance sheet will strengthen sustainably, thanks to management's commitment to reduce leverage and improve working capital absorption, with annual S&P Global Ratings-adjusted free operation cash flow (FOCF) higher than €450 million.

We estimate that this will result in funds from operations (FFO) to debt exceeding 35% over the coming 12-24 months after 26.7% (after taking into account €101 million of non-recurring expenses in our adjusted EBITDA figure) in 2021.

Nevertheless, albeit improving in 2022-2023, Leonardo's S&P Global Ratings-adjusted EBITDA margin will likely remain below pre-pandemic levels, primarily due to weaker margins at its underutilized aerostructure business, but improve to 10.0%-10.5% in 2022 and about 11% in 2023 from 8.6% in 2021 mainly thanks to its resilient governmental business and pass-through activities.

We are revising our rating outlook to positive while affirming our 'BB+/B' long- and short-term ratings on Leonardo, and our 'BB+' rating on Leonardo's senior unsecured notes with the recovery rating of '3' indicating 65% recovery prospects (up from 60% before).

The positive outlook reflects the possibility of an upgrade if our adjusted EBITDA margin for Leonardo increases beyond 12% by year-end 2023 and stays at 13% or higher thereafter, while--on a sustainable basis--adjusted FFO to debt and adjusted FOCF to debt exceed 35% and 15%, respectively, and Leonardo's balance sheet remains robust, with ample liquidity buffers under all market circumstances, and a positive operational track record with no material governance controversies.