Moody's upgrades BAE Systems

Moody's Investors Service said it upgraded BAE Systems plc’s long-term issuer rating to Baa1 from Baa2. Concurrently, the agency raised to Baa1 from Baa2 the ratings of the senior unsecured debt instruments issued by BAE Systems, and the backed senior unsecured debt instruments issued by the company's subsidiaries BAE Systems Finance Inc. and BAE Systems Holdings Inc. The outlook has been changed to stable from positive for all entities.

The agency noted BAE’s large and long-term defense contracts, its position as a strategic supplier to the United States, the United Kingdom, Saudi Arabia and Australia, the global increase in defense spending, the high barriers to entry, its solid track record of delivering on contracts and its financial policy with Moody's-adjusted leverage forecasted to remain comfortably below 3x.

“Moody's forecasts organic revenue growth around mid-single digit percentage rates, with the potential for slight margin expansion. The rating agency expects that it will drive organic deleveraging toward 2.5x in the next 12 to 18 months, based on Moody's-adjusted gross debt/EBITDA. This compares with around 2.9x pro forma for $4 billion debt drawn under a bridge facility to fund the acquisition of Ball Aerospace in February 2024. BAE Systems had previously reduced adjusted leverage at the end of 2023 to a low 2.1x,” the agency said in a press release.

The stable outlook reflects the view that BAE will deliver at least low- to mid-single-digit percentage growth in EBITDA over the next few years.

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