Rolls-Royce has announced a recapitalisation package, totalling £5bn, to increase resilience and strengthen the balance sheet. £2bn rights issue Rolls has announced its intention to raise gross proceeds of c.£2bn by way of a fully underwritten 10 for 3 Rights Issue, at 32p / share, i.e. 41% discount to the TERP price and 75% discount to the closing price on 30 September. The Rights Issue is subject to shareholder approval at a General Meeting expected to be held on 27 October 2020. Our rights issue model suggests an FY22E TERP P/E of c.11x. £3bn of other balance sheet actions Also announced is the intention to commence a Bond Offering to raise gross proceeds of at least £1bn; agreed commitments for a new two-year loan facility of £1bn, conditional upon completion of the Rights Issue; and successful negotiation with UK Export Finance to support, in principle, an extension of its 80% guarantee of the existing £2bn five-year term loan to support a loan amount increase of up to £1bn. Trading update There has been no material change in the Group’s outlook since the 2020 Half Year results in August. As expected, revenue and profit for the first eight months were materially below the prior year. Consistent with the first half, Civil Aero and ITP businesses continued to see the largest impact from COVID-19 while Defence remained resilient and Power Systems saw disruption in some end markets. The Group continued to experience free cash outflows in July and August, albeit at a reduced level compared to the first half and modestly better than expectations – reflecting ongoing cost actions, large engine flying hours slightly ahead of the Group’s “Base Case” forecasts as well as some cash flow timing benefits. Full year expectations for c.£4bn free cash outflow is unchanged.