Downer EDI's (ASX:DOW) long-term issuer default rating, with a stable outlook, and senior unsecured rating were both affirmed at "BBB," reflecting Downer's robust financial profile, including an improved earnings profile and strong cash conversion, Fitch Ratings said in a note on Friday.

The senior unsecured debt issued or guaranteed by Downer, including debt issued by its unit, Downer Group Finance, has also been affirmed at "BBB."

Downer's business profile is supported by its leading market position and relationships with governments in Australia and New Zealand, demonstrated by work-in-hand exceeding AU$38 billion at fiscal 2026, with around 90% from governments or government-related entities. The ratings firm expects profitability to continue improving as Downer maintains cost and tender discipline. Downer is expected to benefit from strong structural demand for essential infrastructure services.

Downer's Fitch-adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin increased 0.9 percentage points to 6.1% in fiscal 2026, from 5.2% in fiscal 2025, reflecting cost reductions, the roll-off of underperforming utility contracts, and improved tender discipline.

Downer's free cash flow is expected to remain positive to fiscal 2030. However, its free cash flow margin is likely to remain low.