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Related Issuers
Rating Action:

Moody's rates Bombardier notes Ba2; upgrades liquidity rating

Global Credit Research - 14 Nov 2012

Approximately $5.8 Billion of debt affected

Toronto, November 14, 2012 -- Moody's Investors Service assigned a Ba2 senior unsecured rating to Bombardier Inc.'s $1 billion notes issue and upgraded the company's speculative grade liquidity rating to SGL-2 from SGL-3. Moody's affirmed Bombardier's Ba2 corporate family, Ba2 probability of default and Ba2 senior unsecured rating. The rating outlook remains negative.

The potential that Bombardier would obtain incremental debt was factored into Moody's decision to change Bombardier's outlook to negative November 7, 2012. Consequently, the bond issue has no affect on Bombardier's Ba2 CFR and the new notes are rated Ba2, the same level as the existing notes. Moody's uses a stricter set of assumptions when assessing a company's liquidity position, and the positive impact of the transaction on the company's cash balance is reflected in today's decision to restore the company's speculative grade liquidity rating to SGL-2, indicating good liquidity.

RATINGS RATIONALE

Bombardier's Ba2 rating its driven by its significant scale and diversity, strong global market positions, natural barriers to entry and sizeable backlog levels in both its Aerospace and Transportation business segments. Moody's expects Bombardier will realize modest earnings growth and about $750 million in consolidated free cash flow consumption in 2013 due to lingering economic weakness affecting its Aerospace division, spending associated with the company's sizeable aerospace programs, ongoing margin pressure from recent problem contracts in its Transportation segment and a continuing weak level of cash advances from customers. Consequently, the company's adjusted leverage is likely to remain very high (currently 6.9x pro-forma the debt issue) over the 12 to 18 month ratings horizon. Execution risks related to the development of its new CSeries commercial aircraft are also incorporated in the rating and these risks have increased with the six month delay in the aircraft's first flight to June 2013.

Bombardier's SGL-2 liquidity rating incorporates pro-forma consolidated cash balance of $3.1 billion, $1.4 billion (USD equivalent) in unused revolvers and a near-absence of current debt maturities. Moody's expects Bombardier will maintain minimum consolidated cash balance of $2 billion and that headroom to bank financial covenants will remain good through 2013.

The outlook is negative because Bombardier has consumed more cash than Moody's expected in the past couple of years. A continuation of this trend would lead to a downgrade given that Bombardier's leverage is very high for the rating.

Bombardier's rating could be downgraded if the CSeries is further delayed or if Bombardier's leverage is not expected to reduce below 6x through the ensuing 12-18 months with ongoing expected improvement beyond that timeframe. A deterioration in the company's liquidity would also likely cause a downward rating action.

An upgrade would require evidence of a sustained cyclical upturn in Aerospace, resolution of recent operational challenges in Transportation, the successful entry into service of the CSeries, with a growing order book and leverage sustained below 3.5x. As well, the company would need to sustain at least good liquidity for a ratings upgrade.

The principal methodology used in rating Bombardier was the Global Aerospace and Defense Industry Methodology published in June 2010. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Headquartered in Montreal, Quebec, Canada, Bombardier is a globally diversified manufacturer of business and commercial jets as well as rail transportation equipment. Annual revenues total roughly $17 billion.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following : parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Darren M. Kirk
VP - Senior Credit Officer
Corporate Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
(416) 214-1635

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

Moody's rates Bombardier notes Ba2; upgrades liquidity rating
No Related Data.

 

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