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Rating Action:

Moody's Downgrades Bombardier to Ba3; outlook stable

13 Feb 2014

Approximately $7 Billion of debt securities affected

NOTE: On June 01, 2014, the press release was revised as follows: In the Regulatory Disclosures section, added the Canada Ancillary Disclosure as the fourth paragraph. Revised release follows.

Toronto, February 13, 2014 -- Moody's Investors Service downgraded Bombardier Inc.'s Corporate Family rating to Ba3 from Ba2, Probability of Default rating to Ba3-PD from Ba2-PD and Senior Unsecured ratings to Ba3 from Ba2. The company's Speculative Grade Liquidity rating was lowered to SGL-3 from SGL-2. Various Industrial Revenue Bonds ("IRB") backed by Bombardier were also downgraded to Ba3 from Ba2. Bombardier's ratings outlook was changed to stable from negative.

Downgrades:

..Issuer: Bombardier Inc.

.... Corporate Family Rating, Downgraded to Ba3 from Ba2

.... Probability of Default Rating, Downgraded to Ba3-PD from Ba2-PD

.... Speculative Grade Liquidity Rating, Downgraded to SGL-3 from SGL-2

....US$750M 4.25% Senior Unsecured Regular Bond/Debenture Jan 15, 2016, Downgraded to Ba3 from Ba2

....US$1250M 6.125% Senior Unsecured Regular Bond/Debenture Jan 15, 2023, Downgraded to Ba3 from Ba2

....US$250M 7.45% Senior Unsecured Regular Bond/Debenture May 1, 2034, Downgraded to Ba3 from Ba2

....US$162M 6.3% Senior Unsecured Regular Bond/Debenture May 1, 2014, Downgraded to Ba3 from Ba2

....US$500M 5.75% Senior Unsecured Regular Bond/Debenture Mar 15, 2022, Downgraded to Ba3 from Ba2

....US$650M 7.5% Senior Unsecured Regular Bond/Debenture Mar 15, 2018, Downgraded to Ba3 from Ba2

....US$850M 7.75% Senior Unsecured Regular Bond/Debenture Mar 20, 2020, Downgraded to Ba3 from Ba2

....EUR780M 6.125% Senior Unsecured Regular Bond/Debenture May 15, 2021, Downgraded to Ba3 from Ba2

....EUR785M 7.25% Senior Unsecured Regular Bond/Debenture Nov 15, 2016, Downgraded to Ba3 from Ba2

..Issuer: Broward (County of) FL

....US$8.4M 7.5% Senior Unsecured Revenue Bonds Nov 1, 2020, Downgraded to Ba3 from Ba2

..Issuer: Connecticut Development Authority

....US$17.7M 7.95% Senior Unsecured Revenue Bonds Apr 1, 2026, Downgraded to Ba3 from Ba2

..Issuer: Dallas-Fort Worth Intl. Airp. Fac. Imp. Corp.

....US$48.5M 6.15% Senior Unsecured Revenue Bonds Jan 1, 2016, Downgraded to Ba3 from Ba2

....US$15.5M 7% Senior Unsecured Revenue Bonds Jan 1, 2016, Downgraded to Ba3 from Ba2

Outlook Actions:

..Issuer: Bombardier Inc.

....Outlook, Changed to Stable from Negative

RATINGS RATIONALE

"The downgrade of Bombardier's ratings is driven by its higher than expected cash consumption in 2013 and our view that the company's negative cash flow and elevated leverage will persist longer than we previously expected", said Darren Kirk, Moody's Vice President and Senior Credit Officer.

Bombardier's Ba3 rating incorporates Moody's view that the company's adjusted leverage is likely to remain above 6x into 2015 as modest earnings growth is countered by rising debt levels to fund free cash flow consumption that Moody's estimates will total about $750 million in 2014. The high leverage and ongoing cash consumptiveness are primarily associated with the late-stage, and high capital intensity of the CSeries and other aircraft development programs but also reflect lingering economic weakness in Bombardier's Aerospace division (BA), execution issues in its Transportation division (BT) and weaker-than-normal level of cash advances from customers in both divisions. The rating also incorporates Moody's view that execution risks will remain elevated through the 12-18 month rating horizon as the CSeries entry-into-service approaches (expected H2/15) and the company works to resolve the operational challenges at BT.

While Bombardier's key financial metrics are weak for the rating, the company's significant scale and diversity, strong global market positions, natural barriers to entry and sizeable backlog levels in both BA and BT favorably influence the rating. As well, Moody's expects that Bombardier's capital expenditures will steadily reduce from current (peak) levels while earnings growth will become more robust by late 2015, supporting the potential for material deleveraging in that timeframe.

Bombardier's liquidity is adequate (SGL-3) driven by $3.4 billion of consolidated cash at December 31, 2013, $1.4 billion (equivalent) in unused revolvers ($750 million at BA due June 2016 and EUR500 million at BT due March 2015) compared to $213 million of current debt maturities and Moody's estimate that the company's free cash flow consumption will total about $750 million in 2014. While notional liquidity is good, significant quarterly working capital swings and modest covenant constraints cause Moody's to view Bombardier's liquidity as adequate rather than good.

The stable outlook reflects Moody's expectation that Bombardier will steadily curtail its cash consumptiveness and record modest earnings growth through the next 12-18 months.

Bombardier's rating could be downgraded if the CSeries is further delayed or if Moody's expected Bombardier's adjusted leverage would be sustained above 6.5x. Downward rating pressure could also arise should Moody's have concerns over the adequacy of Bombardier's liquidity.

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 expectations that adjusted leverage would be sustained below 4.5x. As well, Moody's would need to expect that Bombardier would sustain at least adequate liquidity.

The principal methodology used in this rating was the Global Aerospace and Defense 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 $18 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain 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 certain 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Moody’s has not provided advisory services but may have provided Ancillary or Other Permissible Service(s) to the rated entity, its related third parties and/or the party that requested the rating within the past two years (including during the most recently ended fiscal year). Please see the special report “Ancillary or other permissible services provided to entities rated by MIS’s credit rating agency in Canada” on the ratings disclosure page www.moodys.com/disclosures on our website for further information.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit 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 Downgrades Bombardier to Ba3; outlook stable
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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