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Rating Action:

Moody's Upgrades BRP's CFR to B3; outlook is positive

05 Jan 2011

Approximately $940 million of debt securities affected

Toronto, January 05, 2011 -- Moody's Investors Service upgraded Bombardier Recreational Products Inc.'s ("BRP") corporate family rating (CFR) to B3 from Caa1, its probability of default rating (PDR) to B3 from Caa1, its senior secured revolving credit facility to B1 from B2, and its senior secured term loan to B3 from Caa1. At the same time, BRP's ratings outlook was revised to positive from stable. The ratings upgrade considers BRP's improved financial performance, which has helped reduce its adjusted Debt/ EBITDA from over 8x to below 6x within the past year and supported a marked strengthening in its liquidity position. The positive outlook reflects Moody's expectation for continued favorable operating fundamentals in the next 12 to 18 months supported by stabilizing discretionary consumer spending and benefits from new product launches, which may enable BRP to generate credit metrics consistent with a higher rating.

RATINGS RATIONALE

BRP's B3 rating reflects its elevated leverage and the sudden and significant contraction in demand that can occur for its relatively high-priced, discretionary goods. While consumer demand appears to be improving from trough levels, the economic recovery is occurring slowly and the rating considers some uncertainty as to the pace of the rebound. Nonetheless, the company has taken significant steps to reduce its cost structure and dealer inventory levels appear to be much reduced. This should enable BRP to remain profitable at current volume levels that are roughly 50% of recent peaks. BRP's globally diverse portfolio of recreational products benefit from well-recognized brand names and leading market positions, which provides additional strength to its rating.

BRP would be considered for a further ratings upgrade if the company demonstrates sustained improvement in its operating results while maintaining an adequate liquidity position. Sustained metrics associated with upward ratings action would include adjusted Debt/ EBITDA close to 5x and EBITA/ Interest coverage approaching 2x. While not currently contemplated, the ratings could be lowered should BRP's operations become cash consumptive or its earnings decline leading to challenges maintaining an acceptable liquidity position. Sustained metrics associated with downward ratings action would include adjusted Debt/ EBITDA above 6x and EBITA/ Interest coverage below 1x.

Moody's last rating action on BRP was taken on July 22, 2010 when we revised the company's rating outlook to stable from negative and affirmed all ratings.

The principal methodology used in this rating was Moody's Global Consumer Durables rating methodology published in October 2010.

Headquartered in Valcourt, Quebec, Bombardier Recreational Products Inc. is a leading designer, manufacturer, and distributor of motorized recreational products worldwide.

REGULATORY DISCLOSURES

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

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit 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 ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service 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 the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Toronto
Darren M. Kirk
Vice President - Senior Analyst
Corporate Finance Group
Moody's Canada Inc.
(416) 214-1635

Toronto
Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
Moody's Canada Inc.
(416) 214-1635

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

Moody's Upgrades BRP's CFR to B3; outlook is positive
No Related Data.
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