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Rating Action:

Moody's assigns Ba2 to BRP's incremental term loan; outlook stable

05 Dec 2022

Toronto, December 05, 2022 -- Moody's Investors Service ("Moody's") has assigned a Ba2 rating to Bombardier Recreational Products Inc.'s ("BRP") proposed $400 million senior secured term loan due 2029. The company's Ba2 corporate family rating ("CFR"), Ba2-PD probability of default rating, Baa2 rating on the first lien senior secured revolver, Ba2 rating on the senior secured term loan B and SGL-1 speculative grade liquidity rating remains unchanged. The outlook is stable.

The proposed $400 million issuance is leverage neutral with pro-forma debt/EBITDA expected to remain around 2.1x because the proceeds are expected to be used to repay the $100 million term loan B due 2024 and the drawn balance under BRP's revolving credit facility standing at C$363 million ($270 million) as of October 31, 2022. In addition, it strengthens BRP's liquidity by extending its maturity profile and aiming to restore the full C$1.5 billion availability on its revolving credit facility.

The Ba2 rating assigned to the $100 million term loan B due 2024 is expected to be withdrawn once fully repaid.

Assignments:

..Issuer: Bombardier Recreational Products Inc.

....Senior Secured Term Loan, Assigned Ba2 (LGD4)

LGD Adjustments:

..Issuer: Bombardier Recreational Products Inc.

....LGD Senior Secured Bank Credit Facility, Adjusted to (LGD1) from (LGD2)

RATINGS RATIONALE

BRP's rating benefits from: (1) Moody's expectations that leverage (debt/EBITDA) will remain around 2x to 2.5x for the next 12 to 18 months supported by strong pre-season orders and restocking at dealerships and can absorb around a 30% EBITDA decline from C$1.6 billion (LTM Q3 2023) before leverage would exceed 3x; (2) good market positions in snowmobiles, personal watercraft, all-terrain vehicles and side-by-side vehicles, defended with a diversified product profile and well recognized global brands; (3) demonstrated ability to successfully launch new products; and (4) very good liquidity.

However, the rating is constrained by: (1) the company's focus on high-priced, discretionary products whose demand can decline in difficult economic conditions; specifically in the current environment of high inflation and increasing interest rates that will erode consumers disposal incomes; (2) potential that product sales have been brought forward during the pandemic and will soften once dealership inventory levels return closer to normalized historical levels; (3) long order lead times given supply chain delays on input components; and (4) leveraging risk potential with private ownership voting control of 87.5%.

BRP has very good liquidity (SGL-1). Pro forma for the $400 million TLB issuance sources total around C$1.7 billion compared to about C$20 million of cash usage from term loan amortization over the next 12 months to December 2023. BRP's liquidity will be supported by pro forma cash of around C$80 million, full availability under its C$1.5 billion revolver due May 2026, and Moody's expectation of free cash flow of around C$150 million in the next four quarters to December 2023. BRP's revolver is subject to a minimum fixed charge ratio covenant at 1.1x if its revolver availability falls below a certain threshold. Moody's does not expect this covenant to be applicable in the next four quarters, but there would be good buffer for the covenant should it become applicable. BRP has limited flexibility to boost liquidity from asset sales.

The proposed $400 million term loan due 2029 has the same rating as the Ba2 CFR and benefits from the same security and guarantee package as the current $1.6 billion term loans. BRP's debt obligations include a Baa2-rated C$1.5 billion revolving credit facility due May 2026 and a Ba2-rated $1.6 billion term loans due June 2024 ($100 million) and May 2027 ($1.5 billion). All the debt obligations benefit from guarantees of existing and future subsidiaries. The revolver has a first lien priority interest on inventory and accounts receivable and a second priority lien on the remaining assets. The term loans, which comprises most of the debt capital, has the reciprocal security package and is ranked below the revolver.

The stable outlook reflects Moody's expectation that BRP will be able to navigate the operating challenges and maintain its good operating performance, liquidity and credit metrics over the next 12-18 months.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

The ratings could be upgraded if BRP is able to diversify its business away from the volatile powersports segment such that cash flow is less cyclical; maintain at least good liquidity and sustains adjusted debt/EBITDA well below 2.0x.

The ratings could be downgraded if BRP's operating results deteriorates such that leverage is sustained above 3x, or if there is significant deterioration of its liquidity position, possibly due to negative free cash flow generation.

Bombardier Recreational Products Inc., headquartered in Valcourt, Quebec, Canada, is a global manufacturer and distributor of powersports vehicles and marine products. BRP is publicly traded and 87.5% of the votes are controlled by Beaudier Group (owned by the Bombardier and Beaudoin families), Bain Capital and Caisse de Dépôt et Placement du Québec.

The principal methodology used in this rating was Consumer Durables published in September 2021 and available at https://ratings.moodys.com/api/rmc-documents/74987. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit 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 issuer/deal page for the respective issuer on https://ratings.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit 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.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, 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 issued the credit rating is available on https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Dion Bate
Vice President - Senior Analyst
Corporate Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Paresh Chari
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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