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Rating Action:

Moody's changes BRP's outlook to positive from negative; affirms B1 CFR

27 Oct 2020

Approximately C$3.1 billion of debt affected

Toronto, October 27, 2020 -- Moody's Investors Service ("Moody's") changed the rating outlook of Bombardier Rec Products, Inc. ("BRP") to positive from negative, while affirming all existing ratings, including its B1 Corporate Family Rating (CFR), B1-PD Probability of Default Rating (PDR), its first lien senior secured revolver at Ba1 and the B1 ratings on its senior secured term loans. The Speculative Grade Liquidity (SGL) rating was upgraded to SGL-1 from SGL-2.

"The positive outlook reflects BRP's stronger than expected second quarter results, as consumers bought outdoor recreational vehicles despite the lockdown measures driven by the coronavirus outbreak. We expect this demand to remain strong as consumers continue to explore different outdoor recreational activities during the pandemic, " said Louis Ko, VP-Senior Analyst with Moody's.

Affirmations:

..Issuer: Bombardier Rec Products, Inc.

.... Corporate Family Rating, Affirmed B1

.... Probability of Default Rating, Affirmed B1-PD

....Senior Secured Term Loan, Affirmed B1 to (LGD3) from (LGD4)

....Senior Secured First Lien Revolving Credit Facility, Affirmed Ba1 (LGD1)

Upgrades:

..Issuer: Bombardier Rec Products, Inc.

.... Speculative Grade Liquidity Rating, Upgraded to SGL-1 from SGL-2

Outlook Actions:

..Issuer: Bombardier Rec Products, Inc.

....Outlook, Changed To Positive From Negative

RATINGS RATIONALE

BRP's rating is constrained by: (1) the moderate negative impact that the coronavirus crisis will have on its revenues and EBITDA over the next 12 to 18 months; (2) gross debt leverage that will remain at approximately 4x over the next 12 months; and (3) the company's focus on high-priced, discretionary consumer products, which could have a longer recovery period even after the current challenging economic conditions improve.

However, BRP benefits from: (1) an apparent desire by consumers to buy BRP's outdoor recreational vehicles during the pandemic; (2) good market positions in snowmobiles, personal watercraft, all-terrain vehicles and side-by-side vehicles, defended with diversified product profile and well-recognized global brands; (3) BRP's demonstrated ability to successfully launch new products and increase revenue channels; (4) a proven track record of maintaining conservative financial policies and (5) a very good liquidity position, in part due to an increase in debt, which raised gross debt leverage by over a turn.

BRP has very good liquidity (SGL-1). Sources are approximately C$1.9 billion compared to about C$25 million of cash usage from term loan amortization over the next 12 months. BRP's liquidity is supported by cash of more than C$1 billion as at July 31, 2020, full availability under its C$700 million revolver due May 2024, and our expected free cash flow of around C$170M in the next four quarters. BRP's strong cash position is bolstered by its issuance of an additional $600 million term loan in May which has increased BRP's leverage by a turn (despite the full repayment of the outstanding amounts under its revolver) as it improved its liquidity at the expense of leverage to support its operations during the pandemic. BRP's revolver is subject to a minimum fixed charge ratio covenant at 1.1x if its revolver availability falls below a certain threshold. We do not expect this covenant to be applicable in the next four quarters, but there would be good cushion for the covenant should it become applicable. BRP has limited flexibility to boost liquidity from asset sales.

The positive outlook reflects Moody's expectations that BRP's operating results will continue to be marginally impacted by the ongoing coronavirus pandemic, with leverage expected to reduce to below 4x by FY2023.

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

The ratings could be upgraded if BRP maintains its strong operating results through the pandemic, adjusted debt/EBITDA is sustained below 4.0x (projected to be 3.9x for FY2022E), EBIT/Interest is sustained above 2.5x (projected to be 4.3x for FY2022E), and it maintains at least good liquidity.

The ratings could be downgraded if leverage is sustained above 5x (projected to be 3.9x for FY2022E), if EBIT/Interest falls below 1.5x (projected to be 4.3x for FY2022E), or if there is significant deterioration of its liquidity position, possibly due to negative free cash flow generation on a consistent basis.

The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Our analysis has considered the effect on the performance of consumer assets from the current weak global economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.

More specifically, BRP's credit profile is susceptible to shifts in market sentiment in these unprecedented operating conditions and the continued weakening of the economy which could lower demand for luxury consumer products. However, this is partially offset by stronger demand in the powersports segment as consumers look for new recreational activities during the pandemic driven lockdown. Today's action reflects the demonstrated strong demand for BRP's products, which is expected to persist despite a possibility of an extension to the pandemic lockdown period.

Governance risks are moderate as BRP is publicly traded on the Toronto Stock Exchange and NASDAQ and has consistently demonstrated its strong financial oversight and data transparency. Governance considerations include the company's track record of maintaining conservative financial policies as demonstrated by its history of low leverage (around 3x) prior to the coronavirus outbreak.

Bombardier Recreational Products Inc., headquartered in Valcourt, Quebec, Canada, is a global manufacturer and distributor of powersports vehicles and marine products. Revenue for the last 12 months ended July 31, 2020 was C$5.7 billion.

The principal methodology used in these ratings was Consumer Durables Industry published in April 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1060509. Alternatively, please see the Rating Methodologies page on www.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 at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

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

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.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://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

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 www.moodys.com.

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.

Louis Ko
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

Donald S. Carter, CFA
MD - Corporate Finance
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.
© 2021 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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