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I AGREE
06 Aug 2015
Approximately $9 Billion of Debt Securities Affected
Toronto, August 06, 2015 -- Moody's Investors Service downgraded Bombardier Inc.'s Corporate
Family rating (CFR) to B2 from B1, probability of default rating
to B2-PD from B1-PD and senior unsecured ratings to B2 from
B1. Moody's also affirmed the company's speculative grade liquidity
rating at SGL-2, indicating good liquidity. Bombardier's
outlook remains negative.
RATINGS RATIONALE
"We believe that weakness in Bombardier's business jet segment will
push its leverage above 8.5x next year and that the company's
cash flow consumption will be more negative than we previously expected",
said Darren Kirk, Moody's Vice President and Senior Credit Officer,
explaining the downgrade.
Bombardier's B2 CFR is driven by its significant financial leverage,
ongoing cash consumption, and risks associated with bringing the
CSeries into service in the first half of 2016. A new management
team is focused on addressing performance issues, reducing costs
and improving cash flows while enhancing flexibility through an initial
public offering (IPO) of the Transportation division. Moody's
nonetheless expects Bombardier's EBITDA to decline through 2016
due to costs associated with ramping up CSeries production and weakness
in the business jet segment, which will also cause Bombardier to
consume more cash than Moody's previously expected. In particular,
market conditions for large cabin business jets have softened in recent
quarters while Bombardier's competitive position has weakened in
Moody's opinion as it has spent heavily on the CSeries and business
jets that will not enter into service until at least late 2018.
The company's significant scale and diversity, established global
market positions, good liquidity, natural barriers to entry
and sizeable backlog levels in its primary business segments favorably
influence the rating.
Bombardier's SGL-2 liquidity rating is supported by June 30,
2015 cash of $3.1 billion and $1.3 billion
(USD equivalent) of unused revolvers ($750 million at BA due June
2018 and EUR 500 million at BT due Mar 2017). After consuming $1.6
billion of cash in H1/15, Moody's estimates that Bombardier
will generate neutral to modestly positive free cash flow in the second
half of 2015. Free cash flow consumption should improve towards
a use of $750 million next year in Moody's estimate as the
CSeries capex is reduced and actions are taken by the new management team.
Typical seasonal working capital swings however may result in Bombardier's
cash hitting a minimum of $2 billion by September 30, 2016,
excluding any proceeds from the potential IPO of the Transportation business.
Bombardier's bank financial covenants are not public, but
they include minimum liquidity and maximum leverage requirements.
Moody's expects the company will maintain good headroom against
the covenants but view the covenant package as cumbersome, which
weighs on the SGL rating. The company does not have any material
debt maturities until 2018, when $1.4 billion matures.
The negative ratings outlook reflects Bombardier's very high financial
leverage and cash consumption that has consistently exceeded Moody's
expectations during the last few years.
Bombardier's rating could be upgraded if 1) its CSeries aircraft enters
into service, leading to stronger order flow for the aircraft,
2) Moody's expects the company will produce sustainable free cash
flow, and 3) Moody's expects adjusted financial leverage will
reduce below 6.5x.
Bombardier's rating could be downgraded if 1) further delays and/or cost
overruns occur with the CSeries, 2) if Moody's expects the
company's adjusted financial leverage to remain above 8.5x,
or 3) if Moody's develops concerns over the adequacy of the company's
liquidity.
..Issuer: Bombardier Inc.
.... Speculative Grade Liquidity Rating,
Affirmed at SGL-2
....Corporate Family Rating, downgraded
to B2 from B1
....Probability of Default Rating, downgraded
to B2-PD from B1-PD
....Senior Unsecured Regular Bonds/Debentures,
downgraded to B2 (LGD4) from B1 (LGD4)
Outlook Action:
..Issuer: Bombardier Inc.
....Outlook, remains Negative
..Issuer: Broward (County of) FL
....Senior Unsecured Revenue Bonds,
downgraded to B2 (LGD4) from B1 (LGD4)
..Issuer: Connecticut Development Authority
.... Senior Unsecured Revenue Bonds,
downgraded to B2 (LGD4) from B1 (LGD4)
..Issuer: Dallas-Fort Worth Intl. Airp.
Fac. Imp. Corp.
.... Senior Unsecured Revenue Bonds,
downgraded to B2 (LGD4) from B1 (LGD4)
The principal methodology used in these ratings was Global Aerospace and
Defense Industry published in April 2014. 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 $20 billion
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
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support provider's credit rating. For provisional ratings,
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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
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For any affected securities or rated entities receiving direct credit
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associated regulatory disclosures will be those of the guarantor entity.
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to rated entity, Disclosure from rated entity.
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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 B2, outlook remains negative
No Related Data.
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