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Rating Action:

Moody's downgrades Bombardier's ratings to Caa2; outlook negative

14 Apr 2020

Toronto, April 14, 2020 -- Moody's Investors Service, ("Moody's") downgraded Bombardier Inc.'s ("Bombardier") Corporate Family Rating to Caa2 from B3, its Probability of Default Rating to Caa2-PD from B3-PD, its Senior Unsecured ratings to Caa3 from Caa1 and its Speculative Grade Liquidity Rating ("SGL") to SGL-3 from SGL-2. The ratings outlook remains negative.

"Bombardier's ratings have been downgraded because COVID-19 will further stress Bombardier's weak capital structure, even if Bombardier sells its Transportation business in 2021 and reduces its debt by $4 billion" said Jamie Koutsoukis, Moody's analyst.

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The aerospace sector has been one of the sectors significantly affected by the shock. More specifically, the weaknesses in Bombardier's credit profile, including its exposure to the business jet market, has left it vulnerable to shifts in market sentiment in these unprecedented operating conditions. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Today's action reflects the impact on Bombardier of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.

Downgrades:

..Issuer: Bombardier Inc.

.... Corporate Family Rating, Downgraded to Caa2 from B3

.... Probability of Default Rating, Downgraded to Caa2-PD from B3-PD

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

....Senior Unsecured Regular Bond/Debenture, Downgraded to Caa3 (LGD4) from Caa1 (LGD4)

..Issuer: Broward (County of) FL

....Backed Senior Unsecured Revenue Bonds, Downgraded to Caa3 (LGD4) from Caa1 (LGD4)

..Issuer: Connecticut Development Authority

....Backed Senior Unsecured Revenue Bonds, Downgraded to Caa3 (LGD4) from Caa1 (LGD4)

Outlook Actions:

..Issuer: Bombardier Inc.

....Outlook, Remains Negative

RATINGS RATIONALE

The rating action was prompted by the suspension of all non-essential work at most of its Canadian-based operations through to April 26th as well as several of their international locations including Northern Ireland, delaying deliveries and resulting in increased cash usage. It also incorporates the expectation that the business jet market will see deteriorating demand. Though we expect demand for smaller and mid-size jets will see a greater decline in demand than larger jets, there will still be a negative impact to the large cabin segment that includes Bombardier's Global family.

Bombardier's sale of the CRJ business to Mitsubishi and the Aerostructures asset sale to Spirit AeroSystems are both scheduled to close in Q2 this year (for total proceeds of $1.1 billion), but with the aerospace industry facing significant headwinds, we view there to be an increased risk to delays in closing the transactions. The sale of Bombardier's transportation business to Alstom is not expected to close until first half 2021, however uncertainty regarding the closing of the sale has increased because of weaker market conditions, in addition to an expected lengthy anti-trust process.

Bombardier (Caa2 CFR) is constrained by 1) high cash flow consumption in 2020 (Moody's estimate of $1.5 billion), in part due to significant demand and supply impacts of COVID-19, and this will reduce Bombardier's currently adequate liquidity, 2) leverage that may be untenable even if Bombardier closes on the sale of Bombardier Transport (BT) to Alstom in 2021 (13x at Q4/19 and an estimated 10x in 2021, pro forma for the sale of BT) and reduction of $4 billion in debt from that sale, 3) large debt maturities starting in 2021 that have high refinancing risk.

Bombardier benefits from 1) adequate liquidity over the next year, 2) significant scale, and good market positions in its two remaining business segments, and 3) a $36 billion backlog in its transport business and $14 billion backlog in its business jet business.

Bombardier has adequate liquidity over the next year (SGL-3), with about $5.5 billion of available liquidity sources versus Moody's estimate of about $1.5 billion of free cash flow usage through 2020 and minimal debt maturities. At year-end 2019 Bombardier had available cash of $2.6 billion, $1.3 billion (USD equivalent) of unused revolvers (at Bombardier Transportation, due May 2022) and it received $531 million following its exit from the A220 partnership in the first quarter for 2020. The company is also expected to receive proceeds of about $1.1 billion from the sale of its regional jet program and aerostructures business. Debt maturities become meaningful for Bombardier beginning in late 2021 through to 2027 with maturities of over $1 billion in each year (except for 2026) beginning with EUR414 million due in May 2021, $1 billion due December 2021, and $500 million due March 2022. The minimum liquidity required by the BT letter of credit and revolving credit facilities is EUR750 million ($820 million) at the end of each quarter.

The negative outlook reflects Bombardier's continued cash consumption, and though its maturities are not sizable until December 2021, uncertainty regarding its ability to refinance or reduce debt.

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

The ratings could be downgraded if there is increased default risk including distressed exchanges or inability to refinance its debt.

Factors that could lead to an upgrade include less debt with adjusted financial leverage below 8x (13x LTM Q2/19) and sustainable free cash flow generation.

The rail transportation segment, in which Bombardier operates, is favorably positioned compared with other modes of transport in light of the global commitment to reduce greenhouse emissions. This should support the longer-term growth expectation for BT. Bombardier's aircraft business has indirect exposure to carbon regulation and air pollution regulation for the purchasers and operators of its aircraft.

Bombardier has a dual class share structure by where the founding family has 50.9% of the voting rights through a special class of stock carrying 10 votes a share. The same group also has four of the company's 14 board seats, despite owning just 12.2% of the equity. Bombardier's management also has a track record of not meeting its provided guidance.

The principal methodology used in these ratings was Aerospace and Defense Industry published in March 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1108840. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Montreal, Quebec, Canada, Bombardier Inc. is a global diversified manufacturer of business jets and rail transportation equipment. Revenues were $15.8 billion in 2019.

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 outcome 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.

Jamie Koutsoukis
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.
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