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Rating Action:

Moody's upgrades BRP's CFR to Ba2, assigns Ba2 to new loan; outlook stable

03 May 2022

Approximately C$3.6 billion of debt affected

Toronto, May 03, 2022 -- Moody's Investors Service ("Moody's") has upgraded Bombardier Recreational Products Inc.'s ("BRP") corporate family rating (CFR) to Ba2 from Ba3, probability of default rating to Ba2-PD from Ba3-PD, its first lien senior secured revolver rating to Baa2 from Baa3, and its senior secured term loan B1 rating to Ba2 from Ba3. At the same time Moody's has assigned a Ba2 rating to the proposed $500 million senior secured term loan B due 2029. The company's SGL-1 speculative grade liquidity rating remains unchanged. The outlook is stable.

The proposed $500 million will increase the total senior secured term loan B to around $2 billion. The proceeds will be used for general corporate purposes which will include repaying outstanding balances under BRP's revolving credit facility and funding the planned C$250 million share repurchase.

"The upgrade to Ba2 reflects BRP's low leverage as a result of continued strong operating results", said Dion Bate Moody's analyst. "Moody's expects continued strong demand for BRP's products over the next year benefitting from a strong order book and improving dealer inventory. Furthermore, BRP's strong credit metrics and good liquidity provide sufficient capacity to absorb a moderate economic contraction.", adds Mr Bate.

Assignments:

..Issuer: Bombardier Recreational Products, Inc.

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

Upgrades:

..Issuer: Bombardier Recreational Products, Inc.

.... Corporate Family Rating, Upgraded to Ba2 from Ba3

.... Probability of Default Rating, Upgraded to Ba2-PD from Ba3-PD

....Senior Secured Term Loan B1, Upgraded to Ba2 (LGD4) from Ba3 (LGD3)

....Senior Secured First Lien Revolving Credit Facility, Upgraded to Baa2 (LGD1) from Baa3 (LGD1)

Outlook Actions:

..Issuer: Bombardier Recreational Products, Inc.

....Outlook, Remains Stable

RATINGS RATIONALE

BRP's rating benefits from: (1) Moody's expectations that leverage will remain around 2x for the next 12 to 18 months, which can absorb around a 30% EBITDA decline from C$1.5 billion as of FY2022, and is supported by strong pre-season orders and restocking at dealerships; (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 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 have return closer to 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 86%.

BRP has very good liquidity (SGL-1). Sources total around C$1.95 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 pro forma cash of around C$630 million after the proposed $500 million issuance and planned share repurchase of C$250 million, full availability under its C$1.1 billion revolver due May 2026, and our expected free cash flow of around C$240 million in the next four quarters. 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 buffer for the covenant should it become applicable. BRP has limited flexibility to boost liquidity from asset sales.

The proposed $500 million term loan B due 2029 has the same rating as the CFR and benefits from the same security and guarantee package as the current $1.5 billion term loan. BRP's debt obligations include a Baa2-rated C$1.1 billion revolving credit facility due May 2026 and a Ba2-rated $2 billion term loan due May 2027 ($1.5 billion) and May 2029 (proposed $500 million). All of 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 loan, which comprises most of the debt capital, has the reciprocal security package and is ranked below the revolver in the application of our Loss Given Default for Speculative-Grade Companies methodology.

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 RATINGS

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 (projected to be 2x for FY2023, ending January).

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 86% 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. Revenue for the last 12 months ended January 31, 2022 was C$7.6 billion.

The principal methodology used in these ratings was Consumer Durables published in September 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1276767. 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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=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 www.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 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.

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

Peter H. Abdill, 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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