Moody's confirms Bombardier's B1 rating; outlook negative
Global Credit Research - 27 Feb 2015
Approximately $7 Billion of Debt Securities Affected
Toronto, February 27, 2015 -- Moody's Investors Service confirmed Bombardier Inc.'s B1 Corporate Family Rating, B1-PD probability of default rating and B1 senior unsecured ratings. The company's speculative grade liquidity rating remains unchanged at SGL-3. Bombardier's rating outlook is negative. This action resolves the review for possible downgrade that was initiated on January 16, 2015.
RATINGS RATIONALE
The confirmation of Bombardier's ratings reflect Moody's expectation that the company will receive net proceeds of about US$850 million by the end of March, 2015 from its recent sale of equity subscription receipts. These proceeds will strengthen the company's liquidity and, Moody's believes, increase the potential that Bombardier will successfully raise US$1.5 billion in senior unsecured notes to complete its funding plan.
Bombardier's B1 Corporate Family Rating is driven by Moody's expectation that the company's financing plans and ongoing execution challenges will result in adjusted financial leverage remaining around 8x through at least 2015. As well, Moody's believes weak order levels for new aircraft, working capital requirements in its Transportation division, and the elevated capex needed to complete the development of the CSeries and Global aircraft platforms will cause Bombardier's free cash flow consumption to approximate $1 billion in 2015. While Bombardier's financing plans will further weaken its financial metrics, its liquidity will improve materially. Consequently, the company would have significant flexibility to absorb execution risks associated with bringing the CSeries into service, when a reduction in capital expenditures will drive improvement in Bombardier's free cash flow. The company's significant scale and diversity, strong global market positions, natural barriers to entry and sizeable backlog levels in both its business segments favorably influence the rating.
Moody's will incorporate the benefit of Bombardier's equity and proposed notes issue in its speculative grade liquidity rating only once those transactions close following a required shareholder vote in late March to increase its authorized shares. In the interim, Bombardier's liquidity rating remains unchanged at SGL-3. The liquidity rating incorporates Moody's view that Bombardier's $2.5 billion of cash and $1.4 billion of available revolvers at December 31, 2014 are adequate to fund $1 billion of free cash flow consumption through 2015 and a $750 million debt maturity in January 2016 while respecting minimum liquidity requirements, albeit with limited cushion. However, continued covenant compliance through the next year is a concern in Moody's opinion, which will need to be addressed as part of the company's financing plans.
The negative ratings outlook reflects Bombardier's high leverage once the new debt is raised as well as ongoing execution issues and cash consumptiveness.
Bombardier's rating could be upgraded if 1) its CSeries aircraft successfully enters into service, leading to stronger order flow for the aircraft, 2) Moody's expect the company will produce sustainable free cash flow, and 3) Moody's expects adjusted financial leverage will reduce toward 6x.
Bombardier's rating could be downgraded if 1) further delays and/or cost overruns occur with the CSeries, 2) if Moody's covenant compliance concerns are not addressed in the near term as part of the company's financing plans or 3) if Moody's expects the company's adjusted financial leverage to remain above 7.5x.
..Issuer: Bombardier Inc.
.... Speculative Grade Liquidity Rating, Unchanged at SGL-3
....Corporate Family Rating, confirmed at B1
....Probability of Default Rating, confirmed at B1-PD
....Senior Unsecured Regular Bonds/Debentures, confirmed at B1/LGD4
Outlook Action:
..Issuer: Bombardier Inc.
....Outlook, Changed to Negative from Under Review for Downgrade
..Issuer: Broward (County of) FL
....Senior Unsecured Revenue Bonds, confirmed at B1/LGD4
..Issuer: Connecticut Development Authority
.... Senior Unsecured Revenue Bonds, confirmed at B1/LGD4
..Issuer: Dallas-Fort Worth Intl. Airp. Fac. Imp. Corp.
.... Senior Unsecured Revenue Bonds, confirmed at 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
