BBD : Trend Positive, Says DBRS

DBRS has announced that it:

changed the trend to Positive from Stable and confirmed the Issuer Rating of Bombardier Inc. (Bombardier or the Company) at B. This action reflects an improvement in DBRS’s projected financial profile expectations for 2018 and 2019 since the last rating action taken in November 2017 as a result of the Company’s performance over the last two quarters; a change in DBRS’s view regarding the Company’s ability to reach free cash flow breakeven status in 2018 (according to the Company’s definition, which includes changes in working capital), which DBRS now views as achievable (previously “aggressive”); greater comfort with the new management team’s ability to deliver on goals/targets when this had been a challenge in past years; continued margin improvement in the business aircraft (BBA) and aerostructures/engineering (BAES) divisions while Bombardier Transportation (BT; the rail division) continued to post EBIT margins above 8% as a result of the ongoing transformation initiative; less risk associated with the C Series program and partnership with Airbus SE after the U.S. International Trade Commission announced in January 2018 that U.S. aircraft producers were not injured in the complaint brought forth by The Boeing Company; and the Company’s explicit comments regarding the focus on deleveraging, as well as DBRS’s view that this is realistic.

DBRS believes that the Company’s business risk profile benefited from the de-risking of the C Series program and will benefit from a successful launch of the Global 7500, which currently has a backlog running through 2021. Further improvements from the transformation program would also be mildly supportive. The financial risk profile should improve over the next 12 months to 24 months as the Company moves into its “Deleveraging Phase” in 2019 and operating performance improves, supported by continued strong performance at BT, early signs of firming in the business jet market, continued steady contributions from the Company’s Q400 and CRJ regional jet product lines and improved results from the C Series program as deliveries and orders rise and the program approaches a cash breakeven position over the next few years. Key metrics are projected to improve within the B rating category in F2018, with certain metrics possibly achieving the BB rating level. DBRS projects that key credit metrics should be in the high B to BB range in 2019.

Bombardier’s liquidity position is more than adequate for current needs after a $500 million equity raise in Q1 2018, and the sale of its non-core Downsview property in Toronto, which is expected to close in Q2 2018 and net the Company $550 million.

Affected issues are BBD.PR.B, BBD.PR.C and BBD.PR.D

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