BBD Downgraded by S&P; Preferreds Unaffected

Standard & Poor’s has announced:

  • •We are lowering our long-term corporate rating on Bombardier Inc. to ‘BB’ from ‘BB+’.
  • •The downgrade reflects what we view as the company’s significantly lower-than-expected cash generation in 2012 due to fewer customer advances and weaker operating profit given the global economy. This, combined with ongoing heavy capex on the C-Series programs (which are facing a six-month delay), will mean that Bombardier’s leverage ratio will remain high, over 6x, until 2014.
  • •We are also assigning our ‘BB’ issue rating, and ‘4’ recovery rating, to Bombardier’s proposed US$1 billion of unsecured notes.
  • •The stable outlook reflects our expectations of stable performance from the company’s rail segment and overall slight improvement in operating margins.

A further downgrade is possible, if lower customer advances and additional delays in the CSeries programs lead to greater-than-expected negative free cash generation. This could ultimately lead to delays in any improvement to the adjusted leverage ratio from our current expectations in the next year-and-a-half.

Under the current business conditions, we believe an upgrade is unlikely in the near term. Nevertheless, when what we view as more normal and stable market conditions return and the company successfully launches the CSeries, we could consider revising the outlook to positive or raising the rating on Bombardier if in turn the company improves its financial measures, with adjusted debt to EBITDA falling below 4x or adjusted funds from operations to debt reaching 20%.

BBD has three series of preferred outstanding: BBD.PR.B, BBD.PR.C and BBD.PR.D.

One Response to “BBD Downgraded by S&P; Preferreds Unaffected”

  1. […] week’s S&P downgrade was discussed on PrefBlog. Neither of these announcements had any direct effect on preferreds, but market effect was very […]

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