BBD: S&P Downgrades to P-4(low)

Standard & Poor’s has announced:

  • •Montreal-based Bombardier Inc. announced negative free operating cash flow of about US$1.0 billion for fiscal 2013 and, based on our forecast, we expect continued negative free cash flow in 2014.
  • •In addition, the company announced in January that entry into service for the CSeries will be delayed into the second half of 2015 and, as a result, Bombardier will incur incremental program costs.
  • •We have reassessed the company’s financial risk profile, and do not believe Bombardier will be able to improve its credit measures to levels that will support a ‘BB’ corporate credit rating through our outlook period to late 2015.
  • •As a result, we are lowering our ratings on Bombardier, including our long-term corporate credit rating to ‘BB-‘ from ‘BB’.
  • •The stable outlook reflects our belief that Bombardier’s credit metrics will remain in the “highly leveraged” category through 2015, combined with our expectation that the company has sufficient liquidity through this period to fund its negative free cash flow.

The stable outlook reflects our belief that Bombardier’s credit metrics will remain in the highly leveraged category through 2015 and, specifically, funds from operations (FFO) to debt will remain below 12% at year-end 2015. The outlook also incorporates our expectation that the company maintains forward progression on placing the CSeries into service in late 2015 and has sufficient liquidity through this period to achieve this.

We could lower the rating on Bombardier should the CSeries experience further delays or order levels do not allow for profitable production, resulting in a reassessment of the company’s business risk profile. In addition, should the company be unable to improve margins and operating performance at both the aerospace and transportation division to guidance levels and generate positive free cash flow post-2015, we could also reassess the company’s business risk profile leading to a downgrade.

An upgrade would be contingent on Bombardier being able to place the CSeries into service, effectively removing the execution and cost risks associated with the program combined with a recovery of its credit metrics, specifically FFO to debt of 12% or higher, and the company demonstrating an ability to generate sustained positive free cash flow.

This follows S&P’s ‘Outlook Negative’ in August 2013 and the downgrade to Pfd-4(low) by DBRS in November 2013.

Bombardier has three series of preferreds outstanding: BBD.PR.B (Ratchet Rate); BBD.PR.C (PerpetualDiscount) and BBD.PR.D (FixedFloater). All are tracked by HIMIPref™; all are assigned to the Scraps index on Credit concerns.

Leave a Reply

You must be logged in to post a comment.