PrefBlog

Standard & Poor’s has announced:

• •Montreal-based Bombardier Inc.’s leverage remains elevated and cash flow usage for the first half of 2015 has exceeded our expectations.
• •In addition, the company has announced a delay in the Global 7000
  aircraft’s schedule, with expected entry into service now in the second half of 2018, reduced margin guidance for the business jet segment, and reported weak net orders of aircraft.

• •As a result, we are lowering our ratings on Bombardier, including our long-term corporate credit rating to ‘B’ from ‘B+’.
• •Because of our expectation of continued reduced profitability, lower aircraft deliveries, and negative free cash flow through 2017, we have reassessed our comparable rating analysis modifier on the company to “neutral” from “positive.”
• •The negative outlook reflects our view that Bombardier is subject to significant execution and performance risk, and our belief that the company will face challenges to improve profitability and generate meaningful free cash flow in light of emerging endmarket stresses particularly for the aerospace segments.

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Standard & Poor’s also lowered its ratings on Bombardier’s global scale preferred stock to ‘CCC’ from ‘CCC+’ and the company’s Canadian scale preferred stock to ‘P-5’ from ‘P-5(High)’.
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The negative outlook reflects our view that Bombardier is subject to significant execution and performance risk, and our belief that Bombardier may be challenged to improve its profitability and generate meaningful free cash flow in light of emerging endmarket stresses particularly for the aerospace segments. Furthermore, the outlook incorporates our opinion that, given Bombardier’s leverage and debt-to-cash flow metrics, there remains very limited room for missteps on project execution or additional margin deterioration beyond what we expect when the Cseries moves into production.

We could lower our ratings on Bombardier should its new aircraft programs not allow for profitable production, resulting in our reassessment of the company’s business risk profile. In addition, we could take a negative rating action should Bombardier face financing difficulties that result in liquidity pressures.

An outlook revision to stable 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 generating sustained positive free cash flow.

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

These issues were last mentioned on PrefBlog when S&P downgraded them to P-5(high) in January, 2015. They are all tracked by HIMIPref™ but are relegated to the Scraps index on credit concerns.

Update, 2015-8-27: DBRS downgrades unsolicited issuer rating to B [Trend Negative]:

The Negative trend reflects: (1) the continued high cash burn rate, (2) the weaker outlook for operating earnings and cash flow, driven in part by the market weakness in key Emerging Markets, (3) the Company’s inability to secure further firm orders for its new CSeries aircraft and the increased prospects for delays or cancellations of the current firm orders, and (4) the slowing progress toward achieving a broader and more competitive business jet offering suite as a result of the development delays for the technically challenging large class Global 7000/8000 program, and the pause of the Learjet 85 program

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