lb1temporary wrote: Moody's assigns B3 rating to Bombardier's new senior unsecured notes
Toronto, January 17, 2023 -- Moody's Investors Service ("Moody's") assigned a B3 rating to Bombardier Inc.'s ("Bombardier") proposed senior unsecured notes due 2029. Proceeds will be used to finance the company's redemption of its notes due in December 2024, and to finance the tender offer for its notes due March 2025. The company's B3 corporate family rating ("CFR"), B3 senior unsecured, and stable outlook remain unchanged.
Assignments:
..Issuer: Bombardier Inc.
....Senior Unsecured Global Notes, Assigned B3 (LGD4)
RATINGS RATIONALE
Bombardier continues to demonstrate improvement in its operations, with the company having generated positive free cash flow in each quarter since June 2021. Revenue visibility has improved and book to bill was 1.4x in 2022. Additionally, Bombardier continues to repay debt, repaying $1.1 billion in 2022.
Bombardier is constrained by 1) high leverage (10.5x at Q3 2022), 2) high fixed charges of about $800 million per year (interest and capital expenditures) that constrain the company's free cash flow, 3) its participation in the cyclical business jet market which has a number of strong competitors, and 4) a significant maturity schedule with $5.5 billion due between December 2024 through to February 2028. Bombardier benefits from 1) good liquidity over the next year, 2) significant scale, 3) a strong market position within the business jet market, and 4) a $14.8 billion backlog.
Bombardier has good liquidity over the next year (SGL-2), with about $1.9 billion of available liquidity sources versus about $200 million of uses. Sources are cash of about $1.3 billion at Q4/22 , a committed $300 million secured revolving credit facility (expires November 2027) that is undrawn and about $300 million in free cash flow through to the end of 2023. Bombardier has no maturities over the next 12 months. Uses are about $200 million of financial liabilities (excluding term debt but including items such as lease liabilities, liabilities related to various divestitures and government refundable advances).
The B3 rating for Bonbardier's senior unsecured notes is in line with Bombardier's B3 CFR, reflecting that the notes constitute the preponderance of the company's debt. The company has an up to $300 million revolving secured credit facility expiring in November 2027 that ranks senior to the company's unsecured notes.
The stable outlook reflects Moody's expectation that Bombardier will continue to be cash flow generative and improve performance and leverage in 2023.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
The ratings could be downgraded if Bombardier does not address its refinancing needs well in advance of maturity dates, or concerns are developed regarding the adequacy of the company's liquidity. Quantitatively, the rating could also be downgrade if leverage is expected to be sustained above 8x (debt to EBITDA).
Factors that could lead to an upgrade include less debt with adjusted financial leverage below 6x (debt to EBITDA) and continued sustainable free cash flow generation.