RE:RE:RE:RE:RE:RE:RE:Moody's rationaleHi Temp.
Went out for a coffee this am, so I didn't expand further to our discussion..
Re-read your post to see the logic in you comparing the Bomber to AC. Now I see the similarities.
The only things I could add, to our discussion in your attached post bellow on the Bomer's side is, a further discussion of the Moody's criteria of a 1 to 2 ratio, that you refer to in AC, and the "Stability factor" .
What I was thinking was, that we're a bit premature in the Bomber development stage as a company yet. I think in 2025/6, we'll have a very good Pure Play. The "Stability" factor, will not get there for the Bomber, till 2026/27, I think. But the 1 to 2 ratio is simple. We are definately going to $1.5B EBITDA, and $3.5B LTD by 2025. With a little luck we can have Pearson operational quickly in Q11/2025, and therefore start realize some strong scale of production. Where we could steal some business from the likes of Gulfstream,
and increase our Margins to get to $1.75 EBITDA with our $3.5B in LTD.
The "Stability" factor side, is more of an arbitrary call from Moody's & Bond Holders.. Though I don't think, nor care either way, on this Investment grade title. As you say this isn't as important as the perception of it, is. What I'd like to see is FCF/EBITDA after Interest & OE is paid, to be in the range of $1.1B & $1.2B or higher of course, if and when we hit the $1.75B range by 2026.
I want to see this consistant CF to increase our Reserves, at around 2026/7 and on.
As oposed to the FCF going towards LTD. Anyway from now until 2026, the LTD size will keep our FCF depleted till then.
Btw I noticed in another post of yours, that you were disapointed that they didn't annouce a $500M reduction this time. They did? It's close to it, $356M & 104M. Am I missing something? I'm sure they'll announce a further repayment in Q1/23. They made a commitment to destroy it, and they will IMO. These constant LTD reduction announcements are a good advertisement for the company, as it keeps the Bomber name in the news, & in the public eye, Quarterly.
The other thing is the FCF side of it. They don't want to start spending FCF quicker than it comes in. I say get it first, and then we can announce the repayment. Yes they have the Reserves to offset it, but they are being prudent and patient. Just saying here that, there is nothing wrong with their pace of repayment. IMO when ever you rush to do things, they just end up bitting you in the azz. Then of course we even have the Alstom thing too. So we may get an announcement there too in Q1/23. So who knows, what the repayments will look like in the next few Quarters anyway. Cheers.
lb1temporary wrote: Yep, you could be right , your rationale is OK. But I think that you are looking at the problem the wrong way.
My toughts and your toughts are irrelevants here. (I tink that Bombardier already desserve a B2 rating). The only thing to know is
How Moody's read its criterias and the Bombardier's situation. Period.
First, a credit agency is there for the Bondholders and bonds are issued for 5 to 20 years (sometimes for longer periods).
Their goal is to find the STRUCTURAL strenghts and weakness of a company. They don't react at each news release like the Brokers analysts which have a time frame of 12 -18 months. Thiers rating have to be sounds and stable without volatility. Thier time frame is 5 years and more. A bondholder heve to be confident that the rating will hold in the time. (the Air Canada story at the end of the post will give an illustration of that).
Second, as you read the word ''stability'' is the most frequent word of the explanations.
Now, look how Moody's read its criterias
with theirs own words. I extracted the sentences describing the Niche of some companies in the same group (aerospace and defense):
- Textron's Baa2 senior unsecured rating reflects the company's scale and diversity in multiple industries, including aviation, defense and general industrial. The company has a long history as a key supplier to customers in the business jet and helicopter markets (commercial and military) through its Textron Aviation and Bell segments. (From Moody's press Release)
- The Baa2 senior unsecured rating reflects Boeing's investment-grade business profile as one of just two manufacturers of large commercial aircraft and a prime US defense contractor …. (From Moody's press Release)
- Air Canada (Ba3 stable) benefits from a leading position in the duopolistic Canadian air travel market (From Moody's press Release)
- Bombardier is constrained by……its participation in the cyclical business jet market which has a number of strong competitors, (From the yesterday's press Release from Moody's)
There is no reasons for Moody's to change this reading of the Bombardier's niche in one, two or more years. Bombardier is a pure player in a competitive market. Nothing has been planned to change that. For that reason, the criterias for an investment grade rating for Bombardier will be rought.
The Air Canada case As you, I read that a Baa rated company has a 2X-3X debt /Ebitda ratio. But it is
not so simple, look at the AC story. (before the pandemy which grounded the planes highlighting a new risk for airlines).
After financial problems in 2011, Air Canada hire Colin Rovinescu as president. He establish long term objectives among other things get an investment grade rating. This quest begin in 2012 and in 2019 they get a Ba2 rating (after 6 years of improvements), two notches below the investment grade. Credit agencies don't give an investment grade rating only after a few years of good results They need proven STRUCTURAL strenghts.
As I mentioned the Leverage ratio for AC to get an investment grade was 1,2 Nothing to do with the 2X-3X mentioned in criterias. They have to be read without a check list. It's all judgment.
You can find here the AC investor's day presentation (feb 2019) where you can read at page 148 the 1,2 ratio needed for the rating.
https://investors.aircanada.com/events?item=42 P 148
For Bombardier It is not a bad news for them. The rating is not the only variable to determine the interest rate, some Baa rated companies bonds are in the 4-6% range. I see a B1 or a Ba3 (B+ to BB-) rating for Bombardier. For a 2,5 B$ debt they will pay a 1 % higher rate than being an investment grade; its a 25 M$ difference for a forecasted 1,600 M$ EBITDA in 2025. So what ?
And the leverage will help the share price (higher debt, lower equity, less dilution and a better share price) and if they make a share offering for a new program, the dilution will be lower meaning a lower equity cost.