Bombardier Inc. T.BBD.A

Moody's rationale

[lb1temporary]

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.

[BBDB859]

Thanks for the full report to you too Temp. If we can get to BBB or Baa3 for Moody's. Then we're Aces. It's coming. One more thing. Guidence for 2025 was 3X (debt/EBITDA). I just did some further quick math. And the way we're going, we should hit 3.7X range by the end of 2024. Not bad. When we reach INVESTMENT GRADE BBB by the end of 2024 than the Tutes will jump in. That's

[BBDB859]

I think 2025 will be our year, when we reach the 2.6 X range. That's when these SP of $130/$200 per share thrown around here will appear. Keep our fingers crossed

[lb1temporary]

We can forget the BBB's investment grade Bombardier as a pure player is fully exposed to volatility (for profits)  by the Bizjet market, a highly cyclical one.  It could not offer the stability asked for an Investment grade rating.  Anyway, too low debt is not a good thing for Bombardier, it is preferable that it has a reasonable amount of debt (enough but not too much) 

[BBDB859]

Temp. the BBB rating is inevitable.  In the end of 2024 we're there. They'll get to it when the reach $4.5B in LTD, with $1.3B in EBITDA. That will be the end of 2023 This year (2023) we'll be at $4.9B LTD. So investment grade is a given. Just follow the pace of growth for EBITDA since 2021. It's growing at an exciting pace. Pure play has nothing to do with EBITDA growth. It

[lb1temporary]

You're right with your numbers; we will be there in 2024. Fine. But getting an Investment grade is not limited to this ratio. For example, I followed Air Canada very closely in 2016-2020 period and the management goal was to reach the BBB rating; their threshold was a 1:1 debt \EBITDA ratio. As THE National airline in a vast country,  Air Canada was able to offer an acceptable stability

[Nordico]

Excellent post; very informative - especially for those of us who don't know much about the debt ratings side of things (myself included).

[BBDB859]

Hey Temp. Thanks for your well thought out post. I just got in. I'm calling time out for tonight. I've read the Moody criteria for their methodoligy per Rating. I will go through your post comments tomorrow. GN

[BBDB859]

Hey Temp.It's Saturday and i've got a few things to attend here. So I'll just keep it as brief as possible. There may be many explanations, that need more expansion or elaboration. But the meat of the discussion will be suffecient for yours & my benefit. You're when you say that each opinion is, a valid one here. YOU ARE RIGHT. Because neither opinion is either right or wrong.

[BBDB859]

Sorry corrections. I forgot a few words here & there. I was in a hurry and i didn't proof read the post. Corrections in bold bellow. -You're RIGHT when you say that each opinion is, a valid one here. YOU ARE RIGHT. Because neither opinion is either right or wrong. It's just someones opinion  -BBB rating used by some other Agencies -We can be at 3X Ratio easily

[lb1temporary]

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

[Starsearcher80]

Excellent post 1B. Thank you.

[BBDB859]

Great explanation, great rationale as always. Your conclusion is the key as far as I'm concerned. To me the bottom line for the higher rating is, the higher SP.  Plus of course lower interest payment, which means more EBITDA money in our pocket. So your conclusion says it all, if we can achieve the higher share price  having a higher Debt of say $3B? Then who cares for the

[bicente]

Great explanation right there ... 1 thing I would like to add is that the bomber is steering into the service side of the business jet market and the military side too ... I hope we get more news on this as it will provide huge profits with less restrictions by suppliers and inventory... the more planes they deliver means more planes to take care of which in return creates huge profit numbers and

[BBDB859]

Hi 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

[lb1temporary]

First, for the reimbursment of 500 M$, they only did a term postponment to 2029. A New debt of 750 M$ and buyback of 750 M$. We have the same debt but with a better reimbursment profile. They didn't use any cash.  I only highlighted that I miss a part of the rationale from Bombardier. Why making this operation last week ? I'm waiting the conference call for more explanations. Second,

[BBDB859]

Ya I know. I think they're going to tell us that they'll redeem $750M in the ER, before Q1/23, with Q4/22 proceeds. Then I think they'll will probably redeem $2-$300M in Q1/23. This year is going to be pretty exciting for LTD redemption.

[PabloLafortune]

The debt is being managed proactively, the picture is certainly becoming clearer. rates have gone up 2.5-2.75% over the past 18 months so Bombardier at 7.5% today for 2029 money is the equivalent of 5% or less back then. In case of doubt search "Textron 2030 bonds BOERSE" and look at the 3 year chart. Those bonds were trading for $104 18 months ago yield to maturity was 2.5%, now same

[BBDB859]

Hey Pablo. We're doing more than phenominal on repayment of the LTD. You're right about the rates right now.  And us doing well on every 7.5% new renewal. I'm doing my calculations for FCF, based on 7.5% for the Interest rate portion, on the remaining Debt.  Remember how you thought that we wouldn't be able to survive with that huge Debt? Did you ever expect to see such

[PabloLafortune]

Hey 859, it is indeed a spectacular turnaround.  By the way, the 3 later chunks - 2028, 2029 and 2034 - total $2B and the avg rate is a very little under 7% I believe.  Assuming the LTD target is $4B, this means 50% of LTD is squared away with an avg maturity of 6+ years.  I'm still worried about the backlog however - only the paranoid survive - personally I'd like to see

[BBDB859]

Hey Pablo. I know the average Interest Rate for the LTD Junk Bonds is 7%ish. But I use 7.5% to account for the interest paid on the Preffs Senior Bonds anually, and cover myself for the Penalties paid for Redemption on the LTD Junk Bonds too. We're doing a lot of Redeeming lately. Don't worry the Backlog is fine. They're even whittling it down.