Near-Term Debt, But Leverage Remains HighS&P Global Notes Bombardier Transportation Unit Sale To Alstom Addresses Near-Term Debt, But Leverage Remains High 01:21 PM EST, 02/02/2021 (MT Newswires) -- S&P Global Ratings on Tuesday said its rating and outlook on Bombardier Inc. (CCC+/Negative/--) are unchanged following the closing of the sale of the company's transportation (BT) division to France-based Alstom S.A. because of Bombardier's still-elevated pro forma debt leverage against potentially improving, albeit still very low cash generation capacity at its remaining business aviation operations in the near term. Sale proceeds were about US$400 million lower than previous expectations, reflecting BT's lower cash generation in Q4 2020 and other closing adjustments, but should be sufficient to address the vast majority of Bombardier's debt maturities through 2022 while providing adequate liquidity to support growth at the aviation business.
On a pro forma basis, as of Dec. 31, 2020, Bombardier will have gross long-term debt of US$10.1 billion and net debt of about US$4.7 billion, with the latter incorpora ting cash balances of US$1.8 billion (excluding BT), US$600 million equivalent of Alstom shares (monetizable late-April 2021), and about US$3.0 billion of cash proceeds from Alstom. Bombardier has stated its desire to repay debt from the sale proceeds although a more specific capital allocation plan has yet to be articulated.
Assuming 100% of the proceeds are used to redeem debt outstanding, S&P projects adjusted debt leverage to remain much greater than 10x and for free operating cash flow to potentially remain negative in 2021.
Although the market for business aviation is recovering, as evidenced by more private jet usage in the U.S. and European domestic markets, and improving pricing amid low inventory in the pre-owned business jet market, "in our opinion, material new orders for new aircraft--in particular large aircraft--could take longer to recover relative to the market overall." Still, S&P acknowledges the company's about US$12 billion order backlog (notably for its higher value Global 7500 aircraft) could allow for some revenue lift in 2021 relative to 2020 on a stand-alone basis, and for profitability to improve as new programs mature and the company benefits from its cost realignment efforts.