Fitch Places Bombardier's Ratings on Rating Watch Negative
Fitch Ratings has placed the debt and Issuer Default Ratings (IDR) for both Bombardier Inc. (BI) and Bombardier Capital Inc. (BC) on Rating Watch Negative. The existing ratings are listed below:
Bombardier Inc.
--IDR 'BB';
--Senior unsecured debt 'BB';
--Bank facilities 'BB';
--Preferred stock 'B+'.
Bombardier Capital Inc.
--IDR 'BB';
--Senior unsecured debt 'BB'.
These ratings cover approximately $4.2 billion of outstanding debt and preferred stock. Due to the existence of a support agreement and demonstrated support by the parent, BC's ratings are linked to those of BI.
The Rating Watch is based on concerns about potential changes in Bombardier's financial strategy, which has been focused on debt reduction. The tender offer announced earlier today indicates that the company will retire little debt over the next two fiscal years. In addition, Fitch is concerned that some or all of the debt reduction accomplished in the current fiscal year (nearly $1 billion) could be offset by new debt issuance. The company intends to fund the tender with a portion of an upcoming bond issue.
The Rating Watch will be resolved when it becomes clear what amount of debt Bombardier plans to issue in the near term, and Fitch expects to resolve the Rating Watch within the next several weeks. Fitch believes that any downgrade will most likely be limited to one notch.
Factors supporting the ratings include the company's cash position, diversification, large backlog at Bombardier Transportation (BT), leading market positions, the health of the business jet and turboprop markets, and BT's successful restructuring. Concerns include the variability of free cash flow due to order flow at BT and Bombardier Aerospace (BA); continued low margins and free cash flow; business jet market cyclicality; the sizable pension plan deficit; the impact of exchange rate volatility on financial results and planning; and various RJ concerns, including low backlog, weak orders, uncertainty regarding development of new aircraft models, the future of the 50-seat RJ segment, and contingent obligations related to past aircraft sales.
Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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