Moody's downgrades Bombardier to Ba3; outlook stable

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Moody's Investors Service took rating action on Bombardier today driven by its higher than expected cash consumption in 2013 and the view that the company's negative cash flow and elevated leverage will persist longer than previously expected.

The rating agency downgraded Bombardier's corporate family rating to "Ba3" from "Ba2", the probability of default rating to "Ba3-PD" from "Ba2-PD" and the senior unsecured ratings to "Ba3" from "Ba2".

The company's speculative grade liquidity rating was lowered to "SGL-3" from "SGL-2".

Various industrial revenue bonds backed by Bombardier were also downgraded to "Ba3" from "Ba2".

The ratings outlook was changed to stable from negative.

Bombardier's Ba3 rating incorporates Moody's view that the company's adjusted leverage is likely to remain above 6x into 2015 as modest earnings growth is countered by rising debt levels to fund free cash flow consumption that the ratings aency estimates will total about $750 million in 2014, says Darren Kirk, Moody's vice president and senior credit officer.

"The high leverage and ongoing cash consumptiveness are primarily associated with the late-stage, and high capital intensity of the CSeries and other aircraft development programmes, but also reflect lingering economic weakness in Bombardier's Aerospace division execution issues in its Transportation division and weaker-than-normal level of cash advances from customers in both divisions," he says.

The rating also incorporates Moody's view that execution risks will remain elevated through the 12-18 month rating horizon as the CSeries entry-into-service approaches. Moody's expects that Bombardier's capital expenditures will steadily reduce from current (peak) levels while earnings growth will become more robust by late 2015, supporting the potential for material deleveraging in that timeframe.

The stable outlook reflects Moody's expectation that Bombardier will steadily curtail its cash consumptiveness and record modest
earnings growth through the next 12-18 months.