Moody's rates Bombardier's $1bn notes Ba2, upgrades liquidity rating

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Bombardier's $1 billion notes issue has been assigned a "Ba2" senior unsecured rating by Moody's Investors Service. At the same, time the ratings agency upgraded the company's speculative grade liquidity rating to "SGL-2" from "SGL-3".

Approximately $5.8 billion of debt is affected by these moves.

Moody's affirmed Bombardier's "Ba2" corporate family, "Ba2" probability of default and "Ba2" senior unsecured rating.

The rating outlook remains negative.

"Bombardier's Ba2 rating its driven by its significant scale and diversity, strong global market positions, natural barriers to entry and sizeable backlog levels in both its aerospace and transportation business segments," says Moody's.

Proceeds from the notes offer will be used for general corporate purposes and will support the company's liquidity during a period of increased development spending, according to Bombardier.

Moody's expects Bombardier to realise modest earnings growth and about $750 million in consolidated free cash flow consumption in 2013 due to "lingering economic weakness affecting its aerospace division, spending associated with the company's sizeable aerospace programmes, on-going margin pressure from recent problem contracts in its transportation segment and a continuing weak level of cash advances from customers."

The company's adjusted leverage is likely to remain "very high" during the 12- to 18-month ratings horizon, says Moody's.

"Execution risks related to the development of its new CSeries commercial aircraft are also incorporated in the rating and these risks have increased with the six month delay in the aircraft's first flight to June 2013."

The outlook is negative because Bombardier has consumed "more cash" than Moody's expected in the past couple of years. "A continuation of this trend would lead to a downgrade given that Bombardier's leverage is very high for the rating."

Bombardier's rating could be downgraded if the CSeries is further delayed or due to deterioration in the company's liquidity, warns Moody's.