New discount for Bombardier

firme-new-yorkaise-estime-positionFor the second time in less than six months, the rating agency Moody’s downgraded Bombardier’s credit rating.

The odds of the giant Quebec transport increases from B1 to B2, which could increase its borrowing costs. Moody’s also maintains its negative outlook for Bombardier. In February, the firm had already reduced the rating of the company’s Ba3 to B1.

“We believe the weakness in the segment of Bombardier business jets will push its debt above 8.5 times [earnings before interest, taxes, depreciation and amortization, or EBITDA] next year and that consumption of cash the company will be more worrying than we previously foresaw, “wrote the analyst Darren Kirk in a note published Thursday.

Despite the recovery measures put in place by the new senior management team of the company, Moody’s expects that EBITDA Bombardier back to the end of 2016 due to costs associated with the increase in Production of the CSeries commercial aircraft family and the slowdown of the business aircraft sector.

Competition

The New York firm estimates that Bombardier’s competitive position in this market “weakened” in recent months. Last week, the aircraft manufacturer announced a two-year delay in the commissioning of the Global 7000 business jet, which should help counter the great success experienced by the G650 US rival Gulfstream.

Since the beginning of the year, Bombardier has consumed no less than 1.6 billion US in cash. However, Moody’s expects that the second half of 2015, the company’s cash flow will be slightly positive. Next year, cash consumption should be limited to 750 million US, according to Moody’s.

Due to seasonal movements in working capital, however, the agency calculates that Bombardier’s liquidity could melt up to 2 billion USD in September 2016, a relatively low level for a company of this size. These forecasts, however, exclude funds that will be collected at the entrance to the Bombardier Transportation division at the Frankfurt Stock Exchange, scheduled for the autumn.

At June 30, Bombardier’s liquidity amounted to 3.6 billion US, and its debt to more than 9 billion US. To justify its decision to maintain a negative outlook, Moody’s noted the “very high debt” of the business and consumption of liquidity “that has consistently exceeded [its] expectations in recent years.”

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