Bombardier's financial challenges worry ratings agencies, prompting downgrades

MONTREAL — Three major rating agencies have voiced concerns over the finances of Bombardier Inc., whose future is being questioned as it considers options to raise its more than US$9 billion in debt.

S&P Global Ratings changed its outlook to "negative" from "stable" on Friday, following Moody's Investors Service, which did the same Thursday evening. Fitch Rating downgraded its long-term issuer default and senior unsecured debt ratings with a negative outlook.

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The Montreal-based transportation manufacturer's stock dropped another 8.2 per cent to $1.12 in Friday trading after plunging 32 per cent on Thursday.

Bombardier has faced persistent difficulties in its rail division but also raised doubts about its continued participation in the A220, less than two years after having ceded control of the program formerly called C Series to Airbus.

The multinational expects to use US$1.2 billion in cash for the 2019 financial year, up from its prior forecast of US$500 million.

"As a result, we are less confident that Bombardier will be able to generate positive cash flow (which is used to pay down debt) in 2020 and show improvement in 2021," said S&P Global Ratings.

A downgrade in the credit rating generally results in higher borrowing costs.

Persistent problems with railway contracts in Britain and Switzerland, along with increased costs in Germany, will force the company to record a charge of US$350 million.

"Bombardier's continuing material negative free cash flow, elevated leverage, additional cash investment required for the A220 aircraft and its announcement that it is pursuing strategic options to accelerate deleveraging is reflected in the outlook revision to negative," said Jamie Koutsoukis, Moody's vice-president and senior analyst.

Moody's nevertheless pointed out that Bombardier had access to US$2.6 billion of cash as of the third quarter and that it should obtain approximately US$1.1 billion from the sales of the CRJ regional jet program and its factories in Belfast and Casablanca, Morocco.

Since there are not many assets left to sell to reduce its heavy debt, financial analysts have raised scenarios where Bombardier could simply divest itself of its business jet division or its transportation division.

Bombardier spokeswoman Jessica McDonald said there is no request for government funding.

"And we do not plan to make one," she wrote in an email.

Bombardier is expected to release its fourth quarter results on Feb 13.

This report by The Canadian Press was first published Jan. 17, 2020.

Companies in this story: (TSX:BBD.B)

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