DBRS Assigns BB Rating to Bombardier Inc.’s $2.0 Billion Senior Unsecured Debentures

DBRS has today assigned its BB instrument rating with a Stable trend to the proposed $2.0 billion Senior Unsecured Debentures (the Notes) to be issued by Bombardier Inc. (Bombardier or the Company). The Notes, with a recovery rating of RR4, are rated at the same level as Bombardier’s Issuer Rating. The debt issue comprises a $750 million 4.25% three-year tranche and a $1.25 billion 6.125% ten-year tranche. The debentures are unsecured obligations and rank equally and ratably with all of Bombardier’s unsecured and unsubordinated obligations. DBRS understands that net proceeds of the debt will be used for general corporate purposes, including funding its capital expenditure and aircraft development programs.

DBRS recognizes that the completion of the proposed debt issue will strengthen Bombardier’s liquidity and financial flexibility as the high capital spending related to its aircraft development programs continue. However, the additional debt will also weaken Bombardier’s financial risk profile, with increased leverage and limited additional cash flows and earnings at least until the Company completes the CSeries development program and commences delivery. DBRS projects adjusted debt-to-EBITDA to be in excess of 5.0 times and adjusted cash flow-to-debt to fall below 15% for the full-year 2012. At these levels, there is now limited cushion at the BB rating level, and further deterioration could pressure the rating. The rating also factors in DBRS’s expectation that the CSeries program will not suffer any material increase in development costs or further delay from the scheduled first flight by the end of June 2013 and that the transportation division will resume its operating margin improvement in 2013 following recent execution issues. Unexpected negative developments in either front could also weaken the rating.

For more detailed discussion on Bombardier’s rating, strengths and challenges, refer to the most recent rating report dated August 29, 2012, posted in www.dbrs.com.

Notes:
All figures are in U.S. dollars unless otherwise noted.

This is an unsolicited rating. This rating was not initiated at the request of the issuer or rated entity and did not include participation by the issuer or any related third party.

The applicable methodology is Rating Companies in the Industrial Products Industry, which can be found on our website under Methodologies.