Bombardier's Credit Profile Improved in Last Year, S&P Says

(Bloomberg) -- Bombardier Inc. isn’t necessarily poised for a credit rating downgrade even after a revised cash-flow target sent its bonds plunging last week, said Standard & Poor’s analyst Alessio Di Francesco.

The fact that “we expect free cash flow to be negative this year, doesn’t mean that there will be a negative rating action,” Di Francesco said in a telephone interview. “We do believe that this company has good prospects, I should say, for getting the free cash flow back.”

Bombardier’s bonds tumbled after the jet and railway-car maker revised its cash flow target, sold assets and cut 5,000 jobs to bolster its balance sheet. Bombardier’s high-yield notes led declines among U.S. dollar issuers on Friday.

The Montreal-based company has been rated B- by S&P since a downgrade in September 2016. That rating was confirmed again a year ago. Since then, Bombardier has made strides to improve its credit profile with steps that included a partnership with Airbus SE over its C Series jet program, Di Francesco said.

“If we look at it from the starting point of this time last year when we published our report, there have been more positives than negatives,” he said.

Bombardier’s credit rating at S&P is six steps below investment grade, with a stable outlook. Di Francesco declined to say when Bombardier’s next rating review would be published. Bombardier is rated B3 at Moody’s Investors Service, also six notches below investment grade. Moody’s revised its outlook to stable from negative on Nov. 5.

Bombardier’s $1.5 billion in bonds due 2025 were the worst performers among global high-yield notes denominated in U.S. dollars Friday, falling 2.3 cents to 90 cents on the dollar. The bonds rose to 91.8 cents in trading Monday, but are still down since the company released financial results Nov. 8.

The plunge means Bombardier’s bonds offer the best return potential within Citigroup’s coverage group, Citi managing director Manish Somaiya said in a report Monday.

“While we were equally surprised with the company’s adjustment to its 2018 free cash flow guidance, we continue to maintain a high degree of confidence in management given their significant accomplishments since taking the helm in 2015," Somaiya wrote.

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