Fitch: Comment on Bombardier's First Quarter Results.Business Editors NEW YORK--(BUSINESS WIRE)--May 27, 2004 Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. stated today that there would be no impact on the credit ratings or outlook for Bombardier Inc. (BBD BBD In currencies, this is the abbreviation for the Barbados Dollar. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. ) or Bombardier Capital (BC) as a result of the BBD's fiscal 2005 first quarter financial results. The first quarter results were of mixed quality compared to Fitch's expectations, with a disappointing set of Bombardier Transportation Bombardier Transportation is the rail equipment division of the Bombardier group. Bombardier Transportation is the world’s largest company in the rail equipment manufacturing and servicing industry. Its headquarters are in Berlin. (BT) contract adjustments offsetting better-than-anticipated free cash flow. BBD also announced a production cut in its 50-seat regional jet (RJ) program in F2005. BBD's and BC's senior unsecured debt Unsecured debt Debt that does not identify specific assets that the debtholder is entitled to in case of default. is currently rated 'BBB-' by Fitch. The Rating Outlook is Stable. Due to the existence of a support agreement and demonstrated support by the parent, BC's ratings are linked to those of BBD. The key credit issue for BBD's debt ratings remains improving operating margins Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: from the current weak levels. BBD is currently restructuring its operations at both BT and Bombardier Aerospace Bombardier Aerospace is a division of the Bombardier group, with the third largest workforce (behind Boeing and Airbus) and the fourth largest in yearly delivery of commercial airplanes (behind Boeing, Airbus and Embraer). (BA) to reduce costs. Given BBD's level of debt compared to revenues, relatively modest improvement in EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become margins will drive noticeable improvement in credit protection measures. However, failure to improve margins or the discovery of additional problem contracts at BT in the remainder of F2005 will likely lead to a review of the ratings. BBD's first quarter results included approximately $200 million of contract adjustments at BT. These adjustments are related to a limited number of contracts and represent the entire expected loss on the remaining life of the contracts. Fitch considers these new adjustments to be disappointing in light of detailed reviews BBD made of BT contracts in F2004, when similar adjustments were made. Low profitability at BT was a key driver of Fitch's downgrade of BBD in March. Offsetting the disappointing results at BT was much better-than-expected free cash flow, which was negative $214 million excluding BC. The first quarter is typically BBD's weakest cash quarter of the year, and the company usually runs significant cash deficits during the quarter. The better-than-expected cash flow and the issuance in April of $750 million of long-term debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. boosted BBD's cash balances to $1.7 billion. Liquidity is also supported by $1.6 billion of availability on BBD's bank facilities (with an additional $600 million available on BC's facilities). BBD announced today that it would trim its annual production of 50-seat RJ's by approximately 20 aircraft. The adjustment was not related to any specific delivery deferrals or cancellations. Fitch considers this action to be prudent given the uncertainty at several of BBD's customers, including US Airways, Air Canada, and United Airlines. Fitch estimates that the production cut will have a modest impact on profits in F2005. See the report dated April 22, 2004 at 'www.fitchratings.com' for details about Fitch's ratings on Bombardier. |
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