TORONTO (Reuters) - Bombardier Inc’s (BBDb.TO) debt ratings have taken a hit after the planemaker suspended work on its newest Learjet and warned 2014 results would be weaker than forecast, with three major ratings agencies changing their stance on the manufacturer.
Shares of Bombardier, which is pushing to bring its new CSeries jet into service in the second half of this year, fell 5.5 percent to C$2.90 on the Toronto Stock Exchange on Friday afternoon after dropping nearly 20 percent on Thursday.
S&P cut Bombardier’s long-term corporate credit rating to B+ from BB- late on Thursday, and said its outlook was negative, in part because of the Canadian company’s reduced profitability and pricing pressure on new aircraft. It said a tough market and big capital expenditures could weigh on performance again in 2015.
“Furthermore, the outlook incorporates our opinion that, given Bombardier’s current leverage and debt-to-cash flow metrics, there remains very limited room for delays on project execution or margin deterioration,” the agency said in its report.
Fitch changed its outlook to negative and said the new forecasts and the $1.4 billion charge associated with the Learjet suspension heightened concerns about Bombardier’s cash flow and liquidity.
Moody’s said it placed Bombardier’s ratings under review for possible downgrade, because it expects that the company will need to raise more debt to fund a cash shortfall and improve liquidity, boosting its already high leverage.
Bombardier declined to comment on the reports.
Macquarie Securities analyst Konark Gupta cut his rating on the stock to “neutral” from “outperform,” writing in a note to clients that, while liquidity is not currently an problem, it could get worse.
Bombardier aims to deliver its first CSeries jet in the second half of 2015 after years of delays and rising costs. Its long-term debt stood at $7.6 billion as of Sept. 30, 2014, and it had cash and equivalents worth $1.94 billion.
During a conference call on Thursday, Bombardier said it had $3.8 billion in liquidity, enough to fund its development programs.
CIBC World Markets analyst Kevin Chiang noted those comments, but wrote in a note to clients that the company’s deteriorating liquidity had narrowed its margin of error. He downgraded the stock to “sector performer” from “sector outperformer,” citing the disappointing forecasts.
“This is another hit to Bombardier’s credibility,” he wrote.
Editing by Peter Galloway and Andre Grenon