Credit rating agency Moody’s Investors Service has lowered its credit outlook for rolling stock manufacturer Alstom from stable to negative after the company reported a negative cash flow and suffered its biggest share drop in over two decades.

Moody’s, which also confirmed Alstom’s Baa3 issuer rating, said that its change in outlook reflected the significant difference from projections on the company’s free cash flow (FCF) and was also informed by the manufacturer’s “limited track record in recovering its operating and cash flow performance” since it bought Bombardier Transportation in 2021.

The French company saw a 35% drop in shares after reporting a negative cash flow range between €500m ($530m) to €750m ($795m) in its first half (H1) results for 2023, attributing it to tight supply chain conditions and a “steep acceleration of production”.

Despite Moody’s action to lower its outlook, the manufacturer said: “Alstom anticipates the change in credit outlook will have no impact on its ability to access short-term financing and contract execution. The Group reaffirms its commitment to an investment grade rating.”

Despite the difficult H1 of the year and a backlog of orders worth €87bn, Alstom also reported a sales growth of 6.5% compared to H1 2022, something it says keeps it on track to reach its full-year sales expectation of €1.7bn.

Moody’s decisions to downgrade ratings for the companies it tracks are based on a series of factors, including if its adjusted EBITA margin remains sustained below 5%, adjusted leverage does not trend towards 3.75x over the next 12 months and adjusted FCF remains negative on a sustained basis.

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By GlobalData