page 77 Bombardier Inc. Annual Report 2003-04 or its capital needs, or to engage in other busi- ness activities that may be in its interest. In addition, Bombardier is also required to  comply with a single financial covenant under its two main syndicated credit facilities. The ratio of total debt, defined essentially as short- term borrowings and long-term debt less subordinated debt and cash and cash equiv- alents, to total capitalization (total debt, as defined, plus shareholders’ equity and subor- dinated debt) must not exceed certain thresholds, as measured at each quarter end. The Corporation’s ability to comply with this ratio may be affected by events beyond its  control. A breach of any of these agreements or the Corporation’s inability to comply with the required financial ratio could also result in a default under its bank lines, which would permit the Corporation’s lenders to declare amounts owed to them immediately payable. liability management, involving mostly  borrowing in foreign currencies to hedge  foreign currency exposure arising from per- manent investments in foreign countries. The impact of these fluctuations could have a mate- rial effect on the Corporation’s Consolidated Financial Statements. The Corporation has historically offered and will continue to offer a portion of its products on fixed-term contracts, rather than contracts in which payment is determined solely on a time-and-materials basis, mainly in the trans- portation segment. Generally, the Corporation may not terminate these contracts unilaterally. Although the Corporation often relies on tools and methodologies and past experience to reduce the risks associated with estimating, planning and performing these projects, in most cases, the Corporation bears the risk  of cost overruns and may be subject to late delivery penalties. The Corporation requires continued access to the capital markets to support its activities, including selling asset-backed securities. To satisfy its financing needs, the Corporation relies on long-term and short-term debt and cash flow generated from operations. Any impediments to the Corporation’s ability to access the capital markets, including a decline in credit ratings, the reduction of the surety market global capacity, significant changes in market interest rates, general economic con- ditions or the perception in the capital markets of the Corporation’s financial condition or prospects, could have a material adverse effect on the Corporation’s financial condition and results of operations. Credit ratings may be impacted by many external factors beyond the Corporation’s control and accordingly, no assur- ance can be given that the Corporation’s credit ratings will not be reduced in the future. Delinquencies and losses in BC’s portfolios Like all finance companies, BC faces the risk that it may not be able to collect on its finance receivables, consisting primarily of asset-based financing in the form of receivables, lease receivables and loans, mostly related to floor- plan financing on a secured basis to retailers purchasing inventory products and third-party interim financing of commercial aircraft.  Unfavourable economic conditions may adversely affect the Corporation’s business. For example, weakness or further deteriora- tion in the financial situation of certain major U.S. airlines which are the Corporation’s clients, or the outbreak of war or continued hostilities in certain regions of the world, may result in lower orders or the cancellation of part of the existing backlog for certain of the Corporation’s products; these could adversely affect the Corporation’s financial position and results  of operations. In addition, curtailment of  production activities due to unfavourable eco- nomic conditions could result in the Corporation incurring significant costs associated with  temporary layoffs or termination of employees. BC’s profitability may be directly affected by the level of and fluctuations in interest rates. BC uses derivatives as an integral part of  its asset/liability management program  to reduce its overall financial risk. These derivatives, particularly interest-rate swap agreements, are used to alter interest rate exposure arising from mismatches between assets and liabilities. The indentures governing certain of the Corporation’s indebtedness and syndicated credit facilities contain covenants that, among other things, restrict the Corporation’s ability to: The Corporation is exposed to risks resulting from foreign currency fluctuations as described in the “Effect of currency fluctuations” section of this MD&A. In an effort to mitigate these risks, the Corporation makes use of derivative contracts to hedge the exposure to future  cash flows in various currencies and asset/ These restrictions could impair the Corpo- ration’s ability to finance its future operations Fixed-term commitments  Liquidity and access to capital markets  General economic conditions Foreign currency fluctuations  Restrictive debt covenants Changing interest rates  - sell all or substantially all of its assets; - incur certain secured indebtedness; - engage in mergers or consolidations; and - engage in certain transactions with affiliates.