* Quebec to hold 49.5 pct stake in new limited partnership
* Investment to be made in two installments of $500 mln
* Quebec can seek same terms as any future federal deal
(Adds Moody's rating change and Bombardier response)
By Allison Lampert
MONTREAL, June 23 (Reuters) - Planemaker Bombardier Inc
BBDb.TO said on Thursday it signed a long-expected deal with
Quebec for the Canadian province to invest $1 billion in its
CSeries aircraft program, which has struggled with years of
delays and cost overruns.
The agreement leaves the Montreal-based manufacturer free to
focus on talks with Canada's federal government over possible
investment, a deal which is proving much harder to pull off.
Quebec and Bombardier want the federal government to match
the province's investment in the narrowbody jet program. But
negotiations have dragged on, with sources close to the talks
saying Prime Minister Justin Trudeau's Liberal government wants
changes to the plane-and-train maker's dual-class share
structure.
Quebec Transport Minister Jacques Daoust told Reuters in an
interview the deal contains a clause that would allow the
province to match the terms of any federal investment. He also
said he believes a deal with the federal government was possible
despite protracted talks.
Should federal investment not materialize, Daoust said the
province would not rule out a foreign investor in the CSeries.
But he said Quebec would retain veto rights and conditions
already negotiated by the province, like keeping Bombardier's
head office in Quebec, would have to be respected.
Following the news, ratings agency Moody's changed its
outlook on the company to stable from negative. But it also
downgraded Bombardier's senior unsecured ratings to B3 from B2,
noting a separate $1.5 billon investment by Quebec's public
pension fund manager in the train unit ranks it ahead of other
creditors on their claim to the unit's assets.
Bombardier said it strongly disagreed with the downgrade,
and that the agency failed to recognize progress in improving
its risk profile.
Bombardier said it would transfer the assets, liabilities
and obligations of the CSeries program to a newly created
limited partnership, in which the company will hold a 50.5
percent equity stake and Quebec the rest.
The investment will be made in two installments of $500
million, the first on June 30 and the second Sept. 1.
"We understand that the deal structure is legal from a WTO
(World Trade Organization) perspective," analysts at BMO Capital
Markets wrote.
Brazil and Canada have locked horns repeatedly at the WTO
over the issue of government support for Embraer SA EMBR3.SA
and Bombardier.
Bombardier said it will maintain operational control of the
CSeries. The limited partnership's board will consist of five
directors, three proposed by Bombardier and two by Quebec.