It is quite obvious that Bombardier will eventually get some equity infusion from the federal government, which will be the final signal to all market participants that Canada will not let the corporation fail, even if the C-Series turns out to be an economic disaster (it does not appear to be at the moment – the risk at this point is on execution).
The question is what type of concessions Bombardier will have to make, and I suspect the “win-win” agreement will be only dismantling the dual-class structure of stock if the company keeps less than X jobs outside of Canada (mainly in the Province of Quebec).
The Government of Quebec (and the Quebec Pension Plan) invested previously into Bombardier and received common shares and warrants for a half-stake in the C-Series jet and also a chunk of the Bombardier transportation division.
My whole line of thinking was that preferred shareholders and bondholders would be the primary beneficiary of all of this capital infusion. Currently, the Series 4 preferred shares (TSX: BBD.PR.C) is trading at a 9.4% yield, while the Series 2/3 (floating/fixed) shares are at 8.2% and 9.1%, respectively. The next rate reset will be in August of 2017.
The yield curve for debt is quite healthy for Bombardier and they’ll be in a good position to refinance maturities, especially when they receive another equity injection. Yields should continue to compress in this scenario.
What factors might conspire to convince Bombardier to convert BBD.PR.C to commons, as is their right?
They’d probably do it if those preferred shares traded above par value. By that point the dilution to the common shareholders would be minimal.