Aerospace-related entities today received a bit of a boost up on credit, especially Air Canada (TSX: AC) (they were able to get off a reasonable offering consisting of equity and 4%, 5-year convertible debt, both of which are now significantly doing better).
However, my focus is on Bombardier – their debt has been in the trash heap since Covid-19 and it is finally beginning to normalize – their 2022 issue spiked up 12 cents on the dollar today and the rest of their yield curve is flattening. While they are hardly out of the woods (they have a huge disposition of their Transportation division to finalize), it is looking seemingly apparent this is coming to fruition, which leaves their private jet division.
I believe the remaining private aviation industry will do better post-Covid-19 than most people anticipate.
They will also receive large business subsidies from the Canadian and Quebec governments. Bombardier is oddly reliable in this respect. I mean, just five years ago, I was doing the same thing.
The Alstom acquisition of Bombardier Transportation is the key trigger to the company’s solvency and all indications appear (unlike Cineplex and Air Transat!) that it will continue.
Good note Sacha. I agree completely, especially with respect to the prospects for the standalone private aircraft business. The C-suite and plutocrat crowds are going to really hate the risks and extra hassles of commercial airline travel for a long tine after we have a vaccine to COVID-19 or it weakens to just another coronavirus. I would not be at all surprised to see Bombardier’s order book generate some healthy growth accompanied by some pricing power in the coming quarters and years.
Also, Bombardier may have made near-perfect decisions in shrinking the company purely by accident. Airbus gets the C-Series just in time to not be able to sell large jets, ditto Mitsubishi with CRJ, Alstom gets the trains business as individuals pivot back to cars, while Bombardier skates to where the puck is going. Someone will take credit for this brilliance down the line but we will remember 🙂
So what’s the odds they slash the dividend on the preferred shares? is there anyone in influence that has a vested interest in the dividend being maintained?
Philbert, I think the odds are low but obviously that is their right. I have a sizable bet that they won’t.
Suspending the dividend, will cause the dividends to accumulate and build an obligation that must be retired if they are ever to pay a dividend to the Bombardier family and other commons investors again. Suspending preferred share dividends is also something that capital markets loathe that may affect their cost of accessing capital markets.
Finally, at this point they don’t need to do it.
Anytime prefs trade at double-digit yields there’s a pricing in of a possible suspension. There’s a chance it could happen but given the disposal to Mitsubishi has proceeded and Alstom is still on track, it would lead to favour a conclusion that it will continue. Still, there are a lot of “ifs”. Finally the absolute amount of dividend payout is not huge (the last rate reset happened at a very low rate) so the cost of this perpetual capital is relatively cheap for the company.
@sachapeters & @stusclues – thanks for the response. it makes sense.
Nothing in the fixed income market giving you double digit yields comes without some type of risk!
Do the layoff’s just announced change anyone’s views. Paying divs on the pref’s while cutting 2500 jobs….bad optics???
I think an argument for cutting or suspending dividends on common shares (like Mullen Group did) can be made but preferred shares are a different matter. Preferred shareholders don’t participate in the growth of shareholder equity and are more like a debt-type obligation. It is solvency risk that would lead to a suspension and things would need to be (more) dire.
Executive compensation is the big political issue (i.e. creates negative headlines for the board, with respect to obtaining further government bailouts), not payments to preferred share dividends.
Thanks for your thoughts…..if they drop a little , I may roll the dice.
https://www.bombardier.com/en/media/newsList/details.binc-20200722-bombardier-reports-better-than-expected-cash-usage.bombardiercom.html?
Good news for the prefs!
“We previously warned you that we will be blowing 1.5 billion in cash, but instead we are only going to be blowing $1 billion instead! Victory!”.
But yes, good for everything across the capital structure.