The cost of default protection on Bombardier Inc. (BBD/B) fell the most of any Canadian issuer as the world’s third-biggest planemaker shored up its balance sheet through a bond sale to cut costs and extend maturities.
Five-year credit-default swap contracts on Bombardier debt narrowed 11 basis points, or 0.11 percentage point, to 294 basis points, the biggest decrease among members of Canada’s benchmark Standard & Poor’s/TSX Composite Index, according to data compiled by Bloomberg. The swaps are also the best performers in the group this month, with a decline of 23 basis points.
The maker of Learjets is selling $1.8 billion of securities maturing in five and 8.5 years today. It has earmarked $1.3 billion of the proceeds to repay existing debt that would have otherwise matured in 2016, according to Moody’s Investors Service. Moody’s upgraded the company’s speculative-grade liquidity rating to SGL-2 from SGL-3, citing an improved debt maturity schedule.
Bombardier is seeking to cut financing costs as it works to rein in capital expenditures after racking up delays in developing the CSeries, its biggest-ever jet. Bombardier said last month it plans to spend $4.4 billion to develop the two versions of the CSeries -- $1 billion more than targeted when the company decided to proceed with the program in 2008.
The Montreal-based company plans to issue securities due in 2019 and 2022 with coupons of about 4.75 percent and 6.125 percent, respectively, according to a person with knowledge of the transaction who asked not to be identified before the terms are public.
Bombardier’s issue of euro-denominated debt due in November 2016 has a 7.25 percent coupon. The notes can be called in April at 101.21 cents on the dollar.
“The markets say that we can finance for less than that,” Chief Executive Officer and President Pierre Beaudoin said in a March 20 interview at Bloomberg headquarters in New York. “I say: ‘OK, let’s look at it.’”
Moody’s rates Bombardier Ba3, its third-highest junk ranking after a Feb. 13 downgrade. Standard & Poor’s lowered the jet maker’s rating the same day by one level to BB-, citing negative cash flow.
While leverage, or debt as a ratio of earnings before interest, taxes, depreciation and amortization, will rise to 6.9 times from 6.6 times, the incremental debt had already been incorporated in Moody’s outlook, the New York-based rating company said in a statement today.
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