Bombardier debt, equity crash on slashed guidance for FY19; JV write-down expected

Bombardier’s bonds and stock crashed this morning after the Canadian plane and train maker disclosed a lower-than-expected forecast for fiscal year 2019. The company cited difficult rail projects, a delay in milestone payments and new orders and four jet deliveries seeping into 1Q20.

The plane maker also said that it is “reassessing its ongoing participation” in its partnership with Airbus on A220 jets. The joint venture will require more capital and cause delayed profits, leading to a write-down in 2019 results, two buysiders said.

“The company seems like it’s losing confidence in the JV and may pull out or alter terms significantly. In either scenario, investors aren’t going to be happy, because the company’s been toting this JV as a hail-Mary,” said one of the buysiders.

Bombardier expects consolidated adjusted EBITDA to total USD 830m for full-year 2019, compared to previous guidance of USD 1.2bn – USD 1.3bn. Consolidated revenue for the year is forecasted to total USD 15.8bn, down from USD 16.5bn – USD 17bn.

Free cash flow for 2019 is expected to be negative USD 1.2bn, lower than previous expectations of negative USD 500m. Cash on hand at year end is still expected to be roughly USD 2.6bn, with USD 1.1bn of additional cash expected from the Canadair Regional Jet sale to Mitsubishi Heavy Industries and the aerostructures sale to Spirit AeroSystems.

Bombardier’s USD 1.5bn 7.5% senior unsecured notes due 2025 fell to 97.48 to yield 8.104%, from trades at 102.25 to yield 6.694% yesterday (15 January). The USD 2bn 7.875% senior unsecured notes due 2027 traded down to 96.188 to yield 8.59% from trades at 102 to yield 7.313% yesterday, according to MarketAxess.

The stock last traded at CAD 1.25 for a market cap of CAD 2.983bn, down 30% from yesterday’s close.

A Bombardier spokesperson sent the following comment to Debtwire:

“Consistent with Bombardier’s five-year turnaround plan, and following a comprehensive review of strategic alternatives, the Company is actively pursuing options to strengthen its balance sheet and enhance shareholder value.

In regards to Bombardier Transportation, we continue to make significant progress completing legacy projects, and to take the right actions to position the business for long-term success. While we do see progress, it is taking longer than expected.

In Aviation, full-year adjusted EBIT margin is still expected to be ~7.0%, in line with full-year guidance. We have a great aviation franchise that outperforms competitors and delivers customers value.”

2020 Debtwire

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