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Apr 25, 2019

Bombardier bonds plunge after company issues profit warning

Bombardier's logo is seen on the building of the company's service centre at Biggin Hill

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Bombardier Inc.’s bonds declined and the cost to protect against default rose after the aircraft and train maker lowered its revenue and profit expectations for the year.

The company’s US$2 billion of 7.875 per cent of 2027 bonds traded as low as 98.75 cents on the dollar on Thursday, down from 103 cents earlier in the week, according to Trace bond price data. They were quoted around 101 cents at 9:45 a.m. in New York.

Bombardier’s 5-year senior CDS meanwhile rose 74 basis points to 430 basis points, the most since November, according to data provider CMA. That means the market has priced in a 31 per cent chance of default in the next five years.

“Investors are likely to reevaluate the company’s long-term financial targets,” Citigroup Inc. analysts Manish Somaiya and Dominic Lanari wrote in a note to investors.

The company’s consolidated revenue for the 12 months will be about US$1 billion less than forecast, while earnings before interest and tax may drop below the previously guided range, Montreal-based Bombardier said in a statement Thursday.

The Canadian transportation giant revised its outlook amid a slower than anticipated acceleration in production on key rail projects. The timing of aircraft deliveries also led to a soft first quarter for the group, though the shortfall should be recovered and financial targets for the division met, Chief Executive Officer Alain Bellemare said.

Revenue from rail will be about US$750 million lower for the year, as Bombardier seeks to better synchronize output with customer demand. A transformation plan for the aerospace business remains on track, with the divestment of the Q400 turboprop plane program expected mid-year, Bellemare said.

 

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