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Bombardier Inc. remains confident it will win a legal battle with hedge funds over a 2021 bond deal, though the fight may last “a long time,” its top executive said.
The Montreal-based aerospace manufacturer sold off its rail business, regional jet program and aerostructures divisions in 2020 and 2021 to raise billions of dollars to repay debt. A group of holders of its 7.45 per cent bonds due in 2034 argued that the deals violated the terms of the debt.
So the company sold an additional US$260 million of the bonds to Canso Investment Counsel Ltd. in May 2021. That gave Canso a majority of those notes outstanding — and it then voted to waive the alleged default. The tactic is now being challenged in a lawsuit by a group of other bondholders.
“When we look at the merit of our argument, we remain very confident,” Bombardier Chief Executive Officer Eric Martel said in an interview, adding that the company acted “in good faith.” Bombardier’s lawyers argue it was well within its legal rights under the bonds’ terms to sell assets and issue new debt.
Hedge funds Antara Capital Master Fund, Corbin Erisa Opportunity Fund and Corbin Opportunity Fund sued Bombardier last year, claiming the company triggered a default on the 2034 bonds when its sold those business units and the waiver solicitation wasn’t validly passed.
The hedge funds collectively own almost US$130 million of the notes, and they’re arguing they should be repaid in full — including the present value of future coupons.
In a hearing last week, New York Supreme Court Justice Andrew Borrok indicated he doesn’t think Canso’s purchase of new notes should allow the company to trample the rights of other holders of the debt. The judge did not make any final rulings on the merits of Antara and Corbin’s default allegations.
The arguments last week were part of Bombardier’s attempt to dismiss the lawsuit entirely. “We don’t know what the judge will decide,” Martel said. “He may say, ‘I don’t see a lawsuit on this.’ If he decides that there is one, we can appeal. There are still many things. It can last a long time.”