Bombardier (BOMBF, Financial) has a series of bonds that yield 11.55% and mature March 15, 2025. They are priced at B by S&P and have a cusip of 097751bm2. The bonds are held by First Pacific Crescent Fund. The bonds trade at a 987.79 point spread versus T-bonds maturing Feb. 14, 2026. The bonds are 144A, so not everyone can buy them.
The company made $18.172 billion last year in sales. Revenues fell 9.6% year over year. Ebitda was $991 million. Cash flow was only $20 million, capital expenditures was $1.879 billion and the free cash flow was a loss of $1.859 billion. Cash was $2.72 billion and accounts receivable were $1.473 billion. Current liabilities are $11.823 billion and $8.908 billion in long term debt. Long term debt to capital is 180.87% according to Bloomberg.
The company has an Aerospace division that has been producing aircraft since 1902. Learjet is a well-known product. The Transportation division produces high speed trains and technology for the rail industry. Europe represents 42% of sales, North America 33%, Asia 13% and the rest of the world accounts for 12%.
Bombardier has received a lot of Canadian government money over the years. According to an article, the company has received $1.1 billion in 48 installments since 1966. The stock is trading at $1.26 a share.
There could be a strike at a locomotive plant in Great Britain. The dispute is over pension funding. Sound familiar?
Sales have been falling, earnings and cash flows non-existent, and there is an abundance of debt. You could probably figure this out by just observing the bond yield. Aerospace is a competitive market with Boeing (BA, Financial) and EADS. Airlines should be doing well with cheap oil.
It appears that Bombardier will receive more government money. It seems that Canada will do anything to protect its aerospace industry. Perhaps they should let it go into bankruptcy, reorganize, install new management and cut costs. Oh well, what do I know?
Back to the bonds, which is the point of this article. Are they investment worthy? Maybe. If this were an American company, I’d say no. The reason being that a division could get sold off and your bonds could be part of another company or a private equity group. However, it appears that the Canadian government is in love with Bombardier, considers it its own publicly traded NASA and won’t let anything happen to the company. These bonds could be quite interesting.
Disclosure: We own shares in the FPA Crescent Fund.
