Bombardier Inc. is trying to push past its debt covenant trouble with a new bond sale that will weaken the power of an investor challenging the legality of its past asset divestitures.
The Canadian plane maker has closed a new US$260-million private placement for its 2034 notes – the bonds at the centre of a legal challenge – with an unidentified institutional investor at a purchase price of par. The additional notes are of the same series, and are on the same terms and conditions, as the 7.45-per-cent coupon senior notes due 2034 currently outstanding under the existing indenture, Bombardier said in a statement Tuesday.
Bombardier is locked in a dispute with an unnamed bondholder that claims its recent asset sales, including the divestiture of its train business to France’s Alstom SA, violated covenants on debt maturing in 2034. Bombardier says it believes the allegations are without merit, but to fix the situation, the company has approached a wide swath of investors holding eight separate bond issues asking them to approve changes to their covenants to clarify language stating that the asset sales are permitted and to waive any alleged default.
Bombardier has won support from bondholders on five of the eight bond issues it was targeting in its bid to quash the challenge. But it had yet to win majority support on the key 2034 notes.
The new investor has agreed to the proposed amendments in the consent solicitation process, Bombardier said. And because the investor owns a majority of the principal amount of the 2034 notes, the consent solicitation process appears to be settled.
“If you can’t beat them, dilute them,” ATB Capital Markets analyst Chris Murray said in a note. “Today, what we saw was a second large investor agreed to buy US$260-million of the debt of this tranche and support the changes the company has asked for. We believe the debt was purchased at a lower price than the bonds currently trade.”
Bombardier said it has amended the consent solicitation for the 2034 notes to remove the record date for participation in the process. It has also reset to zero any previous consents given for that bond issue and extended the deadline for creditors to respond to the end of day on Friday.
“I think this is a brilliant manoeuvre,” said Veritas Investment Research analyst Dan Fong. “The issue is now kind of resolved. You’ve effectively checkmated the [original] bondholder.”
Still, there is a possibility that the investor who brought forth the original claim could launch a new legal attack arguing that there has been some sort of shareholder or stakeholder oppression with this move by Bombardier, Mr. Fong said. “I wouldn’t be surprised to see that. But that’s going to be long, it’s going to be messy, and it’s going to take a lot of money. So they might not do it.”
Bondholders who consent to the changes will receive a consent payment from Bombardier worth US$1.25 for every US$1,000 of principal, except one series of debt due in 2026 that will be paid in Canadian dollars. The entire payout could cost Bombardier US$10-million, Veritas has estimated.
Once a major multinational with separate businesses making trains, commercial airliners and private jets, Bombardier is now a single-business manufacturer focused on private aviation. Its flagship product is the Global 7500 luxury jet, which sells at a starting price of US$75-million.
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