Good news and bad news for Bombardier

Feb 27, 2015, 4:23 PM EST
Attendees stand near a Bombardier Inc. Global 6000 jet during the China International Aviation & Aerospace Exhibition in Zhuhai, Guangdong province, China, on Wednesday, Nov. 12, 2014.
Bloomberg/Bloomberg via Getty Images

Today Bombardier had good news in a successful test flight and a hopeful new debt offering, and bad news in a negative rating outlook from Fitch.  Bombardier Inc.’s CS300 jet took to the skies today in its first test flight, offering a spot of positive news for the beleaguered CSeries program, writes Bloomberg. Development of the CSeries has been fraught with years of delays, cost overruns and mishaps during testing, like an engine fire during ground runs last May. Postponed four times, Bombardier’s CSeries may now cost $5.4 billion, the Montreal-based company reported in its fourth-quarter earnings call, about $2 billion more than the original projection.

The CSeries has become a make-or-break project for the plane and trainmaker, which has said it expects sales from the jet to help double revenue by the end of the decade. In January, Bombardier put on hold its Learjet 85 business jet program in order to devote resources to the CSeries. Earlier this month Bombardier named a new chief executive officer and today said it raised $868 million in a stock offering. The company also plans to issue as much as $1.5 billion in long-term debt to shore up its balance sheet.

The Wall Street Journal reports that Bombardier Inc. on Friday boosted the size of a two-tranche, high-yield debt offering to $2.25 billion from the targeted $1.5 billion, according to people familiar with the issue, signaling strong investor demand. The Montreal-based plane and train maker had previously said it aimed to raise a total of $2.1 billion from debt and equity issues to shore up its balance sheet. The company will raise $1.5 billion from an offering of 10-year bond with a coupon of about 7.5%. It also plans to raise another $750 million from an issue of 3.5-year bonds. That debt is expected to offer a coupon of around 5.5%, according to these people. Also on Friday, Bombardier said it had closed an equity offering that was also part of the financing plan. It raised $868 million, almost 45% above the original $600 million target for the equity issue. That helped the debt offering as investors had said their interest in any bond issue hinged on a successful equity offering. The sale of stock reduces Bombardier’s leverage, bolstering its ability to pay off debt.

Business wire reports that Fitch Ratings has assigned a rating of 'B+'/'RR4' to Bombardier Inc.'s (BBD) planned issuance of US$1.5 billion or more of senior unsecured notes. The Rating Outlook is Negative.Other key rating concerns include CSeries development costs and entry into service (EIS) for the CS100 which BBD estimates will occur in the second half of 2015 following a lengthy engine-related delay in 2014. Fitch views BBD's estimated EIS window for the CSeries as challenging given the amount of new technology involved in the aircraft. There are currently 243 firm orders from approximately 15 customers - a relatively low level compared to other aircraft programs such as the Airbus 320neo and Boeing 737 MAX aircraft families which compete for at least a portion of the CSeries' potential customer base.