Bombardier has disclosed details about the decision to borrow another $1 billion, saying the new debt will reduce financial risk, provide operational "flexibility" and help Bombardier meet company-wide financial goals.
The company does not intend to use the funds to finance a planned $300 million CSeries assembly site in Mobile, Alabama, adds vice-president of external relations Olivier Marcil.
There is no "link" between the new debt and that planned construction, he says.
Bombardier announced 20 November it was issuing $900 million in 7.5%-coupon bonds due 1 December 2024. The company then added another $100 million to the deal, bringing the total to $1 billion.
Bombardier will use $600 million of the proceeds to refinance $600 million in 4.75%-coupon debt due in 2019, it says.
While the offer increases the cost of the debt by 275 basis points for one year, Bombardier was able to lock in funding when the market was receptive, not to mention able to upsize the deal, says a source familiar with the transaction.
The deal also pushed out refinancing needs for a couple of years, with Bombardier's next large maturity, $850 million, due in 2020.
Last year, Bombardier sold $1.4 billion of 8.75% senior notes due in 2021 to refinance outstanding 5.5% notes due in March 2018 and 7.5% notes due in September 2018. The new debt brings Bombardier towards its goal of de-risking and becoming cash flow positive, says the source. The company will look to de-leverage starting in 2019, the 2016 annual financial report states.
The $1 billion in debt "reflects the progress the company is making in executing the turnaround", says Bombardier's Marcil. "It's a good distribution of our maturities."
The deal will also throw off $400 million for "general corporate purposes", says Marcil. Those funds will give the company "a bit of flexibility", he adds.
"This flexibility will allow us to really manage our operation next year", and will help Bombardier keep "focused on the 2020 cash-positive objective", he says.
Source: Cirium Dashboard
