Bombardier secures $ 1 billion in new credit and uses less cash

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A Bombardier billboard stands in front of a Swiss CFF SBB rail train at a station in Bern, Switzerland, October 24, 2019.

DENIS BALIBOUSE / Reuters

Bombardier Inc. said it spent $ 500 million less than expected in its last quarter and secured $ 1 billion in new credit, bolstering its finances as the Canadian automaker struggles to gain regulatory approval and finalize the crucial sale of its rail activity to France. Alstom SA in the coming months.

HPS Investment Partners LLC, a New York-based credit investment firm with more than $ 60 billion in assets under management, has agreed to provide a three-year secured term loan to Bombardier in the amount of up to $ 1. billion US dollars, the Montreal-based company said Wednesday an airplane and train manufacturer.

Additionally, the company said its second-quarter cash usage was $ 500 million higher than the previous forecast it gave investors. He gave no explanation for the change, and a spokeswoman declined to provide further details until the next quarterly earnings report on August 6.

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“Collectively, these actions provide Bombardier with additional liquidity to operate its business during the COVID-19 pandemic as it strives to close previously announced divestments undertaken to reshape Bombardier’s capital structure,” the company said in the press release.

Bombardier spent $ 2.6 billion in the first half of the year as the coronavirus pandemic led to a slowdown in new orders, suspension of work at factories, and cessation of product deliveries due to the border closure. The company’s credit spreads have widened in recent months as investors fear it may not be able to divest its aircraft parts unit and form assets as previously planned as its liquidity position deteriorates.

Those concerns appear to have eased somewhat with Wednesday’s announcement. Widely held subordinate voting shares of Bombardier climbed 7.7% at the start of trading on the Toronto Stock Exchange to $ 0.49.

Bombardier said it had cash and cash equivalents of US $ 1.7 billion as of June 30, in addition to having access to US $ 700 million of unused credit. He said he expected his total liquidity position with the new investment to be around US $ 3.4 billion by the end of June. This figure reflects a cash consumption of around US $ 1 billion from April to the end of June.

« [This is] money in the bank ”for Bombardier, said Desjardins Securities analyst Benoit Poirier in a note. ” [It] will provide additional cash to run the business during the pandemic. “

Once a top-flight maker with a share price above $ 20, Bombardier is now a penny stock. CEO Eric Martel, former CEO of Hydro Quebec, is now leading the company towards a radical overhaul that will allow it to sell its rail business to high-speed train maker Alstom and become a purely jet maker. luxury business.

The sale of Alstom is key to fixing the capital structure of Bombardier, which is burdened with debt of US $ 9 billion, and aims to breathe new life into the company. It is currently under regulatory review in Europe.

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Alstom CEO Henri Poupart-Lafarge said on Wednesday that he expected to secure European Union approval for the $ 8.2 billion transaction by the end of the month. Alstom’s objective with this agreement is to increase its ability to better compete with emerging competition from Chinese giant CRRC Corp.

Mr. Martel told reporters last month that he was in contact with the Canadian and Quebec governments about the company’s financial situation, but that it had not made a request for help. He said the company has other options for raising funds which are better than asking for government support.

The new HPS loan is expected to be in place by the third quarter of this year, Bombardier said. Under the terms of the loan, Bombardier will have to repay half of the outstanding principal once the agreement is reached with Alstom and use a minimum of US $ 750 million over three years. The borrower will pay an interest rate at an agreed margin over the benchmark LIBOR rate and post as collateral unspecified items from its aircraft inventory and related accounts receivable, Bombardier said.

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