(Bloomberg) -- Bombardier Inc. bonds are joining the company's stock plunge on fresh concern over cash-flow prospects at the manufacturer of planes and trains.
The market swoon underscored investor anxiety about Bombardier's prospects despite Chief Executive Officer Alain Bellemare's upbeat 2020 outlook at an investor conference Tuesday -- his first public comments since the company lost a quarter of its market value after reporting earnings last week.
Canada's largest aerospace company surprised investors Nov. 8 by saying it would need to tap proceeds from the sale of its Downsview facility in Toronto to meet a goal of breaking even on a cash-flow basis this year, plus or minus $150 million. Next year's goal of break-even cash flow, plus or minus $250 million, fell short of analyst estimates.
“A lot of people are still scratching their heads about the cash-flow forecast,” David Tyerman, a Cormark Securities analyst, said by telephone from Toronto. “They have a fair bit of debt so anything that negatively affects cash flow would be a drag.”
The cost of insuring Bombardier's five-year notes against default widened 57 basis points to 514 basis points, the highest since December 2016, according to data provider CMA. Bombardier's Class B stock also plunged, falling 10 percent Tuesday to the lowest in a year.
Investors and analysts focus on free cash flow because of the company's need to pay its debt. Bombardier, based in Montreal, had about $9.5 billion of adjusted debt as of Sept. 30, with its next major maturity coming in March 2020, when $850 million comes due.
‘Disappointed' CEO
“We're disappointed” about the cash flow miss, Bellemare said at a Scotiabank conference in Toronto, citing “a little bit of a setback” in the company's train unit. But he insisted that the company was on track for longer-term targets.
“We have clear line of sight to delivering on our 2020 goal” and generating $750 million to $1 billion of cash that year, he said. Analysts expect free cash flow of about $781 million for 2020, according to the average estimate compiled by Bloomberg.
Separately, Quebec's financial markets regulator, Autorite des Marches Financiers, will look at the recent movements in Bombardier's share price as part of a customary review, spokesman Sylvain Theberge said. Bombardier is based in Montreal, the largest city in the province of Quebec.
“This is not a formal investigation,” Theberge said Tuesday in a telephone interview. “We are not on the Bombardier case. Our teams do these kinds of systematic checks anytime a stock has an unusual move. If we have to go further, we will.”
To contact the reporter on this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net
To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Carlos Caminada
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