Bombardier Doubles Bond Sale On Strong Demand for Junk Debt

(Bloomberg) -- Bombardier Inc. doubled the size of its offering as it sold debt in a red-hot junk-bond market to refinance a chunk of its $9.1 billion debt pile.

The manufacturer of planes and trains sold $2 billion of eight-year notes, compared with $1 billion initially planned, according to Bloomberg data. Bombardier is taking advantage of a resurgent junk-bond market and buoyed investor confidence in its balance sheet. The notes were priced to yield 8 percent.

The proceeds of the new issue will be used to buy back securities due in 2020 as well as general corporate purposes, the company said in a statement earlier Thursday. The offering comes just two weeks after Bombardier reported improved free cash flow in the last three months of 2018, exceeding analyst estimates and boosting optimism that the company can tame its debt.

Citigroup Inc. and JPMorgan Chase & Co. are leading the bond sale and managing a tender offer for some or all of its $850 million of 7.75 percent bonds due 2020, according to the statement from the Montreal-based company. The company is offering to buy the bonds for around 104.7 cents on the dollar. That's slightly above where the bonds were trading yesterday, according to the Trace bond-pricing system.

Investors have been pouring money into the U.S. market for high-yield bonds in recent weeks, with the debt posting returns of 6.17 percent since the end of 2018. That's the best two-month gain in almost 20 years, Bloomberg Barclays index data show.

Read More: Junk Bonds Racking Up Biggest Gain Since 2001, Led by CCC Debt

The market had seized up in late 2018, pushing yields on Bombardier's biggest bond -- $1.5 billion of 7.5 percent notes due in 2025 -- to as high as 9.6 percent in November. The yield on those notes has since fallen back to 7.4 percent.

Bombardier said Feb. 14 that its free cash flow in the fourth quarter reached $1.04 billion, up from $890 million average of estimates compiled by Bloomberg. The company also stood by its financial targets for this year, which include sales of at least $18 billion and break-even free cash flow, plus or minus $250 million.

The debt transactions would “provide more than two years of runway as the management team continues to take steps to improve the margin and cash flow profile of the business which remains weak,” Bloomberg Intelligence analyst Matthew Geudtner said in an interview.

--With assistance from Molly Smith.

To contact the reporters on this story: Esteban Duarte in Toronto at eduarterubia@bloomberg.net;Gowri Gurumurthy in New York at gurug@bloomberg.net

To contact the editors responsible for this story: Christopher DeReza at cdereza1@bloomberg.net, Shannon D. Harrington, Nikolaj Gammeltoft

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