Bombardier’s planned sale of its Bombardier Transportation rail business to Alstom is stuck; waiting for a green light from the EU before it can proceed. But while the company waits like a frustrated commuter on a platform*, it closed a $750m-$1bn loan this week with HPS Investment Partners.
HPS manages cash for institutional investors and lends it directly to companies. It will lend Bombardier a minimum of $750m a year for three years. It can also borrow more. In a statement Bombardier said the loan: “provides additional liquidity for working capital and general corporate purposes as Bombardier realigns production rates with current market conditions”.
Bombardier says that the loan is secured by certain aviation inventory and related accounts. People close to the deal say this includes aircraft that are being built speculatively or where orders have been cancelled. A spokeswoman from Bombardier says: “We adjusted the rates as we resumed operations to manage the inventory and align with market. The facility allows us flexibility as we do so.”
The Canadian manufacturer has been paying off other facilities, so this is now the aviation group’s only loan. Unlike most bank facilities there are no loan covenants. Bombardier ended June with cash of $1.7bn and liquidity of $2.4bn. National Bank Financial and Citigroup Global Markets advised Bombardier.
Bombardier can pay the loan off early and automatically will pre-pay 50% of the amount when the sale of Bombardier Transport is completed. Raising the cash now makes sense. All OEMs are having tough times.
Dassault this week said it now expects to deliver 30 business jets in 2020 – cut from 40 planned aircraft. While it has not seen cancellations, customers have pushed deliveries back. It sold five aircraft in the first half of the year (down two on the first six months of 2019) leaving it with a June backlog of 42 aircraft, down from 53 in December 2019. At NBAA 2019 it had said it would launch a new aircraft model in 2020 but this has now been delayed.
The loan with HPS Investment Partners gives Bombardier cash to get through quiet markets. As the spokeswoman says: “Over the last months, Bombardier has been proactive in taking action to manage the business through the COVID-19 pandemic, including operational changes to reduce costs, preserve cash, and ensure sufficient liquidity to operate the business as we complete the ongoing divestitures. Today, we feel very comfortable with our liquidity position.”
* Commuting is something that used to happen in the days when people went into offices.