19 February 2020 by jbchevrel
Bombardier (BOMB) gapped back tighter over the past sessions. The CDS has come to around 300bp on the 5y point, before reverting to the current 330bp at the close. The Canada-based industrial manufacturer indeed announced the sale of Bombardier Transportation division (mainly manufacturing trains) to the French manufacturer Alstom (ALOFP, whose 5y CDS is paying just 34bp as of today’s close) for C$8.2B. Net proceeds following 1/ adjustments for liabilities 2/ Quebec Caisse stake 3/ cash will be around $4.5B , and that includes $0.6B of ALOFP shares (worth noting that these will be monetizable after 3-month lockup period). The deal’s closing is expected to be in H1-2021 (with in the unlikely event of a breaking, a fee of €75M). The CDS of BOMB gapped tighter, as the sale price was seen as favourable by market participants. BOMB management indicated that the sale price was negotiated based on the 3-year average of the EBIT (calculated on 2016-2018). Then the management applied price = 12x EBIT. This equates to about 10x EV/ EBITDA valuation, which looks low in the range of peers. As far as BOMB credit is concerned, the impact reflects that the proceeds of the sale will be used to accelerate the de-leveraging. BOMB management indicated that the net proceeds will be applied directly to paying down debt. BOMB management estimates that the ALOFP/ Bombardier Transportation deal, added to the previously announced transactions, will result in a pro-forma Net Debt of C$2.5B (vs reported Net Debt of C$6.7B as of Q419). Assuming an EBITDA of around $1.0B for Bombardier Aviation, the resulting net leverage should thus come in the area of 2.5x Net Debt / EBITDA. Going forward, the regulatory process will be interesting to watch, especially as there is a history on this one. Indeed, a deal had failed between Siemens (SIEGR) and ALOFP earlier. With regard to regulatory approval, BOMB management sounded confident that the overlap between the businesses will not result in a regulatory block of the transaction.