RE:RE:RE:BBd should be proactive in strategic alternatives & more...Bac,
Short term, I don’t think finding a party other than Alstom is the solution because it doesn’t address the issue facing Bombardier right NOW: too much debt or should I say, too much interest costs. Moreover, if you wanted to maximize proceeds, the time to sell is not when you have new management whose focus is on legacy issues that are having a major impact on profitability. It would be like selling a stock at its 52 week low. You sell when everything is smooth, when the operation is a well-oiled machine.
Also, selling to focus is one thing, but selling that loses you cashflow and leaves you with too much debt is another. Sometimes it makes sense to sell right away but other times you simply have to be patient. To me, the formula for getting Aviation ahead revolves around BT’s cashflow (revenue x net margin) versus interest (debt reduced x interest rate). If the debt reduced is $3B of 8% money, plus $2.2B of 15% money (CDPQ), that’s $570MM – could BT ever generate enough cash to cover that? Probably not. So it makes sense to sell.
However, Alstom hasn’t definitely agreed to buy BT. What they have an option to buy BT for the next what, 15 months? An option for which they will pay 75M Euro if they don’t proceed. Not the same thing. And they might very well try to re-negotiate due to COVID 19. Who wouldn’t.
So that leaves us with only 1 alternative to address the issues facing Bombardier’s BT. Refinance. Obviously the CDPQ $2.2B is a major issue as we posters here (mainly 145 and myself) have identified. Its 15% money disguised as equity (mezzanine/VC debt). It was unsustainable from day 1 and is almost certainly part of the reason BT had so many issues – they were forced by the deal they consummated with CDPQ to focus on short-term profitability.
Either they convert to straight equity (which is what they are prepared to do for Alstom) or they have to be bought out. Borrowing that $2.2B at 2.5% (2% more than Alstom is paying on their debt) would already save $275M.
At which point we would be left with a much more favourable formula for BT. $9B revenue @5% cashflow or $450M is greater than $240M (3B @ 8% the debt reduced by an Alstom transaction) + $55M. Which then begs the question, why sell? You’re losing $155M of cashflow. Not to mention, if the rest of the debt is refinanced, that formula improves further.