RE:Investment grade or no?Very nice read. Good reminder that there's multiple ways to use money to make money. ROI can be achieved so many different ways but there is still optimal use and... less optimal..lol
I'm very confident that Bard Demosky and Eric Martel will contine managing the company as well as we've seen since they got here.
Hope everyone is enjoying this latest sp trend as much as I am.
Tempo1 wrote: Some precision about my thinking (all opinions are good on that topic, so I don't want to contradict others) :
Bombardier has a B+ credit rating, 4 notches from the BBB-, the lower investment grade one. That takes time, rating agencies move one notch at a time , 9 to 12 months between each upgrades. My best example, is AC, it takes 7 years to move from CCC+ to BB from 2012 to 2018. Look at BBD, from CCC+ to B+ (3 notches) we had 3 years (2021 to 2024). Rating agencies never swing their opinions, they have only a long term view. So, the sooner for a BBB rating is 2027 (with a debt reimbursment accelerating scenario). Don't forget that the debt reimbursment is done at a 400-500 m$ per year pace.
The other element is ; is it a goal ? Debt level has to be balanced; the absolute lower debt level is not an objective. Optimal debt level is the goal. Bombardier is not a pipeline, it has a 18-20% margin operation in a cyclical market (bizz jets). An investment grade rating VS a BB one is expensive; for a meagre gain of 1% in interest rate ( an economy of maybe 20-30M$ ), it will have to invest 1B$-1,5B$ in the debt. Is that the better use of money with an operation with a 18%-20% margin? Choosing an economy of 20-30M$ instead of investing 1B$-1,5B$ in an operation at 18% margin (180M$-270M$ profit).
Doing so, the return on equity (profits made with your capital invested) will be lower by the mix of a 5%-6% profit with the 18%-20% operational one (for each dollar invested). A underperformance return.
As managers, the board has to choose what they will do with their money. If they can't find an additional investment at a reasonable margin (more than 13% for example), they can return the money to shareholders. Sometime, companies does it by a special dividend (or others ways); the shareholders could find better investment than the reimbursement of a 5,5% rate debt. We all did it in the past 4 years.
As a shareholder, the lower return on equity will slow the growth of th SP, the company unable to generate profits at the same pace than before.