Bombardier (BBD.B) Financing FEB. 20th 2015 - Quick Analysis
News: $750M bought deal offering that's been upped to $938M. Click here
Analysis: Using Peter Hodson's article on "5 Signs of Good Financing", let's digest Bombardier's deal.
1. A new share issue should be priced higher than the prior one
I can't find any thing on recent financing, but it's safe to say this new share issue will massively dilute existing shareholders and priced below a 52 week low. In fact, the share price hasn't hit 2.20s since March 9th 2009. On the day of the announcement, the stock closed at $2.45, which mean't a 10% discount. Do keep in mind, the financing usually takes weeks to structure, so they've been planning this for a while. The massive discount reflects the risk involved.
2. No increase in the deal size
Definitely an increase in deal size, that means all the excess demand will be soaked up so those that want to buy will be able to buy at $2.21. I wonder if the shares are being shorted now, as the short sellers can buy back the shares easily after the financing...
3. Insider participation
Bombardier family will purchase $50M worth. Always good to see the insiders participate and have faith in their own company.
4. No sweeteners
One point for the BBD.B longs
5. A clearly defined use of cash
Cash will be used to fund C-Series, a larger jet with greater margins. Note: the C300 is a new jet for Bombardier and the development has exceeded the estimated cost many times. Not to mention the numerous delays. BBD.B hopes to have at least 300 orders of the new jet but they only have around 243.
In short, BBD.B is no doubt struggling, but it's doing the right things eliminating the dividend, changing the CEO, and of course shoring up the balance sheet. Assuming all the bad news is out, this financing may temporarily stop the share price from bleeding. Hopefully, all goes well in the upcoming test flight scheduled for Feb. 26th 2015 - Feb. 28th 2015 depending on the weather. That may the catalyst we need for the SP to respond.
Technical Analysis: Over the last 10 years, BBD.B has bottomed at around 2.22-2.30 per share.
My target is roughly 2.50-2.75 in the near term.
Disclosure: Long BBD.B
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