GE buys division, assumes debt
By BERTRAND MAROTTE
Tuesday, April 19, 2005 Page B1
MONTREAL -- Bombardier Inc. completed a major step yesterday in efforts to bolster its cash position by selling its inventory finance business to General Electric Co.'s commercial finance division for $1.4-billion (U.S.).
The sale -- part of the winding down of financing arm Bombardier Capital -- represents one of the Montreal train and plane maker's biggest asset disposals, as it moves aggressively to cut costs, conserve cash and slash debt in a still-fragile business environment. Bombardier is also in the midst of considering plans to launch a $2.2-billion new-jet program, of which its share would be about $700-million.
The company -- whose debt has been downgraded to so-called "junk" status by the credit rating agencies -- faces a hefty debt repayment schedule into next year, beginning with $300-million in notes due May 31.
Earlier this month, the company suspended the dividend, saving about $130-million a year.
Bombardier said yesterday that GE Commercial Finance is also assuming $1-billion in debt and other liabilities related to the $2.2-billion portfolio of inventory finance.
The portfolio is composed mostly of inventories for dealers who sell recreational and marine products.
Bombardier sold its legacy recreational products division for net proceeds of about $740-million (Canadian) in 2003.
Of the $1.4-billion (U.S.) in cash from the sale to GE Commercial Finance announced yesterday, Bombardier will realize net proceeds of $825-million -- "subject to customary adjustments" -- the company said. The transaction represents a pretax premium of $225-million over the $2.2-billion book value of the portfolio.
Investors welcomed the news, bidding up Bombardier's class B shares to $2.46 (Canadian), up 16 cents, on the Toronto Stock Exchange.
The agreement with GE Commercial Finance is expected to result in a reduction of Bombardier's total debt to $5.3-billion (U.S.) from $6.9-billion, said Bombardier spokeswoman Isabelle Rondeau. Cash on hand is about $3.35-billion.
Dominion Bond Rating Service said the deal won't change its ratings of Bombardier debt, because it has "little impact on the debt ratios of the industrial operations."
Claude Proulx, an analyst with BMO Nesbitt Burns Inc., said in a note to clients that the sale could end up trimming a "few pennies" off share profit but that the "significant" reduction of debt is a good sign for the market. The wording of the news release that the deal is subject to "customary adjustments" seems to imply that additional fees will reduce the net proceeds, he added.
Arthur Heinmaa, a managing partner with Toron Capital Markets Inc. in Toronto, said in an interview that Bombardier's efforts to conserve cash are far from over. "Everybody's looking for a quick rebound but it's going to take longer than that," he said.
The sale price of the inventory finance portfolio appears to be "a fair one, maybe at the low end given the presence of a motivated seller," he added.
The transaction will lead to the transfer of about 280 employees based in Colchester, Vt., and Brossard, Que., to GE Commercial Finance, which is based in Stamford, Conn.
Bombardier Capital said it will continue its interim financing of the sale of Bombardier regional jets, to a maximum of $1-billion. It is also continuing to wind down remaining portfolios, including rail car leasing.
Among other recent asset disposals: the sale in 2003 of $475-million (Canadian) in business jet loans; the sale of the Military Aviation Services unit for $85.1-million (U.S.); and the sale of Belfast City Airport for $77.7-million (Canadian) in 2003.
Bombardier also did a $1.2-billion equity offering in April of 2003.
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