Bombardier preferred shares – sold October 19, 2017

This morning I have sold the rest of Bombardier preferred shares Series 4. I have wanted to raise cash to provide stability to my portfolio and for possible other opportunities. Bombardier’s latest move has given away half of the C Series project for a bit less than zero dollars (AirBus got handed 100 million warrants representing about 5% of Bombardier’s shares at $2.29 so that is worth something).

I was holding these preferred shares on the basis that they yield about 9% and it seems likely that the dividend will continue to be paid and that governments would not likely allow Bombardier to go out of business. There was certainly some risk but the dividend was attractive. And I was hopeful that the C Series would eventually generate cash and even profits and improve Bombardier’s balance sheet.

But the punitive tariffs imposed by the USA has apparently caused Bombardier and Airbus to value the C Series project at something close to zero. Any improvement in Bombardier’s balance sheet will likely take a few years – and is far from certain to ever occur .

And while governments will always want to protect jobs they will not necessarily protect the equity of preferred share investors or debt investors. It is always possible that Bombardier will enter creditor protection at least temporarily in order to “restructure” i.e. “partially default upon in an orderly way” some of its debts. In such a scenario, common and preferred equity could be wiped out. I am not predicting that but it is always a risk with such a weak balance sheet. The controlling family is likely very reluctant to ever renege upon the debt in this fashion since they would also presumably be wiped out of their equity and it would be a huge embarrassment. I don’t know what the risk of such a scenario is but it would not be zero.

I first added these preferred shares to the site in June 2010 at $21.75. The price today is $17.44 or $4.31 lower. But they have paid dividends of $1.5625 annually or a total of about $11.33 in the approximate 7.4 years since they were first added to this site. Whether an investor has lost or gained on these shares depends on the purchase date since the price has been quite volatile over the years.

In any case, what really matters is the future risk/reward on these shares, not the past, and I have decided to move on and have sold these in my own accounts.