Stock markets were closed for a holiday on Monday.
Tuesday was yet another interesting day in the markets. The S&P 500 was down 0.3% while Toronto was up 0.1%
Aurora Cannabis bounced up 5.8%.
lululemon was up 1.9%.
Apple Inc. was down 1.8% after warnings that its Q1 results will be harmed by the Coronavirus situation.
Canadian Tire was up 1.7%.
Boston Pizza Royalty units were up 3.4%. It seems that the recent reduction to its cash distribution per unit had already been “priced-in” (or somewhat more than priced in, possible the market had feared an even bigger cut would be made).
Dollarama was down 4.6%.
Linamar slipped another 2.3%.
Andrew Peller was down 2.1%.
CRH Medical was down 3.4%.
The long weekend brought big news when Bombardier announced it a deal to sell its Train division to Alstrom for $8.2 billion. The deal will not close until some time in 2021. The company emphasized that this will allow it to pay down debt. The company indicated that they got a strong price. But there was no mention of whether the transaction results in a gain (sale at more than book value) or a loss (sale at less than it is on the books for). I listened to the conference call and no analyst even asked if there was a gain. BNN television interviewed the Bombardier CEO and did not ask if there was a gain. It strikes me as very strange indeed that there is no mention of a gain or loss. Bombardier’s balance sheet is very weak. It’s book value per commons share is negative $3.36. Its liabilities exceed its assets by $8 billion. This transaction cannot possibly fill that hole.
Which is probably why the shares fell 9.7% on the news. It’s not clear to me why the shares are worth anything at all. The pref shares rose 6.0%. These shares yield 10.2% which is indicative of the risk. Even though Bombardier has a negative net book value, the cash from this sales gives more confidence that the preferred share dividend will continue to be paid.
There was talk that Bombardier would also sell its private jet business. That is now off the table. If they sold that the company would presumably be gone and be liquidated. I strongly suspect that if they did, the result would be less than a $1.00 for each dollar of unsecured credit and zero for the common and pref shares. Bombardier in the last 20 years has made money for its executives and its debt investors and its pref share holders (pref share price is down, but there have been strong dividends). Its common share holders have experienced big losses over that period. Even the family as owners have experienced big losses – although a couple of family members saw their losses offset by executive pay. The family has other investments including the ownership they retained in the recreational products division that was sold off years ago. Overall, though I can’t imagine that family gatherings are very friendly. The members of the family that are executives (or were) have lost hundreds of millions of dollars for the extended family. It’s what happens when you let your (apparently) idiot nephew /son run the company. Very sad.
In other Canadian news rail traffic has been disrupted by protests.
Also the mortgage stress test will no longer be based on the average of the “posted” 5 year rate at the big banks. That posted rate was basically a fake rate that was very seldom charged and NEVER should have been the basis for the stress test.