Bombardier Inc, the Canadian train and aircraft maker, is moving in the right direction for the first time in six months. Air Canada has placed an order for 30 aeroplanes worth $821m.
This is a much-needed boost. Bombardier has widened steadily this year as many of its biggest customers have teetered on the edge of bankruptcy. Air Canada itself emerged from 18 months of bankruptcy protection this week.
Bombardier topped 500bp in the CDS market earlier this month, but had come down to 490bp mid-market by the close on Tuesday and 24 hours later it was better still at 477bp. This represented a 20bp improvement on the week. By the end of this week, it had improved even more to 445bp/455bp while Bombardier Cap hit 420b/425bp.
?It's 10bp narrower on the day and 45bp on the week,? said a dealer at the close yesterday. (Thursday).
Even though the market in general has improved significantly, Bombardier has outperformed. ?Everyone is in love with this credit at the moment,? said a dealer in New York. But this optimism might be misplaced, suggest those positioned a little closer to the credit.
Analysts in Canada believe a downgrade to junk is inevitable, said a dealer in New York. Moreover, Canadian holding rules are stricter than in the US so that any downgrade will force many institutional investors to move out quickly, he said. This selling frenzy would propel Bombardier CDS levels much wider.
Nor does the purchase by Air Canada mean that other Bombardier customers, such as US Airways, are more likely to go through with their planned orders.
The Air Canada order of 30 jets falls 15 short of an earlier plan. Air Canada had an option to buy a further 15 50-seaters, but this does not carry any penalties for non-completion of the deal.
