Bombardier Protection Flies Wider
Credit-default protection on Canadian industrial giant Bombardier widened by roughly 50 basis points last week, after the company's quarterly profits sank by two-thirds from a year earlier. Five-year default-swap spreads widened to 270 basis points Wednesday up from about 220bps earlier in the week, according to traders. The company announced the earnings late Tuesday, sending protection wider Wednesday morning. Protection on subsidiary Bombardier Capital also widened a similar amount to 320bps. Traders said the move wider may have been exacerbated by thin markets last week, following a U.K. holiday and in advance of a U.S. one. "It's a big move for them, but when markets are thin stuff tends to get exaggerated one way or another," said one trader in New York. Bombardier's report attributed the lower earnings to a slower economy and a reluctance of companies to spend on items such as corporate jets.
Analysts said the negative news on the earnings front is not surprising given the broader downturn in the airline industry. Kenton Freitag, a ratings analyst at Standard & Poor's in Toronto, said the agency downgraded the company one notch to BBB plus this spring. This was partly done with the expectation that plane orders would slow, as the lower earnings indicate. He said the latest figures should not affect the company's rating any further. "We're cognizant there's weakness in the sector, so some of the news was already factored in, we had anticipated it," Freitag said.