Bombardier's Strategic Debt Refinancing and Its Implications for Credit Risk and Capital Structure

Bombardier’s recent $250 million senior notes issuance at a 6.75% coupon, maturing in 2033, represents a calculated move to extend its debt maturity profile and reduce near-term refinancing risks. This action, part of a broader $750 million refinancing effort, aligns with the company’s multiyear deleveraging strategy, which has already reduced total debt by 45% since 2020 [1]. However, the decision to issue high-yield debt raises questions about whether Bombardier is prioritizing short-term stability over long-term cost efficiency.

De-Risking Near-Term Maturities: A Prudent Step

Bombardier’s refinancing strategy has historically focused on extending maturities to avoid liquidity crunches. In March 2023, the company redeemed $500 million of its 7.50% Senior Notes due 2025, a move that eliminated a significant near-term obligation and demonstrated its commitment to deleveraging [1]. The recent $250 million issuance—priced at 103.5% of par—will be used to repay higher-cost debt, including the 7.125% Senior Notes due 2026 and a portion of the 7.875% Senior Notes due 2027 [2]. By swapping higher-rate obligations for the new 6.75% notes, Bombardier reduces its immediate interest burden while extending maturities to 2033, thereby smoothing out its debt repayment schedule.

This approach has already borne fruit. As of June 2025, Bombardier’s average long-term debt maturity stood at 4.7 years, up from a historically shorter duration [2]. The company’s liquidity position further supports this strategy: $811 million in cash and equivalents as of June 30, 2025, and a $450 million secured revolving credit facility [2]. These resources provide a buffer against potential refinancing shocks, even as the company issues higher-cost debt.

Credit Risk and Capital Structure: A Delicate Balance

While the refinancing effort has improved Bombardier’s credit profile—S&P upgraded its rating to BB- with a stable outlook in 2025 [2]—the reliance on high-yield debt remains a concern. The 6.75% coupon on the new notes is lower than the 7.125% and 7.875% rates on the debts it replaces, but it still reflects a premium compared to the company’s earlier refinancing successes. For instance, Bombardier’s 2023 redemption of 7.50% notes was followed by a 2025 refinancing of $500 million of 2027 notes to 2033 at a lower rate [2]. The current issuance suggests that while Bombardier is managing to secure favorable terms, its access to cheaper capital may be constrained by its credit rating.

The company’s capital structure also benefits from its strong operational performance. Q3 2024 results showed a record $528 million contribution from its Services business, driving a 12% revenue increase to $2.1 billion and an adjusted EBITDA margin of 14.8% [2]. These metrics underpin its ability to service debt, even at elevated rates. However, the $127 million free cash flow usage in Q3—driven by $149 million in inventory investments—highlights ongoing operational pressures [2]. If interest rates rise further, Bombardier’s cost of capital could increase, potentially straining its leverage ratios.

Implications for Investors

For investors, Bombardier’s refinancing strategy presents a nuanced trade-off. On one hand, the company has demonstrably reduced its near-term credit risk by extending maturities and improving liquidity. Its credit rating upgrades from S&P and Moody’s [2] signal growing confidence in its financial discipline. On the other, the reliance on high-cost debt—while necessary to address immediate obligations—could limit flexibility in a rising-rate environment.

The key question is whether Bombardier’s operational growth can offset the higher interest costs. With a $14.7 billion backlog as of September 30, 2024 [2], and a unit book-to-bill ratio of 1.0, the company appears well-positioned to generate cash flow. However, if demand for its services slows or interest rates spike, the cost of its recent refinancing could become a drag on profitability.

Conclusion

Bombardier’s $250 million senior notes issuance is a prudent, if imperfect, step in its deleveraging journey. By extending maturities and reducing near-term refinancing risks, the company strengthens its balance sheet and credit profile. However, the reliance on high-cost debt underscores the challenges of maintaining financial stability in a high-interest-rate environment. For now, Bombardier’s strong liquidity, credit upgrades, and operational performance justify the move. Yet investors should monitor its leverage ratios and future refinancing costs, as the long-term success of this strategy will depend on the company’s ability to grow revenue while managing its cost of capital.

Source:
[1] Bombardier Completes Partial Redemption of $500,000,000 of its 7.50% Senior Notes due 2025, Marking Another Important Deleveraging Milestone, [https://bombardier.com/en/media/news/bombardier-completes-partial-redemption-500000000-its-750-senior-notes-due-2025-marking]
[2] Bombardier Second Quarter Performance Places Corporation on Track for Full-Year Guidance while Backlog Grows Significantly, [https://bombardier.com/en/media/news/bombardier-second-quarter-performance-places-corporation-track-full-year-guidance-while]