Bombardier turns to markets to raise up to $863M from new shares

Trading in Bombardier shares was halted on the Toronto Stock Exchange late Thursday afternoon while the company revealed a plan to dilute the holdings of its shareholders and sell up to 390 million new shares in the company.

The Montreal-based aerospace giant announced what's known as a bought deal as the TSX was about to close. Four underwriters including CIBC, Citibank, National Bank and UBS have agreed to sell up to 390 million subscription receipts to their clients.

Those subscription receipts would be priced at $2.21 per share. Before trading was halted, Bombardier shares were trading at $2.46 on the TSX.

• Bombardier CEO Pierre Beaudoin refuses to panic about turbulence
• Bombardier CSeries jet - why you have a stake in its success: Don Pittis

The deal could raise as much as $863 million for the company, which pledged last week to shore up its balance sheet.

The subscription receipts will be exchanged for Bombardier's class B shares once the financing has been approved by a shareholder vote.

Bombardier said that certain members of the founding Beaudoin family controlling 58.24 per cent of the votes attached to the company's class A and class B shares have agreed to vote in favour of the financing.

Members of the family have also confirmed they will place orders for a total of $50 million US of the shares offered.

"This is a very impressive bet that we hope will work out for the company," says Karl Moore, a leadership expert at McGill University.

He said the fact that both the Beaudoin family and the underwriters are putting their own money forward is a vote of confidence in Bombardier.

"It’s really important to raise more money, because they spent more than $1 billion on the CSeries than they thought even a year ago," he said.

"At the same time, they spent a lot of money and the revenue they anticipated from the new CSeries plane is not there, so they are in a cash crunch and this is a way of solving that," he continued.

Part of the trouble is the cost of developing its new CSeries jet, which has soared to $5.4 billion following a four-month delay in flight tests because of an engine failure.

Bombardier posted a loss of $1.59 billion in its latest quarter, including a $1.4-billion charge related to a pause of its Learjet 85 program announced last month.

It also announced a management shakeup, with long-time chair Laurent Beaudoin leaving the company.

Bombardier's shares have tumbled as the TSX rose because of escalating costs despite several rounds of layoffs.

Its $3.4-billion venture to build planes with a Russian partner is also on hold because of sanctions with Russia over the conflict in Ukraine.