Credit default swap spreads on Bombardier Inc and its finance subsidiary continued to rally on Friday following the company's reporting of a jump in fourth-quarter profit, but analysts said it still faces longer-term risks to its jet business.
Bombardier's announcement that it will cease to report on its Bombardier Capital finance unit as a separate segment and will include it within its aerospace segment results was also construed as a negative because it will reduce transparency of its earnings.
Meanwhile, indications that the company will no longer issue debt from its finance subsidiary, with the unit's current debt due to mature in 2009, will likely result in Bombardier Capital's swaps tightening relative to that of the parent company, analysts said.
Five-year credit default swap spreads on Bombardier Inc rallied to around 275 basis points on Friday, from 335 basis points on Tuesday before the earnings announcement. Bombardier Capital's spreads narrowed to 90 basis points from 200 basis points in the same time-frame.
Business jet sales carried the company to a 54 percent rise in fourth-quarter profit, offsetting weaker performances in regional aircraft and rail cars, the company said on Wednesday.
"Right now business jets are hot," said Evan Mann, high yield analyst at Gimme Credit. Bombardier's margins have been expanding and the company will probably have several quarters of decent results, "but after that it's a little less clear," he said.
Mann said that in the longer term, the company's absence from the larger mainline jet market could significant impair its competitive position.
The blurring of the line between the finance unit and the aerospace segment will also reduce clarity on the operating performance of aerospace as a standalone manufacturing unit, CreditSights analyst Brian Studioso wrote in a report.
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