Boeing lines up $52b lifeline to avoid junk status
Make us a preferred source
Make us a preferred source on Google
The news: Boeing is moving to secure up to USD35 billion ($52.19 billion) in funds as it struggles with production challenges, a machinists' strike and major regulatory issues.
The numbers: In a pair of regulatory filings, the aerospace giant told investors it could issue up to USD25 billion in shares or debt over the next three years and that it had entered into a new USD10 billion credit agreement with lenders.
The company's net debt currently stands at USD45 billion, according to The Wall Street Journal, with USD11.5 billion in debt maturing by early 2026.
The context: Boeing has not turned a profit since 2018 and has been haemorrhaging cash since the strike started on 13 September, which is estimated to be costing more than USD1 billion per month.
The shelf filing with the Securities and Exchange Commission is a precursor to raising equity or debt securities. Analysts expect Boeing is more likely to raise more equity given debt levels are practically maxed out for its investment grade credit rating.
Both S&P and Moody’s have warned Boeing needs to raise capital as they’re reviewing their credit gradings on its debt. If the ratings were downgraded, Boeing would become the biggest ever so-called fallen angel – companies whose investment-grade credit rating falls to junk status.
Boeing is very much traying to avoid that outcome. A downgrade to junk status would exclude Boeing's roughly USD52 billion of outstanding long-term debt from investment-grade indexes, forcing funds that focus on high-quality assets to sell their holdings. It would likely also flood the high-yield bond market with a record volume of Boeing’s debt, raising its borrowing costs.
Boeing is also dealing with regulatory restrictions, including a cap on the production of its 737 MAX jets following a mid-air door panel blowout earlier this year. It also has a backlog of 5,490 aircraft, representing about half a trillion dollars worth of revenue, according to Bloomberg.
What they said: “These are two prudent steps to support the company’s access to liquidity,” Boeing told media in a statement.
The sources: Boeing shelf filing , Boeing credit line filing, Bloomberg
