Boeing hones $15-billion financing plan to weather crises, sources say
Boeing plans to raise $15 billion via stock and hybrid bonds
Company faces regulatory scrutiny, production curbs and customer confidence loss
Planemaker's investment-grade rating is in peril
Recasts first paragraph, updates share price, adds byline, changes headline
By Shankar Ramakrishnan, Echo Wang and Tim Hepher
Oct 16 (Reuters) -Boeing BA.N is closing in on a plan to raise around $15 billion with common shares and a mandatory convertible bond as the jetmaker bolsters finances worsened by a crippling strike, but the timing remains unclear, four sources familiar with the matter told Reuters.
The company said on Tuesday in regulatory filings that it could raise as much as $25 billion in stock and debt with its investment-grade credit rating at risk. One of the sources cautioned that a $15-billion sale may not be enough for Boeing to address its ongoing crises.
The aerospace giant has been dealing with increased regulatory scrutiny, production curbs and a loss of confidence from customers since a door panel blew off a 737 MAX plane in midair in early January. Shares gained 1% on Wednesday, but are down more than 40% this year.
Boeing has been burning through cash all year, leading to its Tuesday announcements that it will raise money in the capital markets and that it had also secured a $10-billion credit agreement with major lenders: Bank of America BAC.N, Citibank C.N, Goldman Sachs GS.N and JPMorgan JPM.N.
Boeing declined to comment.
Four investor and banking sources said representatives from those lenders were inquiring about appetite for a combined offering of new shares and a mandatory convertible bond – a hybrid bond that could convert into equity on or before a predetermined date.
Roughly $10 billion in new shares are being contemplated to be sold by the company along with nearly $5 billion in mandatory convertible bonds, the sources said.
One of the four sources said the deal was scheduled to be priced shortly after Boeing's Oct. 23 third-quarter earnings report. But another investor source said the company was trying to avoid a raise during the month-old strike which analysts estimate is costing tens of millions of dollars per day.
“The timing of any equity raise is still unclear but market consensus is that it should be done after the labor strike is resolved and earnings provide some visibility of its impact on current and future cash flows," said Michael Barr, senior research analyst at Neuberger Berman.
While Boeing burned less free cash than expected during the third quarter, the planemaker may have no choice but to act before the end of the strike to protect its investment-grade rating, two of the sources said.
Boeing shares have rallied since its refunding announcement, suggesting some investors think the trough has been reached.
One investor source said a three-year mandatory convertible bond paying 7% to 8% in annual coupon that could convert into shares at a premium of 20% over the current share price could attract strong demand.
The funding is expected to soften the blow for existing shareholders whose equity ownership could decline when a company issues new shares.
A mandatory convertible option was being pursued because such hybrid bonds can be treated as equity capital by rating agencies, which means issuing them would not add to debt to the same extent as selling bonds. They are friendlier to existing shareholders, as stock conversion is a couple of years away and at a premium.
Raising equity capital is the only funding option for debt-laden Boeing which is intent on protecting its investment-grade ratings.
The top three rating agencies – S&P, Moody’s and Fitch – have warned they will cut Boeing’s ratings to junk if it raised new debt without retiring some $11 billion of debt maturing through Feb. 1, 2026.
Boeing's Year of Woe https://tmsnrt.rs/4dKUQkh
Reporting by Shankar Ramakrishnan and Echo Wang in New York, Tim Hepher in Paris and Allison Lampert in Montreal
Editing by David Gaffen, Matthew Lewis and Rod Nickel
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
