Boeing sold $9.825 billion of bonds yesterday, as it looked to refinance its over-levered balance sheet. Boeing is borrowing to repay a portion of the $13.8 billion loan it drew down at the onset of the coronavirus outbreak. The Boeing debt balance was at $63.6 billion at the close of 2020 – A truly unimaginable sum in corporate finance just a few years ago. Boeing issued the bonds in three parts. The longest tranche of the offering, a five-year security that is noncallable for two years, will yield 175 basis points over Treasuries, from the estimated (and hoped for) 195 basis points. Boeing had originally been aiming at borrowing no more than $7bn but it was quickly realised that the appetite from investors was there for more, if greater protections were established – that lead to the coupon steps, in which the interest rate increases by 25 basis points for each downgrade below investment grade. That could be a tough ask for Boeing – They are betting a great deal on the 737MAX rollout given that they are not far away from junk territory right now, Boeing is betting it cannot get any worse than it is at this point – But we have to say it - if one of those 737MAX planes falls out of the air during 2021, for whatever reason, then all bets are off. Fitch Ratings assigned BBB- ratings on the callable notes which will be issued in multiple parts with maturities ranging from 2023 to 2026. Proceeds will be used to reduce borrowings outstanding under the company's term loan facility, which matures in February 2022. The transactions will not affect Boeing's gross debt balances. Fitch lowered Boeing's credit rating to 'BBB-' from 'BBB' at the end of October 2020. The downgrade reflected a prolonged recovery from the pandemic compared with Fitch's prior expectations, continued pressures from the 737 MAX grounding and Fitch's estimate that Boeing will be challenged to return financial metrics to levels consistent with a mid 'BBB' rating by the end of 2022.
Boeing, much like American Airlines, could really do right now with being a Reddit target, then roll off-of the back of the inflated shares that would follow. They will deny it, but they have had an eye on this phenomenon in the hope they would become a target. Indeed, wouldn’t we all. Refer to the new issue of Airline Economics for more on this phenomenon and what it could do for some listed companies in the (very) short term.