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NEW YORK / WASHINGTON (Reuters) – In just six weeks, Boeing Co (PROHIBITION) went from seeking government help to announcing that he no longer needed it.
FILE PHOTO: Boeing’s company logo and business information are displayed on a screen on the floor of the New York Stock Exchange (NYSE) in New York, USA. USA, March 13, 2019. REUTERS / Brendan McDermid
The company’s $ 25 billion bond issue this week made a difference.
The expanded deal, the largest investment grade bond issue this year and the sixth largest on record, exceeded Boeing’s expectations. It highlights how the Chicago-based company capitalized on the support of the US government. Even without having to accept taxpayer money for help.
On March 24, Boeing chief financial officer Greg Smith told Reuters in an interview that credit markets were “essentially closed” to the largest aircraft maker in the United States, and that the entire US aerospace industry was in dire need of capital. to cope with the consequences of the coronavirus outbreak. .
A $ 2.3 trillion US stimulus package, enacted in late March to provide relief to the US economy that was hit by the pandemic, subsequently garnered $ 17 billion in aid to Boeing and other companies critical to national security.
Boeing had lobbied extensively for aid and had borrowed at least $ 60 billion in government loans for the entire aerospace manufacturing sector. “We cannot allow anything to happen to Boeing,” United States President Donald Trump said last month, in one of many cases in which he voiced support for the company.
Several bond investors in interviews with Reuters cited support from the US government. USA Boeing, as well as Federal Reserve support to credit markets after the pandemic, as reasons for the success of the capital increase.
“Boeing is quite vital for not only the United States economy, but also for national security interests. Also, there is no arguing (with the fact that) the support of the Federal Reserve is what has been the main driver of what is allowing risky assets to increase, “said Mark Heppenstall, chief investment officer at Penn Mutual. Asset Management.
Already burdened with $ 39 billion in debt at the end of March, Boeing started the week looking for cash, to cope not only with the impact of the coronavirus outbreak on air travel, but also with the long grounding of its flagship. 737 Max, following a series of accidents.
Smith and Boeing Chief Executive David Calhoun took what they called a “balanced” approach and reiterated Wednesday that they were exploring a combination of government aid and trade finance.
A potential source of government aid, the $ 17 billion national security-related fund managed by the United States Department of the Treasury, came with significant conditions, including the possibility of the United States government obtaining a stake. at Boeing. That could have led Boeing shareholders to dilute.
So Boeing had a breakthrough. His plan was to measure investor interest for a bond issue of between $ 10 billion and $ 15 billion, according to people familiar with the deliberations. However, bond demand on Thursday peaked at more than $ 70 billion from more than 600 investor accounts, according to sources.
Credit rating agencies told Boeing that it could borrow up to $ 25 billion through a bond issue and almost retain its investment grade rating, according to sources.
This was important for Boeing, to control its borrowing costs and attract more investors to the bond offering, the sources said. Investors who traditionally invest in junk-rated debt, such as hedge funds, also flocked to the Boeing bond issue, because it was priced higher than investment grade deals, according to sources.
Boeing quoted different bond tranches spanning various maturities between 450 basis points and 593 basis points, while the average spread for Boeing’s credit rating bonds is 306 basis points, according to ICE BofA Data.
“Let’s face it, Boeing is not an investment grade company by any imagination,” said Nick Maroutsos, co-director of global bonds at Janus Henderson Investors.
Boeing declined to comment on its internal planning for the capital increase.
But Boeing announced Thursday that, as a result of the strong response to its bond offering, “it did not plan to seek additional financing through the capital markets or the options of the United States government at this time.”
Concessions
Boeing had to make concessions to convince credit rating agencies and bond investors. It agreed to increase interest payments by 25 basis points each time the two major credit rating agencies downgraded their rating by one level, according to the bond issuance prospectus. It limited these concessions to 100 basis points per credit rating agency and 200 basis points in total.
Boeing expects the money from the bond issue to meet its financing needs for the year, barring any unexpected events. Before announcing that he would no longer seek government help, he tested his financial assumptions and considered numerous scenarios to ensure he is liquid for the rest of the year, according to sources.
Boeing has also had to take several cost-cutting measures, including announcing plans to cut around 16,000 jobs this year, about 10% of its workforce, through early retirement and possible layoffs.
On Friday, Smith told Boeing employees in a message that he wanted “to thank management for the actions they have taken to support our economy and credit markets.”
Reports by Kate Duguid and Joshua Franklin in New York and David Shepardson in Washington, D.C .; Additional reporting by Rebecca Spalding in New York; Editing by Greg Roumeliotis and Cynthia Osterman
