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Boeing Chief Executive David Calhoun said Monday that the embattled 737 Max maker would again turn to capital markets to raise the necessary cash within the next six months. In the end, it took only four days to do it.
The aerospace and defense group was finalizing a $ 25 billion bond offer Thursday to help resist a cash leak of up to $ 20 billion this year, according to people briefed on the matter.
The offer will add to the company’s nearly $ 39 billion debt at the end of March.
The debt issue comes after Boeing reported a net loss of $ 641 million in the first quarter and said it would cut 10 percent of its workforce and cut production on most of its commercial aircraft.
Boeing is struggling not only with the long grounding of its 737 Max, but also with a sharp drop in demand as airlines park planes as they wait for cautious pandemic travelers to return to the skies. The manufacturer’s revenue fell 26 percent, and the company took on charges totaling $ 2.3 billion.
Boeing had already moved to back its balance sheet this year by borrowing more than $ 13 billion from Wall Street lenders, including JPMorgan Chase and Citigroup. It is also seeking funding from American taxpayers, and the $ 2 billion Care Act passed by Congress last month includes $ 17 billion for companies deemed critical to national defense.
The new bond offering is spread over seven maturities, ranging from three to 40 years, and the 10-year debt is expected to yield approximately 5.11 percent, according to people familiar with the investors’ discussions. Strong investor demand allowed the company to increase the size of its loans, which were initially marketed to investors above $ 10 billion, and reduce the interest costs that Boeing will eventually have to pay.
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The company has also agreed to compensate investors if it goes down the drain, according to a prospectus filed with US securities regulators. S&P Global analysts downgraded Boeing to triple B minus, the lowest rating in investment-grade territory, on Wednesday, warning that the company’s “earnings and cash flow will now be much weaker than we expected during at least the next two years. ” “
The disputed yields on the new bonds may still change as bankers leading the offering at Bank of America, Citigroup, JPMorgan and Wells Fargo finalize the deal. Last year, Boeing issued 10-year debt with a yield of 2.96 percent, underscoring how dramatically its borrowing costs have increased.
David Dohnalek, Boeing’s senior vice president, told potential investors in the bond offering on Thursday that the company believed “the additional liquidity of this financing and other potential sources of unsecured liquidity, including those that may be available in programs sponsored by the government, as a Federal Reserve facility, provides us with sufficient cushioning to manage our business for the foreseeable future. ”
Higher production rates are the key to higher profits in the aerospace industry, and Calhoun said Wednesday that when Boeing stabilizes production, “we will be in good shape to begin that process of returning money to our lenders.”
“Now at what rate we pay it is the real question,” he said.
