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Less than two months ago, Boeing Co. went to Washington, hat in hand, asking for a $ 60 billion bailout for itself and its suppliers. The company, which had spent heavily on share buybacks and was still recovering from the 737 Max disaster, was an unlikely candidate for government support.
However, in urging the Federal Reserve to take unprecedented steps to boost credit markets, the Trump administration ended up helping the aircraft maker more than any other government document could.
The Fed’s decision to use its nearly unlimited balance sheet to buy corporate bonds eased liquidity so much that it changed the company’s situation, according to people with knowledge of the matter who asked not to be identified because they were not authorized to speak in public.
Ultimately, it allowed Boeing to raise $ 25 billion from private investors and withdraw its bailout request from the government, avoiding the restrictions that would certainly have been imposed.
Boeing’s decision underscores the extent to which Fed policies rebuilt confidence in credit markets despite the fact that the central bank has not yet spent a single dollar on its corporate debt program.
“Many companies that would have had to come to the Fed have now been able to finance privately since we announced the initial term sheet for these facilities,” Fed President Jerome Powell said during a press conference on April 29 , before the sale of Boeing bonds. . “There is a huge amount of financing going on, and that’s a good thing.”
Two options
Just weeks before, Boeing’s search for bailout financing had gotten off to a bad start. Nikki Haley, a former ambassador for President Donald Trump to the United Nations, resigned from the company’s board of directors in protest. Other critics were quick to argue that the government could better spend its funds.
Company executives were not discouraged.
They considered two main avenues to raise the billions of dollars in cash they would need to withstand the crushing business loss from the coronavirus pandemic.
The company would turn to the capital markets to start building a cash reserve and then turn to available financing from the Federal Reserve or obtain a loan from the Treasury Department through the CARES Act, the people said.
The main turning point came when Congress and the Trump administration established more than $ 2 trillion in stimuli in late March. That financing calmed markets by allowing the Fed to inject even more liquidity into the economy through various lines of credit that the Treasury stopped.
An agreement to shore up U.S. airlines, Boeing’s key customers, was also crucial. Governments around the world have pledged about $ 100 billion to keep airlines afloat, ensuring that there will be buyers of Boeing planes when the outbreak subsides.
Since then, a new recovery in the credit markets convinced the company and its bankers that they could move quickly after the quarterly earnings release on April 29.
Boeing entered Thursday hoping to raise between $ 10 billion and $ 15 billion by selling bonds with maturities that span up to 40 years, the people said. As the demand for the offering peaked at more than $ 70 billion, company officials realized that they did not need to search for more funds and set the final size of the offer at $ 25 billion, making it the largest corporate bond sale of the year in the US USA .
Constant contact
A Boeing representative referred Bloomberg to Chief Financial Officer Greg Smith’s comments to employees this week in what he called the bond sale “a testament to the confidence the market has in our business, our people and our future.” The company declined to comment further.
Boeing was never in immediate danger, and had $ 15.5 billion in cash at the end of March after it completely withdrew a new term loan, a move that ushered in a global cash race for companies affected by the virus.
But executives and Treasury Secretary Steven Mnuchin were deeply concerned about the long-term damage to the company and airlines when markets began to stop in mid-March.
Mnuchin and his staff have been in almost constant contact for the past month with Boeing officials, particularly Smith, as they collectively sought to find a way out of the crisis, one of the known people said. Talks are ongoing and Boeing is now concerned with propping up critical suppliers that are under severe financial difficulties.
A Treasury Department spokesman did not immediately respond to a request for comment.
The bond market showed confidence in the long-term outlook for the aviation industry on Thursday. But although Boeing now has a war chest of nearly $ 50 billion to survive for years to come, the company will still have to take painful steps. That includes cutting 16,000 jobs to accommodate a smaller commercial jet market, one of the people said.
Boeing has not closed the door to seeking federal aid in the future, especially given the risk that the pandemic could paralyze travel and economies again later this year. In fact, the company cleverly drafted its statement to leave that option open, saying it had raised the funds it needs “at this time.”
With the assistance of Paula Seligson, Craig Torres, Matthew Boesler and Saleha Mohsin.
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