Boeing raises $25 billion in blowout debt sale

(Reuters) – Boeing Co (BA.N) raised $25 billion in a bond offering on Thursday, a blowout result for the planemaker, which is shoring up its finances during the coronavirus-induced travel downturn.

FILE PHOTO: A Boeing logo is seen at the company’s facility in Everett after it was announced that their 777X model will make its first test flight later in the week in Everett, Washington, U.S. January 21, 2020. REUTERS/Lindsey Wasson

Boeing’s capital raise, first reported by Reuters earlier this week, is the sixth-largest investment-grade bond offering of all time and the biggest year-to-date, according to Refinitiv data. The Federal Reserve’s intervention in the credit market has boosted prospects for troubled borrowers such as Boeing.

The U.S. central bank has slashed interest rates to zero and rolled out around $2 trillion in lending commitments. While it has not yet snapped up any corporate bonds such as Boeing’s, its openness to doing so has buoyed credit markets.

The planemaker has been trying to bring its 737 MAX jet back into service after two fatal crashes, while the coronavirus pandemic has hammered aviation and other industries. Business shutdowns around the world to curb the outbreak have dried up demand for air travel.

Earlier this week, Boeing was hoping to raise between $10 billion and $15 billion in the bond offering, but increased the size of the deal due to the strong investor demand, according to people familiar with the matter.

Boeing Chief Financial Officer Greg Smith declined to say during a conference call on Wednesday how much liquidity the company needed or would seek from private debt markets versus government aid programs.

“We’ve got good options out there to help for the near term liquidity and give us appropriate cash,” Smith said.

Credit ratings agency Moody’s Investors Service Inc estimated this month that Boeing’s funding needs could top $30 billion in 2020. The company secured about half of this by drawing down on a $13.8 billion credit line in March, Moody’s said.

Boeing sold seven new bonds with maturities ranging from 2023 to 2060. The new funds came at a higher price for Boeing than prior bond offerings, a sign of the company’s precarious financial situation.

Among the debt sold was a 10-year bond with a 5.15% yield and a 450 basis point premium to U.S. Treasuries of a comparable duration, according to Refinitiv IFR data. By comparison, Boeing sold a 10.5-year bond in July with a 2.96% yield and at a 90 basis point premium to U.S. Treasuries.

Given the higher yields on offer, there was around $75 billion’s worth of demand for the new bonds, one source said

Boeing declined to comment.

S&P on Wednesday lowered its credit rating for Boeing to BBB-minus, one step above junk.

To placate investors over the risk of a potential downgrade to junk status in the future, the bonds contained a provision that raises the coupon paid to bondholders if Boeing loses its investment-grade status.

Boeing said this week it would cut its 160,000-person workforce by about 10%, further reduce 787 Dreamliner production and try to boost liquidity as it prepares for a years-long industry recovery from the pandemic, which drove its second consecutive quarterly loss.

The Chicago-based company also canceled a $4.2 billion deal for Embraer SA’s commercial aviation division last week, prompting the Brazilian company to initiate arbitration.

The 737 MAX jet is expected to remain grounded at least until August due to software issues, people briefed on the matter told Reuters on Tuesday.

Boeing shares closed up 1.5% on Thursday at $141.02.

Reporting by Joshua Franklin in New York and David Shepardson in Washington; Editing by David Gregorio and Leslie Adler

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