Boeing flies through with oversubscribed bond deals, liquidity runway extended until 2021

Boeing’s new debt offering has received an oversubscribed market reception, which bodes well for the plane maker’s ability to clear enough balance sheet runway so that an operational rightsizing effort can get off the ground this year, noted seven market sources tracking the deal. Moreover, the added shot of liquidity from the forthcoming bond deal should help the company withstand near-term cash burn pressures brought on by the COVID-19 pandemic, the sources added.

Led by Citi, the Baa2/BBB- rated company is in market with an IG-style bond package consisting of seven tranches, with maturities from 2023 to 2060. Initial whispers ranged from 500bps to 550bps above treasuries for an expected aggregate size of USD 10bn. The company tightened guidance to 425bps to 462.5bps for a total size of USD 25bn.

As of this afternoon, books were massively oversubscribed with roughly USD 65bn to USD 70bn of orders from investors, the sources said.

Proceeds from the package will fund general corporate purposes, including repaying debt and adding cash to the balance sheet. As a part of the deal, for every notch Moody’s and S&P downgrade the notes, investors will receive 25bps per agency, capped at 100bps per agency and 200bps total.

As of 31 December, the company generated negative USD 350m of adjusted EBITDA, according to a Debtwire 1Q20 research report. The new deal as constructed would increase consolidated debt to roughly USD 65bn from USD 40bn at 1Q20.

A new lifeline

The new USD 25bn deal is expected to alleviate Boeing’s near-term liquidity needs, the sources said. Before the deal, the company needed roughly USD 10bn – USD 15bn in liquidity to fund operations until the end of the year, three of the sources added.

The sources estimated that the company is burning USD 5bn – USD 6bn in cash per quarter, along with USD 1bn to compensate for the 737 Max grounding earlier this year. To that point, the roughly USD 17bn earmarked for national security purposes in the CARES Act could go to Boeing exclusively, as many US defense operators do not need the assistance, the sources said. Such an influx would be a boon to efforts by company advisors Evercore and Lazard who were brought in earlier this month to weigh fundraising options, including government aid.

But in exchange for government cash, the company may have to hand over an equity stake to the feds, which CEO David Calhoun is likely resistant to do, according to reports. However, if the lockdown and reduced travel situation continue until September, Boeing may be left with no other choice but to rely on Uncle Sam, sources added.

Citi declined to comment. Boeing did not respond to a request for comment.

2020 Debtwire

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