Boeing (BA, Financial) is reportedly considering raising billions through stock and similar securities issuance to prevent its credit rating from being downgraded to junk status. The company has received financing proposals from investment banks like Goldman Sachs, JPMorgan Chase, Bank of America, and Citigroup, suggesting various options like common stocks, mandatory convertible bonds, and preferred stocks.
According to sources, the proposed funding could be around $10 billion. These hybrid bonds can be viewed as equity by rating agencies, thus not increasing liabilities like traditional bonds and having a milder impact on existing shareholders.
Banks have started building "shadow books" to gauge investor interest in these securities. Some investors have shown willingness to subscribe if Boeing issues preferred stocks. However, Boeing has not yet decided on these financing options, with no clear timeline for a decision.
Boeing's CFO, Brian West, mentioned at a recent Morgan Stanley conference that the company is assessing its capital structure and liquidity to ensure debt repayment and maintain its investment-grade credit rating for the next 18 months. Maintaining an investment-grade rating is crucial for Boeing not only to manage capital costs but also to secure institutional investors’ funding.
The financial strain on Boeing is due to several adverse events, including a 737 MAX incident and recent worker strikes, leading to production delays and cash flow issues. As of the first half of 2024, Boeing has suffered over $7 billion in operating cash flow losses and has about $60 billion in total debt.
Analysts predict Boeing needs to raise between $10 billion and $15 billion to avoid a downgrade. Moody's has warned of a potential downgrade if equity financing doesn't meet debt repayment needs. Boeing faces $16 billion in maturing debt, with $11.5 billion due by 2026, and has committed $4.7 billion to acquire Spirit AeroSystems, assuming its debt as well.
Moody's has placed Boeing's Baa3 rating under review for a potential downgrade. Creditsights analyst Matt Woodruff estimates Boeing needs to raise $12 billion to $15 billion to prevent a rating cut, especially if the strikes continue through October.
Despite considering various financing methods, it remains uncertain if options other than common stock will satisfy credit agencies. S&P Global Ratings' aerospace director, Ben Tsocanos, stated that from a credit perspective, issuing common stock is the best choice, as preferred stock is structurally closer to debt and offers less support for ratings.
S&P Global Ratings has placed Boeing on negative credit watch, indicating that the company may require additional financing to address its current financial pressures.
