Boeing hones $15 billion financing plan to weather crises, sources say

Boeing plans to raise $15 billion via stock and hybrid bonds -sources
Also considering structured finance transaction to raise $5 billion – source
Company faces regulatory scrutiny, production curbs and customer confidence loss
Planemaker’s investment grade rating is in peril

Oct 16 (Reuters) – Boeing (BA.N), opens new tab is closing in on a plan to raise around $15 billion with common shares and a mandatory convertible bond as the jetmaker bolsters finances worsened by a crippling strike, but the timing remains unclear, four sources familiar with the matter told Reuters.

The company said on Tuesday in regulatory filings that it could raise as much as $25 billion in stock and debt with its investment-grade credit rating at risk. One of the sources cautioned that a $15 billion sale may not be enough for Boeing to address its ongoing crises.

Boeing is also considering a structured finance transaction to raise up to $5 billion that could resemble the securitization of a portion of a subsidiary’s revenue, according to a separate source familiar with its financing plans. Boeing did not respond immediately to a request for comment on the securitization plan, which had not been reported previously.

The aerospace giant has been dealing with increased regulatory scrutiny, production curbs and a loss of confidence from customers since a door panel blew off a 737 MAX plane in midair in early January. Shares gained 1% on Wednesday, but are down more than 40% this year.

Boeing has been burning through cash all year, leading to its Tuesday announcements that it will raise money in the capital markets and that it had also secured a $10 billion credit agreement with major lenders: Bank of America (BAC.N), opens new tab, Citibank (C.N), opens new tab, Goldman Sachs (GS.N), opens new tab and JPMorgan (JPM.N), opens new tab.

Four investor and banking sources said representatives from those lenders were inquiring about appetite for a combined offering of new shares and a mandatory convertible bond – a hybrid bond that could convert into equity on or before a predetermined date.

Roughly $10 billion in new shares are being contemplated to be sold by the company along with nearly $5 billion in mandatory convertible bonds, the sources said.

One of the four sources said the deal was scheduled to be priced shortly after Boeing’s Oct. 23 third-quarter earnings report. But another investor source said the company was trying to avoid a raising during the month-old strike that analysts estimate is costing tens of millions of dollars per day.

“The timing of any equity raise is still unclear but market consensus is that it should be done after the labor strike is resolved and earnings provide some visibility of its impact on current and future cash flows,” said Michael Barr, senior research analyst at Neuberger Berman.

While Boeing burned less free cash than expected during the third quarter, the planemaker may have no choice but to act before the end of the strike to protect its investment grade rating, two of the sources said.

Boeing shares have rallied since its funding announcement, suggesting some investors think the trough has been reached.

One investor source said a three-year mandatory convertible bond paying 7% to 8% in annual coupon that could convert into shares at a premium of 20% over the current share price could attract strong demand.

The funding is expected to soften the blow for existing shareholders whose equity ownership could decline when a company issues new shares.

A mandatory convertible option was being pursued because such hybrid bonds can be treated as equity capital by rating agencies, which means issuing them would not add to debt to the same extent as selling bonds. They are friendlier to existing shareholders, as stock conversion is a couple of years away and at a premium.

Raising equity capital is the only funding option for debt-laden Boeing which is intent on protecting its investment grade ratings.

The top three rating agencies – S&P, Moody’s and Fitch – have warned they will cut Boeing’s ratings to junk if it raised new debt without retiring some $11 billion of debt maturing through Feb. 1, 2026.

Reporting by Shankar Ramakrishnan and Echo Wang in New York, Tim Hepher in Paris, Allison Lampert in Montreal and Mike Stone in Washington; Editing by David Gaffen, Matthew Lewis, Rod Nickel, Jamie Freed and Stephen Coates

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Shankar Ramakrishnan has nearly 30 years of financial journalism experience in writing, editing managing and building teams across Asia and the U.S. He is responsible for coverage of investment-banking products in his current role that includes global stories on investment-grade, high-yield, structured finance, structured equity and derivatives. He joined Reuters from Informa Global Markets where he was a senior bonds editor. Before Informa, he worked for International Financing Review for 18 years in Singapore, Hong Kong and New York with his last position being Global News Editor. He is an author of two books on Indian capital markets that were published by IFR Intelligence. He has also worked in Bridge News in India and Singapore, and several Indian newspapers.

Echo Wang is a correspondent at Reuters covering U.S. equity capital markets, and the intersection of Chinese business in the U.S, breaking news from U.S. crackdown on TikTok and Grindr, to restrictions Chinese companies face in listing in New York. She was the Reuters’ Reporter of the Year in 2020.

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