(Bloomberg) -- Should Boeing Co. decide to raise equity, it would help the company fend off a ratings downgrade for at least a couple of months, analysts and market participants said.
The possibility of the airplane maker launching a share sale soon has been floated by those who watch the company’s finances closely. Doing so would boost Boeing’s liquidity while it manages a cash drain that amounted to $8 billion in the first half as it worked through manufacturing issues now exacerbated by a worker strike.
Raising equity funds somewhere in the “high-single-digit billions” could lift crucial ratios for Boeing that ratings agencies are watching closely, such as free cash flow-to-debt and overall leverage, according to Bloomberg Intelligence analyst Matthew Geudtner.
“Raters may have left open a way for management to make good on proclamations that it’s ‘going to do what it takes to protect that rating, period,’” Geudtner wrote in a note on Tuesday, citing comments from Boeing Chief Financial Officer Brian West earlier in the year.
If Boeing proceeds with a raise in the upper single-digit billions, it would be the biggest share sale by an already-public company since Saudi Arabian Oil Co.’s $12.4 billion share sale in June. Other analysts including Wells Fargo & Co.’s Matthew Akers have also recently said that an offering of additional shares is likely.
Boeing’s credit rating is under threat due to a number of factors, including its need to raise production and deliveries by year-end, said Geudtner. A union strike is making those goals even more difficult to reach. The three major ratings agencies have all warned that if the company cannot resolve the labor issues soon, it may face downgrades.
S&P Global Ratings on Monday said it could lower Boeing’s credit rating below investment grade should the planemaker suffer an extended strike, echoing similar comments made last week by Fitch Ratings and Moody’s Ratings. The latter placed the planemaker on review for downgrade on Friday.
Boeing is rated Baa3 from Moody’s and BBB- from S&P and Fitch, each of which is just within the boundaries of investment grade. It has about $58 billion of debt that would fall to the junk market if two of the three rating firms lowered its score. The company has $4 billion of debt coming due in 2025 and also $8 billion coming due in 2026, according to Moody’s.
Raising equity would help Boeing maintain its ratings for now, but more fundamental issues in its business would need more work to resolve, credit analysts said. That is especially true if it wants to meet its goal of $10 billion in cash flow by 2026-2027.
A new share sale wouldn’t be the first time Boeing has issued equity in the hopes of maintaining its credit rating.
In June, Boeing agreed to buy back Spirit AeroSystems Holdings Inc. for $37.25 a share in an all-stock deal that valued the supplier at $4.7 billion. That was a switch from its original all-cash offer, likely another effort to preserve cash and stave off ratings downgrades, according to credit analysts.
Boeing CFO West tried to reassure investors and analysts at a conference on Friday that the company would do what it takes to preserve its status in credit markets.
“There’s no magic here — we just have to execute,” West said. “I still feel good about the long-term outlook, but I acknowledge we have quite a bit of work to do between here and there.”
--With assistance from Benedikt Kammel.
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