(Bloomberg) -- Boeing Co. took a step toward raising as much as $25 billion, funds that would give the troubled planemaker the financial resources to withstand a paralyzing strike and work its way through a series of operational setbacks.
The company filed with regulators on Tuesday to sell any combination of bonds and shares, known as a shelf registration. Boeing is looking to shore up its balance sheet and boost access to cash, as it tries to avoid getting cut to junk status by bond graders and facing much higher borrowing costs.
“This universal shelf registration provides flexibility for the company to seek a variety of capital options as needed to support the company’s balance sheet over a three year period,” Boeing said in a statement.
The company said that it has a separate new credit agreement in place for $10 billion, giving it “additional short term access to liquidity as we navigate through a challenging environment.”
The added firepower will help Boeing improve its bargaining position with striking workers, who have halted production at key Seattle-area facilities for weeks. Union members are seeking higher wages and a reinstatement of pensions, and talks broke down last week again as both sides dug in on their demands.
The company is also working through quality issues on its top-selling 737 Max jets, under the supervision of regulators who have capped production. The long-delayed 777X program was pushed back further last week as well, to 2026.
Bloomberg reported this month that Boeing was considering a capital increase of at least $10 billion, citing people familiar with the discussions. Should Boeing proceed, a sale of that magnitude would stand to be the biggest by a public company since Saudi Arabian Oil Co.’s $12.3 billion sale in June.
“The strike is still going on with no end in sight, so it could definitely be downgraded,” said CreditSights analyst Matt Woodruff said of Boeing’s credit rating. “This buys them a little bit of time.”
Boeing shares rose less than 1% at 10:48 am in New York, as investors weighed the impact of potential dilution along with a stronger balance sheet. The stock has lost 43% in value this year, the second-worst performance among the members of the Dow Jones Industrial Average.
Credit Facility
The company has 120 days to draw on the new credit, and any outstanding loans mature within 364 days of the agreement, according to a filing. Boeing hasn’t drawn on the new facility or its existing revolving line, it said. If the planemaker were to tap the new facility, and then raise capital publicly or sell assets, it has to pay back the credit facility immediately.
The shelf registration gives Boeing a number of options for raising money, including selling any combination of common shares, preferred shares, senior bonds and subordinated bonds, among other instruments.
The manufacturer is working to stave off potential ratings downgrades from Moody’s Ratings and S&P Global Ratings, which have both said within the last five weeks that they might cut Boeing’s credit grades to junk status, steps that would boost the company’s interest costs in short order and make Boeing a less attractive investment for some funds.
Boeing revealed late last week that it has only a small buffer on top of the $10 billion of cash and short-term securities that it needs to avoid slipping to junk status. The strike by members of a machinist union in the Pacific Northwest, a crucial hub of Boeing aircraft production, is costing the company more than $1 billion a month even after cost-saving moves, according to an estimate from S&P last week.
The strike is just one of a series of mishaps for a company that has been suffering all year. In January, a freak accident blew a door-size hole into the fuselage of an airborne 737 Max, forcing the company to slow production to fix problems with its manufacturing process. The stock is heading for its worst annual performance since the 2008 financial crisis, and Boeing said last week that it plans to cut 10% of its workforce, equivalent to about 17,000 people.
Rating Review
While Boeing finds itself in a protracted crisis, the company still has longer-term prospects. It has a backlog of 5,490 aircraft, representing about half a trillion dollars worth of revenue. That may give investors confidence that cash will flow again once the company gets production back in shape.
And airlines and leasing firms have few alternatives if they want to buy large commercial jetliners: Boeing is part of a global duopoly with Airbus SE.
Obtaining the loan shows that banks are still willing to lend to Boeing. But if the company were to draw on the loan, it would add debt to its balance sheet, which it’s trying to avoid.
There is some precedent for Boeing’s new credit agreement. In early 2020, during the early part of the pandemic, the company entered into a $13 billion credit agreement, in the form of a delayed-draw term loan that allowed the planemaker to borrow the money when it needed it. That was later boosted to $13.825 billion.
Just weeks later, in March 2020, Boeing drew down the full term loan, helping to kick off a global dash for cash as companies tapped banks for emergency funding to tide them over during the pandemic. In February 2021, it sold nearly $10 billion of bonds to help refinance the loan.
Boeing has said that avoiding junk status is a key ambition. If the company were downgraded by Moody’s and S&P, it would be the biggest US corporate borrower to ever be stripped of its investment-grade ratings and join junk bond indexes, according to strategists at JPMorgan Chase & Co., flooding the high-yield market with a record volume of new debt to absorb.
Downgrades to junk from two of Boeing’s three major credit graders would leave much of its roughly $52 billion of outstanding long-term debt ineligible for inclusion in investment-grade indexes.
Earnings Report
Boeing is due to report earnings on Oct. 23, the first time that new Chief Executive Officer Kelly Ortberg presides over the release. Boeing will record $5 billion in combined charges for its two largest businesses when it formally reports the numbers, the company said Friday evening in a surprise announcement.
Besides the defense and space charges, Boeing will book additional costs for pushing back its 777X model once more, leaving its largest widebody aircraft with a delay of about six years.
BofA Securities Inc., Citibank, Goldman Sachs Lending Partners and JPMorgan Chase Bank acted as joint lead arrangers and joint book managers on the short-term credit agreement. Citibank is administrative agent and BofA, Goldman and JPMorgan were co-syndication agents.
--With assistance from Paula Seligson.
(Updates with analyst comment, share reaction.)
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