(Bloomberg) -- Boeing Co. raised $21.1 billion in an expanded share sale, one of the largest ever by a public company, shoring up its balance sheet as it seeks to stave off a potential credit rating downgrade to junk.
The US planemaker sold 112.5 million common shares for $143 each, according to a statement. The stock was priced at a discount of about 7.7% to the Friday closing price of $155.01 apiece. Boeing also sold $5 billion of depositary shares representing a stake in mandatory convertible preferred stock.
The $16.1 billion common share sale is the biggest in an already-listed company since the US Treasury sold $20.7 billion of American International Group Inc. shares in 2012, as it unwound the insurer’s bailout during the financial crisis, data compiled by Bloomberg show.
Boeing’s stock reversed early losses to rise 1.5% in New York on Tuesday. It’s plunged more than 40% this year, the second worst performance in the Dow Jones Industrial Average.
The infusion of funds clears one of new Chief Executive Officer Kelly Ortberg’s most urgent tasks amid a period of financial turmoil for the planemaker. Boeing’s balance sheet was already strained by the pandemic, and before that two fatal jet crashes involving its workhorse 737 Max model. Now there’s a labor strike, in its seventh week, that’s crippling manufacturing of the jetliner.
Boeing needed the capital infusion to maintain its investment-grade rating and fund its jet production ramp-up once the walkout ends.
The mandatory convertible stock offers a dividend of 6%, and is set to convert into equity no later than 2027, the statement shows. It has a conversion premium of about 20%, according to Bloomberg calculations.
The underwriters have the option to sell an additional 16.9 million common shares and $750 million in depositary shares, the statement shows.
The capital raise takes Boeing’s share count back to where it was before the company spent $43 billion on share buybacks from 2013 to 2019, Vertical Research Partners analyst Robert Stallard said in a note Tuesday.
Cash Burn
Boeing is on track to use around $4 billion in cash during the fourth quarter, which would bring its cash outflows to roughly $14 billion for the year. The planemaker expects to continue burning cash through the first half of next year as it restarts its factories, including the 737 Max assembly lines.
Boeing factory workers voted last week to reject the company’s latest contract offer, which included a wage increase of 35% spread over four years. The company plans to cut its workforce by about 10%, Ortberg said in a memo to employees Oct. 11.
Separate from Monday’s capital raise, Boeing also has a new credit agreement in place for $10 billion, giving it “additional short-term access to liquidity as we navigate through a challenging environment.”
Boeing’s revised net debt now stands at about $28 billion, with plenty of near term liquidity to ride out the strike and other issues, Stallard said.
“While Boeing’s huge equity raise alleviates the risk of the company’s debt being downgraded to junk status, the ‘to do’ list to fix Boeing remains long and challenging,” he said.
That includes wrapping up a deal for Spirit AeroSystems Holdings Inc., its biggest supplier, which it agreed in July to buy back in an all-stock transaction valuing the target at $4.7 billion.
Boeing’s equity raise “increases its ability to support Spirit until it can pare its inventory bloat and increase production,” TD Cowen analysts led by Cai Von Rumohr said in a note Tuesday.
If all the convertible and overallotment options are exercised, Boeing would come close to exhausting the $25 billion shelf registration it filed on Oct. 15.
The amount should be sufficient funding to see the company through a long recovery in its factories, and the $12 billion in debt that’s maturing in 2025 and 2026, said Nick Cunningham, an analyst at Agency Partners.
“This should cover that and keep them in the bracket of $10 billion in cash on hand that they need to run the business,” Cunningham said in an interview. “But it doesn’t fix the company’s problems. It’s a necessary precursor to fixing problems.”
Streamline the Portfolio
Ortberg is considering options to streamline Boeing’s broad portfolio. He has launched a review of its businesses that the CEO expects to conclude by year-end. The company is weighing options for the future of its troubled Starliner space capsule program as part of the review, Bloomberg News has reported.
Billionaire Elon Musk, whose SpaceX has become a powerful force in the industry and a rival to Boeing’s own space business, offered praise for Ortberg on Tuesday.
“The new Boeing CEO spends time in the factory and understands engineering, which are big improvements,” Musk wrote on X. “Hopefully, he turns around a once great company.”
Goldman Sachs Group Inc., Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. led the capital raise, while Wells Fargo & Co., BNP Paribas SA, Deutsche Bank AG, Mizuho Financial Group Inc., Morgan Stanley, Royal Bank of Canada and SMBC Nikko also worked on the deal, the statement shows. PJT Partners Inc. acted as Boeing’s financial adviser for the offerings.
--With assistance from Crystal Tse, Danny Lee, Toby Alder and Dave Sebastian.
(Updates with trading in fourth paragraph, analyst quotes from ninth paragraph and Musk X post in 16th paragraph.)
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